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

Good morning. My name is Kate McKenzie, and I am the Chair of Healius Limited and the Chair of this Annual General Meeting. On behalf of your Board, I welcome you to Healius' 2025 Annual General Meeting, both those of you using the virtual online platform and those of you who are here in the room at the Wesley Conference Center. As you may have heard in the news, users across the world are reporting problems with multiple Microsoft services. Just to make things interesting, the issues have impacted the Computershare platform this morning. We think that it is now all resolved and stabilized. But in the event that there are any issues with the online platform, the Group Company Secretary will notify me as Chair, and we will call a short adjournment if the number of shareholders impacted is significant to allow the issue to be addressed. We're hopeful that, that won't be necessary, but we wanted to make sure that we had a plan. I would like to begin by acknowledging the traditional owners of the land in which we are meeting today, the Gadigal people of the Eora Nation and pay my respects to elders past and present. I also recognize the traditional owners of the various lands on which our online attendees are attending today and the Aboriginal and Torres Strait Islander people present in this meeting. I will now introduce the Board and management present today. Alongside me is our Managing Director and CEO, Paul Anderson; and our Non-Executive Directors, Sally Evans, Charlie Taylor, John Mattick, Kathy Ostin and Chris Hall. Also alongside me, our General Counsel and Company Secretary, Kylie Brown at the end of the table there. And joining us today in person, we also have our Chief Financial Officer, Andrew Thomson; and Katrina Zdrilic, who is representing our external auditor, EY. Katrina is available to respond to any questions regarding the audit of Healius' financial statements and the auditor's opinion. I am advised that there is a quorum present, and therefore, I declare this meeting open. Please note that this webcast is being recorded. I will be taking the notice of meeting dated the 30th of September 2025 as read. The notice was made available to shareholders via the ASX Market Announcements Platform and dispatched to shareholders electronically or by post, depending on our shareholders' communication preferences. The agenda for today's meeting is shown on the screen. We will start with my Chair address, and then Paul will provide an update on the business. After Paul's address, I will invite general questions on the management of the company. We will then move to the formal business of the meeting. A copy of my address and Paul's presentation slides were lodged on the ASX prior to the start of today's meeting. There is one conditional item of formal business, which is a Spill Resolution. This resolution will only be put to the meeting if at least 25% of the votes cast on Item 2 are cast against the adoption of the 2025 remuneration report. For each item of formal business, there will be an opportunity for shareholders to ask questions before the item is formally put to the vote. A few brief housekeeping points. If you need assistance in the room, please raise your hand and one of the Computershare team will assist you. For those of you joining via the online platform, please note down the telephone number shown on the screen. If you experience technical difficulties during the meeting, please dial that number. In relation to questions, all shareholders will have the opportunity to ask questions in respect of the items of business, whether you are present in the room, online or wish to ask a question by phone. The order in which we will take questions will be, first, questions asked by shareholders who are physically present at the Wesley Center; second, any questions submitted online; and third, questions submitted via the phone line. If you are in the room and wish to ask a question, please raise your blue or yellow attendance card, and I will invite you to ask your question. If you are attending online, you will need to select the Q&A icon at the top right of your screen, select the item of business your question relates to, type your question in the box at the bottom of the screen and then send. You are able to submit questions on any item of business at any time. However, these will be answered when we get to the relevant item. Gillian Nairn will be our online question moderator and will read out any questions submitted online. If you're attending online and prefer to ask a question verbally, please follow the instructions detailed below the broadcast. You will be provided with a phone number and meeting ID to dial on your phone. When prompted by the Chair, the operator will unmute your line and ask you to introduce yourself to the meeting and ask your question. Voting on each of the resolutions at this meeting will be conducted by a poll, and the results of the poll will be released to the ASX as soon as possible after the meeting. I now declare the polls in relation to all items of business open. Shareholders in the room and online can now cast their votes and can do so until I announce that the polls are closed. I'd like to begin today with some reflections on the Australian pathology sector. Pathology is integral to modern medicine. Each day, doctors and patients depend on pathology results to make vital health care decisions. Through analysis of blood, urine and tissue samples, pathology assists in diagnosing, treating and managing diseases like cancer as well as infections and many other illnesses. Pathology testing also reduces the burden on secondary and acute care systems through the early diagnosis of disease. Healius has proudly supported the health and well-being of the Australian community for over 35 years by providing quality, affordable and accessible pathology services. Healius continues to be a leading provider of pathology and bioanalytical services. Healius is the second largest provider of Australian pathology services and the largest provider of pathology services to regional, remote and indigenous communities. The industry has been challenged in recent years, particularly by the growing gap between Medicare rebates and rising costs due to inflation. Similar to companies in other disrupted industries, we have needed to examine new ways to ensure that our essential services can continue to be provided in a sustainable way. Paul will say a little more about how we are responding shortly. This year was a milestone year for Healius as management completed the sale of Healius' imaging business, Lumus Imaging, achieving a sale price of $965 million. This was a pleasing result that exceeded expectations and enabled Healius to fully repay debt of $515 million and pay a special dividend to shareholders of close to $300 million with $128 million in franking credits. With an improved balance sheet and more sustainable capital structure, Healius is focused on executing its pathology strategy and T27 plan with the goal of delivering high single-digit EBIT margins by FY '27. Over the past 12 months, the Board has appointed 4 new non-executive directors. Kathy Ostin joined the Board in December 2024, bringing invaluable experience as a former partner of KPMG and strengthening the Board's finance, accounting, audit, governance and strategy expertise. We note that some concern has been raised regarding the number of Board positions that Kathy holds. The Board is confident that Kathy is able to manage her responsibilities and fulfill her duties as a Healius Director and as Chair of Healius' Audit Committee based on her contribution to Healius to date and having regard to her 7 years as a professional Non-Executive Director. Kathy has not missed any Board or committee meetings for any companies of which she is a director, and Kathy has also indicated an intention to modify her portfolio over the next 3 to 6 months. Neil Vinson joined the Board in March 2025, bringing valuable experience in private equity and public market investing, M&A, business development and optimizing operational performance. Neil resigned as a director in September 2025, following his resignation as an investment manager of Tanarra Capital. The Board is grateful to Neil for his contribution as a director during his tenure. The Board appointed Chris Hall to the Board in September 2025, following his nomination for appointment by Tanarra Capital, which holds a significant interest in Healius. Chris brings to the Board extensive experience across asset management, superannuation and more recently, biotechnology. His current roles include being a Non-Executive Director of AMP Superannuation and a Non-Executive Director of Funds SA, the investment management partner for South Australian Public Sector Superannuation funds and approved authorities. Chris is also the Chair of BiomeBank, a clinical-stage biotechnology company. At the time of welcoming Chris to the Board, we farewelled and thanked Dr. Michael Stanford, who resigned from the Board in September 2025, having served as a Non-Executive Director since September 2023. Our fourth appointment to the Board was Steven Rubic. The Board is looking forward to welcoming Steven to the Board on the 1st of December. Steve will bring to the Board 25 years of executive leadership in health care, having held CEO positions at St Vincent's & Mater Health, Sydney, I-MED Radiology Network and Healthscope. Board succession planning and refreshment remains a key focus area as your Board continues to consider the right size, balance of skills and experience to guide Healius through its next chapter as a streamlined pathology business. The Board is also pleased with the refreshed executive team being led by Paul Anderson. The team are performing and transforming the business at pace. In FY 2025, we welcomed Anthea Muir, Group Executive Customer and Commercial; and Kylie Brown, Group General Counsel, Company Secretary and Chief Risk Officer. Anthea has brought a wealth of commercial experience to the team and Kylie's legal and governance expertise has brought enhanced rigor to Healius' governance practices. As shareholders are aware, Steve Humphries recently announced his intention to retire. Steve retires after nearly 6 years with Healius having held a number of roles, his most recent role being that of Chief Financial Officer. I would like to take the opportunity to thank Steve for his incredibly valuable contribution and dedication to Healius. The Board was pleased to announce the appointment of Andrew Thomson as Healius' new Chief Financial Officer. Andrew joins us from BIS Industries, where he held the role of Chief Financial and Commercial Officer. Andrew is an experienced transformation and commercial finance leader and has previously held leadership roles at Pacific National, Broadspectrum, formerly Transfield and BHP. Andrew commenced on the 13th of October, so not long ago, and is working alongside Steve to ensure a smooth transition. Now to the business of this meeting. Professor John Mattick is submitting himself for reelection this year. John is a much valued member of the Board. Kathy Ostin and Chris Hall are also submitting themselves for election as new directors appointed by the Board. Other items on the agenda include the adoption of the 2025 Remuneration Report and the Conditional Spill Resolution. The Board was disappointed to receive a strike against the 2024 Remuneration Report at last year's AGM. Your Board has since engaged extensively with shareholders, proxy advisers and other stakeholders to listen to and understand the key concerns with our executive remuneration strategy and framework. We believe we have made significant progress in addressing your concerns by improving our qualitative disclosures in this year's remuneration report and making amendments to the bespoke incentive plan to incorporate equity and 12-month deferral components. In terms of KPI 1, the company conducted a successful strategic review and achieved an excellent result with the sale of Lumus Imaging. KPI 1 delivered a much improved balance sheet and enabled Healius to reduce its debt and pay shareholders a significant fully franked special dividend. The Board actively considered and heard feedback on the company's remuneration structure and incentive plan. KPI 2 and KPI 3 of the bespoke incentive plan are explicitly aligned to the company's T27 strategy and shareholder outcomes and represent pay for performance. The targets for the removal of corporate costs under KPI 2 will continue to contribute to the strengthening of pathology margins and KPI 3 incentivizes and rewards executives for growth in EBITDA, both of which are expected to create sustainable value for sustainable shareholder value. As we have done this year, we will continue to work to ensure that remuneration is aligned to T27 and to shareholder outcomes. On the topic of the CEO's fixed remuneration, the Board considers this to be appropriate for Healius' size and specific circumstances, noting that external benchmarking was undertaken as part of the process, which took into consideration broadly comparable ASX organizations. Your Board has placed significant performance expectations on the CEO to transform the business over a short period of time and is very happy with the direction of the company under Paul's leadership. I would like to conclude by acknowledging the dedication of the entire Healius team who have faced several challenging years and to thank them for their unwavering effort and commitment to our patients and referrers. I also wish to thank my fellow Board members and the executive team for their hard work and dedication. I also thank you, our shareholders, for your continued support of Healius. I look forward to the year ahead and to delivering to our shareholders on the outcomes of the T27 plan. I will now hand over to Paul for his presentation.

Thank you, Kate, and good morning, everyone, and thank you for joining us here today. Along with the Board, we have various members of the Healius management team in the room today, including our new Chief Financial Officer, Andrew Thomson. Andrew replaces Steve Humphries, who is retiring and on behalf of the Board, we sincerely thank Steve for his dedication to the business over the past 6 years. In this last financial year, we have continued to make steady progress across the 5 strategic priority areas that we set out at both last year's AGM and the Investor Day we held in March this year. At our Investor Day in March, we stepped out our T27 strategic plan in detail and commitment to achieve high single-digit margins by June '27. This remains the target. The 5 strategic priorities are improving the customer service for our patients and referrers, modernizing our network of laboratories, using digital technology as an enabler across the business, embedding our new national operating model through our people and ways of working and capitalizing on new and emerging diagnostic opportunities. To support improved customer service, in July, we completed the rollout of our Medway collections portal, which standardizes our collections process. We also launched online bookings, which allows patients to book an appointment to one of our collection centers for a range of tests. Our collection centers are also now equipped with Square payment terminals, enabling both upfront payments and informed financial consent, an important step given the recent Medicare changes to B12 and urine tests. In our laboratory modernization work, we have attained NATA approval for digital reporting of specimens for anatomical pathology and have doubled our capacity to scan slides into images for digital reporting. We have partnered with and are using Ibex AI for decision support and cancer diagnosis. This significantly improves clinical insights for referring doctors and creates efficiencies for Healius. Along with this, our microbiology automation is well underway. And the first laboratory to implement this will be Laverty Pathology, who will be fully automated during the first half of 2026. In emerging diagnostics, our genomics business grew revenues by 27.6% for Q1 due to expanded oncology testing for inherited diseases and tumor profiling, along with continued strong growth in reproductive health testing. Clinical trials continued to grow with some major technology improvements to our best-in-market Midway clinical trials digital platform. For digital health, we have continued to make significant headway in our technology program with all investment geared towards driving revenue growth through improving our customer service for our referrers or enabling efficiencies through automation and process improvement. Medway collections and online appointment bookings are examples of recent significant innovations along with digitized workflows in genomics and a digital pass now available for patients to access pathology services using a single identity. We have now issued 250,000 of these. As previously confirmed, this digital spend will become business as usual from the 1st of January 2026. In terms of our ways of working, along with making changes to reduce and strengthen the management team, we have implemented a comprehensive labor optimization plan across our network designed to align labor and volumes, create more meaningful contact with our referrers and utilize technology to become more efficient. This work is showing immediate benefits. We will continue to update you on our progress against our T27 plan. In terms of a trading update, group revenue for the first quarter of FY '26 increased by 4.2%. Pathology revenues grew by 3.9% across this period off the back of a volume increase of 2.4%. Agilex Biolabs grew revenue strongly at 13.8% for the quarter and in line with the comments we made at our FY '25 full year results presentation. We have previously guided for full year revenue growth to be consistent with the second half of FY '25 or approximately 5%, and this remains unchanged. In terms of costs, we've committed to $15 million to $20 million in support cost savings on an annualized basis, and this work is well progressed and on track with $7.3 million completed in FY '25 and a further $8.5 million planned across FY '26. We have flagged that our labor costs forecast to remain broadly flat year-on-year, and this work is progressing well. We also expect the usual skew to the second half of FY '26 in volumes, revenue and profitability. One last point I'd like to make -- I'd like to highlight is the Fair Work Commission's finding on gender-based undervaluation. A final decision on the measure that will be applied is expected either later this year or early next year. We note a submission made by the Commonwealth that any proposed changes will be phased in and should commence no earlier than 6 months after the final decision. Today, I'd also like to make some remarks about our work to ensure policymakers understand the value that pathology provides in delivering the best health outcomes for all Australians. This extends well beyond ensuring that policy, regulatory and financial settings such as the ongoing discussion over the need for full indexation, reflect the need to keep pathology widely available and affordable. We are currently exploring the opportunities to harness our innovation, expertise and data to ensure patients get the right health care at the right time to reduce chronic and other diseases. It's particularly critical given the research released by Healius in November last year into health misinformation, which including findings that pathology results are the most trusted source of health information with 95% of Australians having a high or moderate level of trust in them. Australians are increasingly seeking health advice online before committing to seeing a health care professional. And 53% of Australians misdiagnosed the condition, saw their health worsen or applied an incorrect treatment as a result of this self-diagnosis. And that's why Healius continues to invest in solutions that will allow Australians to make more informed choices about their health care. Genomic Diagnostics recently launched a national awareness campaign to encourage patients to undertake a simple DNA test to help doctors prescribe the right medication at the right dose right from the outset. Pharmacogenomic or PGx testing represents a game changer for patients and doctors and can help avoid the trial and error of traditional prescribing. It allows doctors to preemptively assess a patient and help get their medicine right from the outset. Results from a PGx test can then guide prescribing decisions for life. We are now also exploring opportunities to leverage de-identified data to identify diabetes hotspots across the country, given almost 60% of all cases of type 2 diabetes can be delayed or prevented. We hope to soon open a dialogue with the Commonwealth on opportunities to match the data with practical and targeted public policy solutions and change the pathway of diseases such as diabetes in Australia. Our efforts reflect the fact that pathology can serve as a critical part of the nation's health infrastructure and counter the rise of misinformation. In conclusion, it has been a significant year for your company as we have reshaped our strategy, returned capital to our shareholders and set about delivering our T27 strategic plan at pace. None of this is possible without the commitment and hard work of our staff across all parts of our business. My sincere thanks to the entire Healius team for embracing the many changes we are undergoing in our business while continuing to deliver quality and compassionate health services to millions of Australians each year. And thank you to our shareholders for your continued support. I look forward to updating you on our progress in the coming months. Thank you.

Thank you very much, Paul. We will now open for general questions from shareholders on the management or governance of the company. We did receive a question on Agilex prior to the meeting, which Paul, I think you were going to answer when you've had a chance to catch your breath. The question was, it was reported that Agilex' performance was affected by geopolitical uncertainty, tariffs and funding of biotechnology. Could you advise how the business model has changed due to these pressures and what funding was provided by the U.S.?

That's right. So look, there was obviously considerable uncertainty in research and drug development policy in the U.S. that did cause a disruption and a lull in activity in late 2024 and early 2025. Globally, the [ bioA ] market for Agilex is coming back in the U.S.A. And as the market adjusts and importantly, Agilex has pivoted towards a greater amount of work originating from European sponsors. We expect the percentage of European work by the end of this financial year will have increased substantially.

Hopefully, that answers that question. I will now invite questions from shareholders present in the room. Are there any questions from shareholders present in the room?

Just -- I probably ask the same questions most years, but I suppose the stock and the market certainly doesn't seem to be believing that the targets that we put out, hence, yes, where we're trading today. But the first question, just around the targets that we have, the high single-digit EBIT margin targets. There's a lot of accounting noise and all these things, and we'll come to EBITDA shortly. But within the interest line, there's a lot of actual costs that come out below that EBIT given the whole accounting treatment. So I was just hoping to get a sense of the free cash flow of that target. If we do hit that high single-digit EBIT margin, what does that actually result in terms of the free cash flow after all interest costs, leases, et cetera? Because EBIT is one thing, but in terms of Healius being able to return to paying dividends, ordinary dividends, et cetera, you need to generate free cash, and we're not based on the most recent set of earnings. So just hoping to get some clarity on if we do hit the targets, what does that actually mean on a free cash basis, please?

Sure. I'll just start by saying, obviously, there's a lot of debate and discussion about exactly what measurements we should be using, and there are pluses and minuses to EBITDA and cash flow measures of various sorts. And we try to come up with a construct that is as aligned as it can be with delivering shareholder value. In terms of cash flow, that's definitely been a challenge for us. I think there's no argument about that. Paul, maybe do you want to put some color around what that looks like if we hit T27?

Yes. Look, I think there's a few things. I guess, one, we're not forecasting earnings or cash flows, and we haven't given any guidance on those for start. What we have done is step through our scorecard and the plan to achieve those high single-digit margins by June '27. You would have seen that our EBIT margin was 4.1% in the second half of last year. We've been very clear that those non-underlying items, which I think is what you were referring to that come out below the line, they cease from the 1st of January next year. So there's a range of steps there that we've taken. We fully understand that generating cash and becoming cash flow positive is the ultimate goal, and we're attempting to do that as quickly as possible. Fully understanding that there are a range of steps that we need to go there as quick as we can to achieve that.

And I guess, I would just conclude by saying like some of that noise is disappearing, so it's a bit more transparent. So you'll be able to see exactly where we're tracking at the half year.

Why can't you provide -- I mean, we don't have any debt today. We've got cash. So interest on that basis shouldn't be much, but there's a big lease line, which is about $30 million or $40 million. But I think the market was a bit surprised with the recent result that, that was much higher than expected, but that's a clear cost if it's part of rent. So I would think you'd be able to forecast that pretty accurately. So if we get to 7% EBIT margins, what does that actually mean once you strip out leases and rents and all the other real costs because I would think that's pretty easy to forecast because you're shooting for high single-digit EBIT. Why can't you say what that would be on an actual cash flow?

I think we said as much as we want to say for today because I mean, the fact is all of those things are dynamic and they're impacted by all sorts of things that are going on in the market, including actions that we're taking to get out of leases and begin new leases, what's happening on volumes, what's happening in terms of sort of GP attendances. And we will give you more color at the half year.

And just wanted to clarify on the cash flow point. Well done on the Lumus sale. As we've said, that was a great result and I appreciate the dividend coming back. But the cash balance of the company, I think, was a lot lower than what people were expecting, and then there's going to be another small amount come out for an unfavorable tax ruling. But I think, Paul, you said on the recent earnings call that cash had bottomed and should increase from here. Can you just confirm that, that is the case, please?

Look, I think what we said at the full year, so there was obviously quite a bit of discussion around the cash balance. And I think we acknowledge that there was quite a range in the analyst forecast as to what that cash balance was, which was in part, I think, confused with the Lumus Imaging sale and the special dividend that was paid back. So we did set out a bridge, I think, on Page 15 of the results at the end of FY '25 that set out the movements in cash, and we'll continue to do that. So yes, I kind of go back to our previous comment. We are trying to grow revenue as fast as we can with all the things that are within our control. And we've been pretty clear about what we are trying to do on the cost front given labor is 50% of our cost base. And we've given you some -- an update today that that's well on track.

Cash has bottomed? Did I hear that comment correctly for the...

I think what we said at the start is we are not providing guidance on earnings. And by definition there, we're not giving guidance on cash flows. What we have given guidance on is our revenue for the first quarter, what we think it will be for the full year and the majority of that cost base in terms of labor.

And sorry, just final one. There's the Australian clearly likes to write about Healius and M&A speculation in Foresight and ACL. I was just hoping -- or 2 parts on the Foresight issue. Clearly, they're growing very quickly. Some have said irrationally so and questions as to whether or not they're making profit or not, but there is a concern within the market that they're taking share. Healius is very much a volume-driven business, and there's a concern that they're taking the volume that we need to become profitable on a free cash flow basis, hopefully. But I was just hoping if you could address that competitive concern. And then maybe just clear the air. I think one article said they were on the register. And there's constant M&A speculation, but what's the competitive threat from Foresight? What do you think that impact is going to have on our business? And yes, just any comments around if there was a conversation with Foresight and M&A intentions, please?

Okay. In terms of Foresight, yes, we see what they're doing. We are focused on margins. So sometimes losing some volume if it's not profitable, we would not go and chase it. And we'll keep a close eye on sort of what they're doing, and we are keeping a close eye on what they're doing. So you always worry about competitive threats from everybody else out there in the market, and we're very focused on making sure we stick to our strategy and we do the things that we're looking to do. But I would just emphasize with our focus on margin, it's not our plan to go chasing revenue that is not of a quality that we need to hit our T27 targets. In terms of sort of M&A speculation, yes, people like writing about this stuff. I think any M&A activity in our market, given what the ACCC has had to say on the topic in the recent past would be very challenging, if not impossible. Having said that, if a path became clear where we thought we could create shareholder value by some form of consolidation, we would not have a closed mind to that. But I can tell you, not a lot of effort and energy is going into that right now because we can't really see a way to make that happen that wouldn't be a big distraction, take a lot of time and resource and probably not result in a successful outcome.

Was there a conversation had as the [indiscernible] between...

We've always got an open mind. From time to time, we talk to other players in the industry about all sorts of things, including sort of Canberra's attitude towards pathology providers and various other things. So we would never shut down lines of communication, but there's no current conversation. Any other questions from those in the room? Thank you for your questions, by the way.

Question is we sold the company during the year. We made x amount of dollars paid back all our debt. We gave shareholders a dividend, substantial dividend. Question is now, as a result of that and the profits that [indiscernible] we sold, do you anticipate paying a less dividend as a final dividend...

I think the question of dividends, the dividend that we paid out as a result of the Lumus sale was a special dividend. And the question of dividends from a Healius point of view, we look at from time to time. I think it's very related to the question about cash flow. And I think we would want to be in a position where we are more confident and have a better track record before we would think about paying additional dividends, but it is something that we talk about from time to time.

If you sell something and you don't get a profit from it during the normal course of business after that start [indiscernible] to pay less unless you [indiscernible]

Yes. I wouldn't argue with that. Any other questions from in the room? Doesn't look like it, Gillian, are there any online questions?

Yes, Chair. There is a question from Andrew Tan of [indiscernible] Financial. Andrew comments, unlike last year's AGM, no commentary was provided on Pathology EBIT in this year's addresses. His question is, does that imply that EBIT margin improvement is behind where you may have expected?

I think Paul did make a comment on EBIT margin in his address, but maybe you just want to repeat that, Paul?

Yes, I'm not sure what the question was. I don't think -- well, we didn't give any EBIT guidance at the AGM last year. My reference was to actual EBIT for the FY '25 year.

And I think in keeping with some of the earlier questions, this is not a forum where we generally sort of give guidance -- forward-looking guidance. And at the half year, we'll have more to say on that topic and people will be able to see very transparently how we're tracking.

Chair, Andrew has another question, which I think the answer will be similar. His second question is, I know that we are only 6 months into the T27 strategy, but how do we get a sense of whether we are on track to achieve the FY '27 target EBIT margins of high single digits?

And again, you are right that I think we're saying in this forum, we are working hard. There's a lot going on. Paul has said that from most perspectives, we feel like we're on track. But in order to give more color to that, we need a few more months. There's been a lot of dynamic changes in the business. So to give a sensible answer, it's better for us to wait until the half year.

No further questions, Chair, online.

Thank you. Moderator, are there any phone questions?

No questions on the phone, Chair.

Okay. Thank you. As there are no further general questions, we will now move to the formal business. I will first briefly explain our voting procedures. For shareholders present in the room, you can cast your vote by completing the voting card provided to you by the registry. For shareholders joining us online, you should see 4 icons in the top right corner of your screen. You can toggle between these at any time during the meeting. When you select the vote icon, you will see each of the resolutions that you can cast a vote on. To cast your vote, simply select one of the options. There is no need to hit a submit button. You will see a green tick beside each resolution you have voted on. You can change your vote right up until the time I declare the polls closed. As we move through the items of business, the number of valid proxies and votes for and against each resolution received prior to the meeting will be shown on the screen. As Chair of the meeting, I will be voting all directed proxies in accordance with the directions provided by shareholders. For open proxies, unless specifically directed otherwise, I will vote these in favor of all resolutions with the exception of Item 8, the Conditional Spill Resolution, which I will vote open proxies against. The first item of business is the receipt and consideration of the 2025 annual report. Just for clarity, no vote is required on this item. The 2025 report was released to the ASX on the 26th of September 2025 and is also available on the company's website. I will take the 2025 report as having been received by the meeting, and I invite any questions regarding the reports. The auditor has advised that she did not receive any questions prior to the meeting. So once again, I will just ask, are there any questions from shareholders present in the room for the Board or the auditor on the financial statements or the audit?

Charlie Kingston again. Sorry to harp on about it, but I'm just looking at your accounts and the free cash flow that you report in 2025 was $254 million. That was obviously before the sale of Lumus, but also before the net interest paid of $220-odd million along with finance costs. I'm still a bit baffled as to why we can't guide to if you hit your targets, how much cash is this business actually going to generate? Firstly, I suppose, that free cash flow figure, I mean, to be honest, what's the significance of it given it's before rent. Rent is a clear cost, please? I just struggle to understand why that's even being reported because there's so much cash that comes out below that line. So maybe just going forward, would you be able to report on an actual free cash figure, which is after all costs, please?

In an overarching sort of perspective, I would say we present these statements in accordance with accounting standards. They may not always give the answers that people like yourself are looking for. But yes, we are obligated to follow the accounting standards, and we have a very stringent audit process that makes sure that these things are presented in the way that the accounting standards require. I don't know, Paul, did you want to add anything more on the free cash flow measurement piece?

No, other than to say the lease payments, they are rent, which is 20-odd percent of our cost base. So we set that out. They are lease payments. For us to try and set it out in a different way that doesn't reconcile back to the financial statements is -- I think I know where you're going with this...

That could create more confusion.

It creates a lot more confusion. So I think we've attempted in the financial results this year to set that bridge out, which actually shows the cash flows going up. We acknowledge that lease payments is a large part of that. I don't necessarily agree that, that was a surprise at the end of the year. Our lease costs have actually been going up around -- or slightly below CPI. So we can commit to trying to give you a slightly clearer picture at the end of the year, that actually ties up with the financials that we produce.

Okay. And then just same question but asked a bit differently, our peer, ACL, I think their EBIT margin in the way that they report it is around 9%. Everyone's got their different accounting standards and how one presents margins, but that is after lease interest, et cetera. Our target is mid- to high single digits, I believe, but you adjust for that and it still would seem to be a fair bit below our smaller peer. Again, I think I ask the same question every time. But I suppose it's the key issue in terms of we are the second biggest player in the market. My thoughts was pathology is a scale game, so we should be able to deliver better margins than a peer that's significantly smaller than us. Why is that? Why can't we deliver similar margins, if not better, than a smaller peer because my understanding is rent is the same, consumables are the same. We're bigger, so we should have more scale advantages. So maybe if you could just address that issue as to why we can't deliver similar, if not better, and why have we set the target. I understand there's mix issues and everything. But yes, we used to deliver a lot higher. I think it was plus 10% margins. But yes, if you could address that issue, please?

So again, I'll just reiterate that our target for T27 is high single-digit EBIT margin. So we acknowledge that we need to improve our margin performance. We do account for leases differently to the way that ACL does it, but that's kind of cast in stone now and people, I think, are figuring out how to reconcile that. We do have a range of things that we do in our business. And yes, there are economies of scale, but there are also things that we do like providing services to regional and rural communities where we are suffering more than they are. Having said all of that, we look closely at their cost base as well, and we would acknowledge that there are efficiency gains that we can make, and that's part of the work that we are halfway through now. Did you want to add anything to that, Paul?

No, I was just going to -- I mean, we've obviously set out that we don't dispute that. That's a fact. So we've set out with our plan to achieve that and to the question that we had online previously, we've committed to providing that scorecard against our T27 plan. We will produce that every 6 months. And you can see that from the FY '25 results, we've made some progress, and we will obviously give you another indication of our scorecard at December.

Are there any other questions from shareholders present in the room? I can't see any. Gillian, are there any online questions?

There are no online questions, Chair.

Moderator, are there any phone questions?

No phone questions, Chair.

Thank you very much. In that case, if there are no further questions there, the next item of business is the adoption of the Healius 2025 remuneration report. Online shareholders have a question on this -- if online questions have a question on this resolution, please enter your question now. The wording of the proposed resolution is shown on the screen that the remuneration report for the year ended 30 June 2025 be adopted. I note that a voting exclusion statement and voting prohibition statement apply to this resolution as detailed in the Notice of Meeting. The votes received in relation to this resolution are shown on the screen. I now invite questions regarding this item. Are there any other questions from shareholders present in the room?

Sorry, I'm just trying to find my spot. But the STI hurdles, I think one of them was Lumus, which absolutely well deserved, great sale, as we said. The next one, cost out, that totally makes sense. But one of the items for the STI -- sorry, I can't find it, is EBITDA. I think you know my concerns there. EBITDA for this business is -- I mean, if the target is 21% if Paul, I think you just said rent or depreciation. So the accounting standards is [ 20 ] like that implies no real money that's generated by the company. But why is EBITDA the chosen metric? I mean, even as opposed to EBIT margins, which is what the F '27 targets are. So that seems a bit strange. But there's also -- unless I've missed it, please correct me if I'm wrong, but no attachment to a per share metric, EPS, free cash flow per share, returns to shares -- to shareholders, TSR, et cetera. Why is that? Because, clearly, our stock, we raised money at [ 20. ] Again, great job on the dividend. But adjusting for that, we haven't done anything. So shareholders are still struggling and per share metrics seem to be the most relevant, I would hope, for all shareholders, and that's what we care about. So why EBITDA and why not a per share target, please?

A couple of answers to that question. Firstly, I would say different shareholders have very different views about what the right metrics are that we should use for all of this. So I'm not sure that you ever satisfy everybody 100%. But -- and we had long debates about EBIT versus EBITDA. The other thing I would say is we are still in a transition from the bespoke incentive arrangement, which by its very nature was quite short term. And we have said in the rem report that our plan is by the end of FY '27 to move to a more standard STI and LTI arrangement. And as part of all of that, we would be looking again at the type of metrics that we're including in a more standard plan. We set those targets at a point in time before the T27 plan was released. And once they're set, you can't really muck around with them too much. But we have done a lot of work to satisfy ourselves that for those targets to be met, we have to be well on track to deliver T27 and the Board will be very mindful of that as we make decisions about awarding outcomes from those KPIs.

Okay. But just to be clear, I mean EBITDA, we go by a company and grow EBITDA, however dilutive that might be, is the emphasis. It sounds like you've had a lot of debate, but is there a real urgency on per share value as opposed to EBITDA because looking at the non-executive director equity holdings and to be fair, it's quite low, especially relative, I think most, if not all, director shareholdings are well below their annual remuneration in terms of dollar value. So it does feel like it's a bit misaligned from the Board's perspective, apart from the Tanarra representative. Neil has now gone. But Chris, I think you're the representative, but apart from yourself, it does feel like there is a bit of a misalignment in terms of equity ownership across the board and targets. Just any comments on that, please?

We have a policy on equity ownership, and the expectation is that Board Directors will hit their equity ownership targets over a 5-year period. You will also note that there's quite a lot of directors who have been on the Board for a very short period of time. So you've got to be reasonable and give people a period of time to get to their equity targets. I think I've already hit my equity target. So I certainly feel like I'm doing my bit to be aligned with the company. In terms of metrics, we -- of course, we would like to see the share price higher, of course. But we try in designing the KPIs to focus on the things that we can control. We can't always necessarily control the share price. So yes, we want alignment. Yes, we'd like the share price to be higher. But the main thing that we focus on is making sure that the things that we are measuring and the things that the business can control around costs and revenue are the things that they get rewarded for delivering or not delivering.

Okay. Cost and revenue deliver earnings per share, hopefully.

Hopefully. But they're not always beautifully correlated.

But that's how shareholders get paid. So hopefully, everyone gets paid if those...

And honestly, of course, that's our objective in designing all of these things. We're very focused on delivering shareholder returns, and we're not going to move away from that.

Sorry, just -- what is the minimum holding, just your total rem? I think it was over $300,000 relative to your equity holding of 140,000 shares, which -- was that on $0.80...

1x your directors' fees.

Yes. Okay. Maybe we'll speak about that after. It doesn't seem like that's 1x, but thank you.

Are there any other questions in the room? I can't see any. Gillian, are there any online questions?

No, there are no questions.

Operator, are there any phone questions?

No phone questions, Chair.

Then please enter your vote in relation to Item 2. We'll then move on to the next item. The next item is the reelection of Professor John Mattick. John's biography was included in the Notice of Meeting and is also on our website and in the 2025 annual report. The directors, with John, abstaining, unanimously recommend that shareholders vote in favor of John's reelection. The wording of the proposed resolution is shown on the screen that John Mattick, who retires by rotation in accordance with Clause 13.6 of the constitution of the company being eligible, is reelected as a Non-Executive Director of the company. The votes and proxies received in relation to this resolution are shown on the screen. I now invite questions relating to this item. Are there any other questions from shareholders present in the room? It doesn't look like it. Gillian, are there any online questions?

No. There are no questions.

Operator, are there any phone questions?

No phone questions, Chair.

Then I would ask you to please enter your vote in relation to Item 3. The next item is the election of Kathy Ostin. Kathy's biography was included in the Notice of Meeting and is also on our website and in the 2025 annual report. The directors, with Kathy abstaining, unanimously recommend that shareholders vote in favor of Kathy's election. The wording of the proposed resolution is shown on the screen that Kathy Ostin being eligible, is elected as a Non-Executive Director of the company. The votes and proxies received in relation to this resolution are shown on the screen. I now invite questions regarding this item. Are there any other questions from shareholders present in the room?

Just Kathy, given you're the member of the Remuneration Committee, Audit Committee, et cetera, just can we get your thoughts on my previously raised issues around targets per share versus EBITDA, please?

Kathy is a member of the Rem Committee, but Sally is actually the Chair of the Rem Committee. And I would just say we have debates and discussions around all of these things. And I wouldn't think it's appropriate to try to sort of get different directors to express different opinions on what they look like other than we hear what you're saying, and we will look at that more closely over time.

It's just the one opportunity we get a year as shareholders to have all the directors and you've cited vigorous debate amongst the Board. But if you don't want to allow other directors to speak, that's fine. Thank you.

Thank you. Is there anybody else in the room? Gillian, are there any online questions?

No, Chair, there are not.

Operator, are there any phone questions?

No phone questions, Chair.

Then please enter your vote in relation to Item 4. Moving to Item 5. The next item is the election of Chris Hall. Chris' biography was included in the Notice of Meeting and is also on our website and in the 2025 annual report. The directors, with Chris abstaining, unanimously recommend that shareholders vote in favor of Chris' election. The wording of the proposed resolution is shown on the screen that Christopher Hall, being eligible, is elected as a Non-Executive Director of the company. The votes and proxies received in relation to this resolution are shown on the screen. I now invite questions regarding this item. Are there any other questions from shareholders present in the room? I can't see any hands up. Gillian, are there any online questions?

No, there are not.

Operator, are there any phone questions?

No phone questions, Chair.

Thank you. Please enter your vote in relation to Item 5. We now move on to Item 6. The next item of business seeks shareholder approval for the issue of securities under the non-executive director share plan. The wording of the proposed resolution is shown on the screen. That approval is given for all purposes, including ASX Listing Rule 10.14 for the issue of securities under the non-executive director share plan to non-executive directors for the next 3 years on the terms described in the explanatory statement. The votes and proxies received in relation to this resolution are shown on the screen. I now invite questions regarding this item. Are there any other questions from shareholders present in the room?

Sorry, I haven't done my homework, but what are the terms of this? When do they get issued under what circumstances, please?

People can opt to participate in the scheme. And once they opt in, they just buy their shares and they get retained as part of the scheme. They get to do it as part of their -- a deduction from their directors' fees. And some people prefer to do it that way rather than buying them on the open market.

Right. So it's either cash or shares?

Yes. Gillian, are there any online questions?

There are not.

Operator, are there any phone questions?

No questions on the phone, Chair.

Thank you. Then please enter your vote in relation to Item 6. We will then move to Item 7. The next item of business seeks shareholder approval to reinsert the proportional takeover provisions in the company's constitution. These provisions lapse after 3 years, and we are required to seek shareholder approval to reinstate them. The wording of the proposed resolution is shown on the screen, that the company's constitution be amended to reinsert the proportional takeover provisions in Schedule 2 of the document tabled at the meeting signed by the Chair for identification purposes and as described in the explanatory statement for a period of 3 years with effect from the date of this meeting. The votes and proxies received in relation to this resolution are shown on the screen. I now invite questions regarding this item. Are there any other questions from shareholders present in the room? I can't see any hands up. Gillian, are there any online questions?

There are no questions, Chair.

Thank you. Operator, are there any phone questions?

No phone questions, Chair.

Thank you. Then I would ask that you please enter your vote in relation to Item 7. The next item of business is the conditional spill resolution. As I stated earlier, Item 8 is only required to be put to the meeting if at least 25% of the votes cast on Item 2 are against the adoption of the 2025 remuneration report. The registry has advised that the vote in favor of the 2025 remuneration report is at least 79%. Based on the number of votes in attendance at the meeting, the vote is not a strike, and therefore, we do not need to put Item 8 to the meeting. That concludes the formal business. I will now allow a few minutes for shareholders and proxy holders to complete their voting instructions. If shareholders have any further questions, please use this opportunity to submit your question. After receiving any further questions, I will declare the poll closed. [Voting]

Okay. I think that's probably given people enough time to cast their votes. Are there any last questions from shareholders present in the room? Gillian, anything that we've missed online?

No questions, Chair.

Operator, are there any phone questions? No phone questions? Thank you very much for that confirmation. Ladies and gentlemen, representatives of the share registry, I think, have mostly already come and collected the voting cards from shareholders and proxy holders in the room. So thank you for that. And for those online, I now formally declare the poll closed. I confirm that the voting results will be announced to the ASX as soon as the votes have been counted and verified. And with that, I bring this AGM to a close. Thank you all very much for your continued engagement and support of Healius. I declare the meeting closed. Thank you very much, everybody.