Healius Limited (HLS.AX) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to our 2025 Results Presentation. With me today, I have our Chief Financial Officer, Steve Humphries, who you will hear from him later in the presentation. We are pleased to announce our full-year results today and provide you with additional financial information and commentary on the performance of the business this last year, our progress in relation to our T27 plans we presented back in March this year and importantly, our outlook for the year ahead. This time last year, we set out our pathology strategy. And in March of this year, we held an Investor Day with our management team to set out specific plans on how we would deliver on this strategy. We have now completed the sale of Lumus Imaging, repaid our debt and are cash positive as at June '25, paid a special dividend to our shareholders of $0.413 per share and are now focused firmly on growing our Pathology business as we set out at the Investor Day. Our presentation today includes a dedicated section at Slide 8 on the progress we have made so far on our T27 plans, and we will continue to report this scorecard to you each results period in the same format. In terms of our group results, group revenues grew by 5.7% to $1.34 billion, and Pathology revenues grew by 6% to $1.3 billion. Agilex revenues were $38.2 million, a slight decrease on the $39.5 million last year. Underlying EBIT from continuing operations was $17.1 million and in line with consensus. The reported EBIT margin for the year was 2.2% for Pathology, although this grew to 4.1% in the second half of the year after taking into account the disruption of Tropical Cyclone Alfred in March. Our laboratories and collection centers were closed in Queensland and Northern New South Wales in March this year for several days due to safety concerns for our team. The impact of this was approximately $3.5 million of EBIT. There are non-underlying items in these results, including a non-cash impairment charge. These are set out in detail on Slide 19 for you. And we finished the year with a net positive cash position with $57.2 million. Now, turning to the Pathology business. Revenues grew by 6% for the year, off the back of 3.3% growth in volumes. Across the year, volumes grew by 3.3%, and this was split 5.1% in the first half and 1.6% in the second half. Volumes had softened in the second half of the year, growing by only 1.6%, but pleasingly, revenues grew by 5.1% due to the changing mix in our revenues. Our Genomic Diagnostics revenues grew by 34.7% in FY '25 and specialist growth in Q4 of the year, along with clinical trials and other B2B revenues helped increase our average fee and overall revenue performance. Focus remains on growing the specialist segment and high-value referrals targeting both genomics and hematology. EBIT for the year was $28.2 million, although this was impacted by Tropical Cyclone Alfred, as we discussed on the previous slide. We have made significant progress on the customer service front this year. Medway Collections Portal 2.0 was rolled out nationwide last month on the 28th of July. Our call center response times have significantly reduced, building on the improvements we made in the first half of this year. Our network availability has improved, with unplanned closures being actively managed, and we now have an online booking system for patients, which is now live across all of our collection centers. These are major improvements -- these changes are major improvements to both our customer proposition and workflow improvements right across our business. Labor costs are a significant part of our cost base. And as we have said previously, this is a key focus that we are actively addressing. In the second half of FY '25, we developed a detailed labor optimization and productivity plan for both collection centers and our laboratories. This plan includes optimizing opening hours and the footprint of those collection centers, demand and volume-based rostering, flexible workforce planning and regional laboratory optimization. These plans are now in various stages of implementation across the business and showing immediate benefits, the results of which are expected to occur across the FY 2026 year. We are forecasting that total labor costs with these plans in place across the business will be broadly flat in FY '26. The next 3 slides set out our pathology strategy and our progress to date. Slide 6 recaps the strategy. Now, we are a much simpler and more streamlined pathology company. As previously communicated, this strategy is now fully embedded right across our business. The internal execution plan to deliver on this strategy is being used as part of our FY '26 budget. We are focused on providing better services for our patients and referrers through a model of continuous improvement using digital technology, our people and ways of working. Slide 7 is a recap of our strategic plan across the 2 years to June 2027 as we set out at the Investor Day. There are 9 major components across the main pillars, and these are set out in the dark blue. The 9 components set out on this page represent the major pieces of work being undertaken across the business, all of which are underpinned by technology enablers and our people. Specific details are contained on the next page. Now, Slide 8 is quite busy. We've set out on this page the progress that we have made in each of these areas. I won't go through them all, but I will talk to some of them. A big thing for us over the past month has been the rollout of our Medway Collections Portal. This was rolled out on the 28th of July across all of our collection centers. Medway Collections Portal 2.0, what does this do? So it allows us to process our referrers digitally. It provides guidance on billing and collection protocols that uses AI that is specific to our processes. It leverages the investment that we've made in Square Terminals. It standardizes our collection protocols. And we have issued as part of this, 100,000 patient cards, half of them in digital format for digital wallets on your phone and half of them being physical cards. So, they have a barcode. So the next time the patient comes in, their details are all ready to scan. As I said before, we've also rolled out appointment booking across all of our collection centers 2 weeks ago. This allows us to enable bookings collection center by collection center. We've grown our referrer base by 2,000 across the past 12 months. And importantly, we have revised our pricing right across our business for our non-rebatable items. This does 2 things. It unifies pricing across each of our states, and it brings us into line with market pricing within the industry. And those revenues are now flowing through to our top line. We've talked about our collection labor planning. And in the fourth quarter of this year, we have improved our GP and specialist mix. Our average fee is up 2.3% on last year, and as I said before, is a major focus. Our contact center response times have also improved significantly, with July being 11.1% better than it was for the second half of 2025. In terms of progress in our lab modernization program, we now have NATA approval for digital reporting of skins for anatomical pathology. We have invested in scanners, and we have doubled our capacity to be able to scan. This allows us to improve our turnaround times, and it allows us to move work around the country in a digital manner. We are using Ibex AI deployment as decision support for our anatomical pathology in our prostate cancer diagnosis. Ibex AI is the largest histopathology AI company in the world. We've talked about our operations, labor and our planning. Microbiology automation, our Laverty laboratory here in New South Wales will be fully automated by the end of this calendar year. We have a regional lab optimization program that we talked about before. That design is complete. We have 72 regional labs, of which 65 of those fall into scope for this program. And this is about making them more efficient and ensuring that the work that we are doing in these regional laboratories is efficient. In terms of emerging diagnostics, so genomics, we've already said, was up 34.7% in FY '25. July again, grew by 25.4% on the prior year. We have expanded our oncology testing, inherited diseases and tumor profiling. And we've also had strong growth for the start of this year in our reproductive health testing. In terms of vet pathology, we've consolidated our Victorian lab operations to Heidelberg, which is our main lab and we've also consolidated our courier fleet. Vet revenues were up 5.3% in July, reflecting the improved customer service proposition. Clinical trials, whilst small, continues to grow and is up almost 20% in July based on the average for the second half of last year. We've made some major improvements in terms of the digital platform that we have, which we believe is best in market. In terms of our digital spend, we are reconfirming today that all of that spend will be business as usual from the 1st of January next year, so no more non-underlying costs. We are now integrated into all of the practice management systems in terms of e-referrals. So that is [ Jennie ], Best practice and Medical Director. And clearly, that has major benefits improving the e-referral program. As I said before, with our new patient portal, we have issued 100,000 cards. That portal will be live in the second quarter of this financial year, which will enable patients to be able to log into our portal and access their own results. In terms of AI, we have spent a lot of time working out where that can benefit our organization. We have chosen 3 use cases, which we will endeavor to have live by the 1st of January next year. Two of them, we will talk about in detail at a later date. The third one is rostering, which is clearly a large and very complex process with 2,000 collection centers and over 4,000 collectors that we are rostering each day. We've also reconfirmed that our support -- in terms of our support cost reduction to deliver between $15 million to $20 million that we have delivered $7.3 million of that in FY '25 since the Lumus sale went through, and there's a further $8.5 million planned to execute across FY '26. Turning to Agilex. Agilex Biolabs has had a difficult year due to a range of geopolitical issues. Whilst revenues reduced slightly to $38.2 million for the year, EBIT was $2.7 million, which was a drop of the $5.1 million reported in 2024. So over the course of the year, the business has made some deliberate changes with regard to the cost base and strategically pivoting work to the demand for large molecule studies. These changes are showing positive signs and the outlook has improved for Agilex with Q1 2026 revenues and awarded contract volumes returning to normal levels. With that, I'll hand over to Steve.

Thanks, Paul. Good morning, everyone. As you can see on the slide, group underlying EBIT was $17.1 million, which is in line with consensus for continuing operations. Revenue was $1.34 billion, representing growth of 5.7% compared with the previous financial year. As Paul has already mentioned, revenue and EBIT in March 2025 was significantly affected by Tropical Cyclone Alfred, which caused us to close our Murarrie laboratory in Brisbane and our ACCs in Queensland and Northern New South Wales for up to 5 days. The estimated EBIT impact was $3.5 million. FY '25 earnings reflect the cost of strategic investments, particularly labor in our customer and commercial operations. We recognize that labor costs are too high, and a plan is in place to reduce these costs in FY '26. Agilex was significantly impacted by geopolitical uncertainty in the clinical trial sector, and we are only now starting to see that uncertainty dissipate. Although the business was able to cut costs, this was not enough to offset the full impact of cancellations, delays and descoping of won work in the second half of the year. Non-underlying items reflect the cost of our digital health program, plus restructuring costs as we downsize and simplify the business following the sale of Lumus Imaging. We have also taken a non-cash impairment charge of $495.2 million. In terms of the overall results presentation, accounting standards require that Lumus Imaging results are classified as discontinued operations, and that includes the profit on sale. By the end of FY '25, we had eliminated support costs with annualized savings of $7.3 million and have so far identified a further $8.5 million of annualized savings, which will come out of the business during FY '26. Looking at Pathology, and that's excluding Agilex and Corporate, revenue increased by 6% or $73.5 million to $1.3 billion. First half revenues were up 6.9% and second half revenues 5.1%. Volumes were up 3.3%, comprising 5.1% in the first half and 1.6% in the second half, which was 2.2% adjusting for volumes lost because of the cyclone. Average fee increased by 1.9% compared to FY '24, mainly due to strong growth in genomics, which had revenue growth of 34.7% and specialist volumes, particularly in Q4. As many of you will no doubt have seen from the MBS data, GP attendances were up 2.1% and specialist attendances 2.7% in FY '25. Labor costs were higher than FY '24 due to a deliberate investment in our collector and contact center workforce, the impact of EBAs and the realignment of pathologist remuneration nationally. As Paul has explained, specific plans are in place to optimize labor costs in FY '26. Consumables and total property costs were well controlled and consistent with the prior comparative period as a percentage of revenue. Turning to Agilex. As indicated at the half year and referred to by Paul already, Agilex was significantly affected by geopolitical uncertainty impacting the U.S. and Chinese markets. These factors resulted in a revenue decline of 3.3% to $38.2 million and a decline in EBIT to $2.7 million. We are now starting to see improvements in the pipeline and in won work. If this continues, we expect a significant improvement in Agilex earnings in FY '26. We've included Slide 14 to show corporate unallocated costs in FY '25 compared with FY '24. From 1 July '25, there will be no separate segment or disclosure because these costs are all now part of the Pathology business. The cost rationalization program is well underway with annualized savings of $7.3 million already achieved in FY '25 and a further $8.5 million of annualized savings identified and being actioned in FY '26. These savings are across a spectrum of managed costs, including labor and support functions and non-labor costs, particularly IT, insurance, property and facilities management. Overall target savings are in the range of $15 million to $20 million. We expect the transition services agreement with Lumus Imaging to extend through to the end of FY '26, at the end of which we expect to have eliminated all separation costs. Slide 15 is a bridge of Healius cash flows from 1 July '24 to 30th of June 2025. It shows the impact of cash from operations, lease payments, capital expenditure, bank financing costs, dividends and the proceeds from the sale of Lumus Imaging. This information is set out in further detail in the 4E financial statements. As required by accounting standards, the slide on the screen includes the cash flows of Lumus Imaging to the date of divestment. To assist in an understanding of Healius cash flows, excluding Lumus, we have also presented this information in an alternative format in the appendix. The sale of Lumus enabled all drawn debt to be repaid and borrowing facilities were refinanced with a reduced facility of $300 million maturing in 3 years in May 2028. Following receipt of the Lumus proceeds, payment of transaction costs and the special dividend of $300 million, Healius had a net cash position of $57.2 million at 30th of June 2025. Going forward, we will be taking a conservative approach to capital management until consistency of earnings and therefore, cash flows is achieved. In FY '26, we expect growth and maintenance capital expenditure to be $30 million to $35 million and depreciation and amortization to be $230 million, which includes $4.5 million for Agilex and $192 million for the right-of-use depreciation. There will, however, be some one-off growth CapEx for microbiology automation and genomics. From 1 January 2026, the cost of the digital program, which is up to $10 million per annum will be included as part of ongoing IT expense in continuing operations with no non-underlying items. I'll now hand back to Paul to discuss the FY '26 outlook.

Thanks, Steve. So in terms of outlook for 2026, we expect revenue growth to be in line with that of the second half of 2025. Volumes to date are up 2.4% from the 1st of July this year. There were changes to B12 and urine testing, which occurred on the 1st of July this year. There has been a modest decrease in volumes for both. The full impact is yet to be fully understood as we evaluate referrer patterns and adapt to eligibility-based testing across both of these. In terms of costs, we've committed to $15 million to $20 million in support cost savings, and this has been articulated this morning as to the positive progress that we have made. A significant amount of work has gone into planning for labor costs and optimizing these across the network. As you all know, labor is the single largest cost in our business. And with detailed planning and analysis we have undertaken over the past 6 months, we are forecasting these costs to be broadly flat year-on-year. We can also confirm, as Steve has just said, that digital spend will revert to normal BAU from the 1st of January. The year ahead will once again skew to the second half, both for volumes and the progression of the cost efficiencies increasing across the year. We also confirm that we expect, as we have set out in our Investor Day to achieve high single-digit margins by June 2027. So with that, I'll hand back to our operator and open up to questions.

[Operator Instructions] The first question we have will come from Andrew Goodsall of MST Marquee.

Just -- I'm sure you're across this, but Sonic announced today that they've secured the Hollywood contract in Western Australia. Just I presume your guidance accommodates that.

It does, yes. So, look, I think, Andrew, there's lots of movement in hospitals right across the country. That hospital is -- at this stage, we anticipate sort of February or March next year. So the answer to your question is yes. There's some wins in there as well.

Okay. Yes, it's always plus and minuses there. And I've lost track of it, but the Victorian public contracts, I know they've sort of been on again off again, but I presume the -- I think it's the Western Hospital takeover by Monash Health. Is that -- just trying to track where that's at in the mix.

That's right. So that's Western Health. So, that was originally scheduled to revert to public in October this year, which was part of our plans. That has now been extended out to the first quarter -- to the end of the first quarter of next year. And there's, I think, 4 other hospitals, 1 new one and 3 that have been extended out to 2027 and 2034 in Victoria.

Okay. And so when you say first quarter calendar year or?

Sorry, to February. I think it's February 2026 at this stage.

Got it. Okay. So it's not really -- I could even go longer. And then my final one. Well done on labor costs and so on. But just trying to understand the impact of Fair Work Commission decision around phlebotomists. Is that again accommodated in your thinking for your labor cost?

Look, it's not in that -- I think the timing at the moment is mid-September for the hearings and then a decision sometime in November. Then the question is we've modeled out what we think what our best guess is. The question will be what is the total amount? How is it rolled out in terms of timing? So, I think absent of being rolled out on the same day as the decision, which we think would be highly unlikely, it will be -- the full impact will be a 2027 impact.

Okay. Yes, makes sense.

Next, we have David Stanton of Jefferies.

Just a follow-up on Andrew's question. You say likely '27 impact. Is that calendar '27 or financial '27, please?

Look, I'm thinking about -- sorry, financial?

Financial.

Look, I think, David, the honest answer is we don't know the timing. So...

Yes, that's it. I was just trying to get that right in my head. And can you explain a little bit -- give us a little bit more color on that impairment in the pathology? What does that relate to, please?

Look, I think you probably have understood this before. The accounting standard requires us to perform a discounted cash flow. We need to triangulate that with market cap and multiples, and a whole range of other things. So it's an accounting standard-driven model to compare us to the goodwill that we have on the balance sheet that I think relates back to 2007. So, I think what I'd say is that it doesn't relate to the cash flows that we expect to have in terms of our T27 ambitions of high single-digit margins.

Understood. Understood. And again, congratulations on flat costs. I wonder if you could -- for '26, I wonder if you could give us any color on potential depreciation, amortization and net interest expense that you expect for 2026, please? Just any broad brush would be greatly appreciated.

Yes. I think, Steve -- David, actual numbers for D&A for next year?

Yes. So I'll just repeat what I said, David. So we expect growth -- well, depreciation totaled $230 million, and that is $192 million for right-of-use assets, AASB 16.

Sorry, I missed that.

And then $4.5 million for Agilex and then the balance for the Pathology business. It's about $33 million.

Sorry, can you say that again for me? I missed that bit. So, what are we talking about here? Is that interest?

Sorry, interest, very little because we don't have any bank debt. So probably between $0 million and $3 million depending on how much debt we draw down, if any, and that will be for working capital purposes. So, straight bank interest is not expected to be a big number.

Sorry. Just a follow-up because I missed it. So, depreciation of about $230 million in total for the whole business. Amortization, what did you say again, excuse me?

So right-of-use assets, the AASB 16, depreciation in that is $192 million.

Right.

So that leaves $38 million, of which $4.5 million is Agilex.

Next, we have Craig Wong-Pan of RBC.

Just wanted to understand the cost savings, the $7.3 million that you've got annualizing at the end of FY '25, how much actual savings came through in the fiscal '25 period?

Sorry, so actual savings that happened within FY '25 in terms of timing, is it?

Yes. So, you're kind of getting a run rate of $7.3 million at the end of FY '25.

Run rate going forward was $7.3 million. Yes.

But how much actually...

$2 million to $3 million.

I'd say approximately $3 million.

Okay. And then at the top line, you got a mix benefit throughout, I guess, the period. Just wondering, can that continue? Because it looks like you're kind of getting 300 basis points or so of kind of mix benefit. Do you think that can hold into FY '26?

Yes. Well, that's a big part of our strategy. So the answer is yes. I think what you've seen, particularly in that last quarter, Anthea Muir has been with us now for 6 months. And we've had a focus on growing our specialist mix. We've been very targeted in how we've done that, and that started to show some real benefits in that second half of the year, in particular, the last quarter. So the answer is yes. Genomic Diagnostics, obviously, forms part of that, and that growth has been strong. PGx or pharmacogenomic testing is a big part of a -- a big growth product for us. Whilst that has been growing in July, what grew really strongly in July was the reproductive health. So it's a bit of a long-winded answer to your question, but the ambition is obviously to increase our average fee by the specialist and non-MBS revenues.

Okay. And then just one final one for me. The guidance around flat labor costs, can you provide any comments on the skew like between first half and second half? Like should labor costs actually fall in the second half? Or can you provide any kind of help around how we should think from half to half?

Look, they ramp up across the year. So the biggest chunk of those happens in H2. We have the piece of work that we have done on our collection centers and our labor optimization. Anthea's done that with her team across the first half of this calendar year. So, we are underway with that now. The regional laboratory piece is just gaining some momentum now. So, that takes some time. And the lab labor is an ongoing piece of work that, yes, it ramps up, but the majority of it will happen in the second half.

And next, we have Sacha Krien of Evans & Partners.

Nice to chat to you again, Paul. Look, first question, just wondering, you've got the margin slide, which is not part of the outlook statement, but it does look like FY '26, you're expecting in excess of 5%. Is that -- I mean, am I reading that right? And same question into FY '27, are you factoring in some of those Fair Work Commission labor costs into that high single-digit margin guidance?

Look, so firstly, we're not trying to guide or give you a linear progression between '24 and '25 and '27. But what I would say is that we've set out our specific plans at our Investor Day. Hopefully, we've given you quite a flavor now of the progress that we've made on a bunch of these things. And clearly, the more we can do in FY '26 year sets ourselves up for 2027. So, that's kind of not answering your first question. Your second question around Fair Work, I think we just have to think about that and yes, incorporate that. We obviously have some pretty strong views on the rationale that they are using, which we don't believe and we're putting up, we think, a pretty strong argument as to why that shouldn't be the case. So, I think it's factored into our thinking over that 2-year period.

Yes. I mean, I don't want to focus too much on the point, but I mean, just on that FY '26 number, I don't even need to rule it to see that it's more than double. I mean, I think that's sort of almost implying that we should be thinking about 5%. Are you sort of discouraging that view?

You're asking me that a second way? Look, look, I think if you look at the way that our 2 halves fall, the margins are actually quite different in different halves is maybe a better way to try and not answer your question.

Okay. And then my second question, just in terms of genomic testing. I'm just wondering where you think you sit versus your competitors in terms of your sort of maybe market share in that space.

Look, that's a really good question, and it's actually quite difficult for us to work out market share. I think we have a very defined and quite aggressive growth plan. Part of it is restricted to actually the capacity within our laboratories. So, that's a kind of a short way of saying we are going as hard as we can, as fast as we can with the resources and the technology that we have. I think we know that our reputation in Genomic Diagnostics is very, very good. So, can we grow market share? Yes. I think we are growing market share, especially as we speed up our processes internally in the laboratory and can quicken up our turnaround times and offer more tests, which we are continually doing. So, we've got a big marketing push, especially around pharmacogenomics this year. So, our ambition is to take market share. It's pretty difficult to measure, I guess, is what I'm saying.

Okay. And then last question just on lease costs. Sonic on the earlier call sort of talked about the #4 competitors still being very aggressive. Are you seeing any impacts from that?

Look, I think if we look at collection centers right across the totality, we've stayed relatively the same in total numbers across the year. I think Sonic have reduced theirs marginally. The big increase, I think, in terms of around about 20% has been [ Foresight ]. But I think they are quite different sites and not necessarily sites that we would go after. I think the one thing I would say is that we are being very rational in terms of our rents. And we are using data now and SA3 mapping across the country to plan where our collection centers should be. So we are -- it's a live market, and we are swapping them in and out all of the time each time for a collection center that is more profitable than the one that we have got out of. So, I think there is competition. There's no doubt about that with 4 players. I think we are behaving quite rationally and doing it in quite a data-driven fashion now, more so than we ever had before.

And next, we have Steven Wheen of Jarden.

A few questions. Just wanted to, I guess, start with the -- I was a little surprised with the closing cash balance. And the number that, I guess, I was probably not expecting was the lease payments. Is there something else in that, that $269 million lease payment figure? And I'm just wondering if there's sort of cancellations of leases or any other sort of aspects like that, that might have inflated that number?

No, Steve. That number is pretty consistent with the prior year, overall lease payments.

All right.

As a percentage of revenue, that number is probably lower than it was in the previous year.

It was just the fact that it wiped out the operating cash flows, which when we look at the EBIT line, I guess the difference is the depreciation, which is related to leases that represents rent anyway. Second thing I wanted to ask about was, do you -- are you able to quote the potential size of revenue from the Hollywood contract that we can adjust for?

Look, the answer to that is no. What I can say in terms of the impact on '26, it's a negligible number.

Okay. All right. And then I think you just answered this, but maybe I misheard it. But are you able to provide us -- you said your profit is back-end loaded. Are you able to give us some indication as to what the rough percentage would be? Is it just in line with sort of historical back-end loading? Or is it a bit more pronounced with that cost out?

Look, I think there's 2 parts to that, Steve. There's just the normal 1H, 2H SKU, and that's depending on which way the working days fall 49, 51 or late 48, 50 point something. So, that's kind of the first one. And that actually does make quite a big difference given really the only cost you're taking out is the consumable piece. So that's the first bit. And then, look, the other thing that will impact us as we make our progress through the labor cost is there will be a greater saving in the second half than there will be in the first half. So, there's 2 components to that.

Yes. Got it. And then just finally, on the -- with regards to your approach to private billing, I mean, we heard from Sonic today that, that's certainly a strategy that they're looking at perhaps in some areas with regards to some of the changes around funding from Medicare. I'm just wondering if you've got a -- if you can talk to what your approach will be and how you might go about introducing some of that?

Look, there's several parts to that, I guess. So we are -- I think first and foremost, we are committed to bulk billing where Medicare rebates are available. So, that's the first thing to say. Clearly, if there are tests that are not rebatable, then we can't be expected to be doing them for free. So we will private bill, and that already happens in the market and has happened before the changes to B12 and urine. With lack of indexation in this industry, I think all players, including us, as I said before, have been through all of our pricing for the tests that we do that are non-rebatable to make sure that our margins are appropriate that we are in line with market. And that's a big exercise right across our whole organization. So hopefully, that answers your question.

And the next question we have comes from [ Gary Gugler ] of [indiscernible]. Line maybe disconnected. We'll proceed to the next question, which will come from David Kingston of K Capital.

Look, again, it's sad to see the announcement. The market is disappointed with it. Healius' stock smacked quite severely today in the market. Little bit concerning to see. Seems like there's some cash burn continuing and the cash balance is probably a little bit lower than what we were hoping for. But Paul, the critical thing in my mind when it comes to shareholder value is that the enterprise value of your Pathology business, which is the second largest in Australia, a fundamental business, the enterprise value is now below $500 million, which is pretty mind-boggling for such a fundamentally key business that we all use. So, I suppose my view is that after several disappointments and clearly, the market is a bit skeptical, Paul, as to whether you are going to achieve the target of high single-digit margins and that's why the market is continuing to smack Healius down. In my view, the key issue for shareholder value is, is there going to be some corporate activity? Now, Bain in a fin review article indicated that pathology is an area of interest. Clearly, ACL would be interested in merging with Healius. I think now that there are 4 significant players, I think ACCC would approve it. But Paul, I just want to ask the question on behalf of all shareholders who are suffering. Like if we look at the share price today, $0.68 when I looked. Yes, there was a $0.41 dividend. But in aggregate, that is below the emergency rights issue a couple of years ago of $1.20 and obviously, massively below the $3, $4 and $5 that Healius reached at its peak. So on behalf of all shareholders, Paul, I just want to ask, is Healius open to being taken over or a merger? It's a competitive market. The margins are not great. Are you approaching people? Have you been approached? But in my view, Healius should be approaching people because the diminution in shareholder value is severe and it continues to decline. So in my view, Healius should be proactive in seeking to be either acquired or at the minimum to be involved in a merger where there would be synergies. But I appreciate your insights into that, Paul.

Look, thanks, David. Look, I think this is a results call. So, this is not the right place to be talking about some of those issues. I think what I would say in terms of shareholder value, we have obviously listened to your views and all other shareholder views. And we have set out 6 months ago now our plan to restore that shareholder value with a marker in the sand in June '27. So, what we've attempted to do today is to say, well, here are the things that we've made some progress on. And I think there are a number of things in here that we've made some really good progress on. Could we be criticized for not going fast enough? I think that's probably always going to be the case, but that's not for want of trying to go faster within our organization with the resources that we have. So, we believe that we have a plan to increase shareholder value and that's our sole focus.

Okay. Look, just one follow-up, Paul. Clearly, there's only 2 reasons that investors invest in the company. Number one is for capital growth and number two is for dividends. Now let's leave aside the $0.41 dividend because that was a special resulting from the sale of Lumus and again, a great sale. But at the moment, what's happening is that you're delivering no dividends out of operating cash flow, 0, and you're also delivering consistent capital losses. So, I suppose from my point of view, and I think most shareholders would agree with me, the clock is ticking. People are happy to be patient, but the results for shareholders of 0 operational dividends and ongoing capital losses are very disappointing. But perhaps I'll just leave that with you and the Board, Paul. I just think it is time for corporate activity because I think there are synergies out there. And I think the ACCC would be perhaps more amenable to a merger now that there are 4 significant players. But thanks for your time, Paul.

Next, we have Davin Thillainathan of Goldman Sachs.

Just want to discuss your labor cost expectation. I think the idea there is to keep it flat. Could you give us a better sense on how you intend to achieve that, given I would have thought there would be some wage inflation with EBA rates?

Yes, that's absolutely right. So, I think we went through this, I think, in one of the previous questions. So, look, I guess there's 2 parts to this. There is our customer and collections part of our business. So, all of our collection centers and then there's our laboratory operations, which includes our regional laboratories. So, there's 2 big pieces of work that we have done around planning our workforce for volumes, having a flexible workforce so that we can actually roster to the volumes that we see in our collection centers, which is an advantage that our new Medway Collections Portal, we have a time stamp on every single collect that we do that we have never had before to the 28th of July last month. So, that gives us a real advantage in saying what we think our opening hours should be, whether they should be earlier or later. So, that's kind of a tangible example of one of the things that we're doing. But basically, we have used data this time around to look at every single one of our collection centers, look at all of our laboratories, analyze those, work out what we think perfect looks like in terms of labor and then put an action plan into place to try and achieve that. That's clearly a pretty big task. Yes, it does take into account the EA increases across the year. So, that probably just gives you a bit of an idea as to the kind of size of the task that we have ahead of us, but that's the plan that we have.

Great. And just to clarify, I guess, there would be no expectation of any type of restructuring costs to be incurred?

That's part and parcel of that.

Okay. And I guess the reason for the question is, if I look at your cash flows, clearly, some direction here on revenue and maybe EBIT margin expansion, but then we're sort of trying to work out, I guess, your lease payments. I understand the link at the D&A, but I just want to confirm from a cash perspective that you would expect to grow your cash flows into '26.

Yes. That's correct.

Okay. And then just one last question on vitamin B12. Do you feel like you'll have a better sense within the next 6 months in terms of how you've actually navigated that change? Because I think the outlook statement has some disclosures here about the impact yet to be fully understood. So, do you sort of expect within a 6-month period, you'd be able to provide us with a bit more color on how you've gone managing through that?

Yes, I think so. Look, probably sooner than that. There's 2 things to say there. I think volumes for July and year-to-date are up 2.4%, which is better than the last half. So, that gives you an indication that B12 and urine is clearly part of that. We know that B12 and urine testing has come off marginally. We have all been reconfiguring our systems and processes to try and deal with that and work out what falls outside of Medicare eligibility. So, yes is the answer to your question, but I would suggest sooner than 6 months.