Healius Limited (HLS) Earnings Call Transcript & Summary

Morning, ladies and gentlemen. Welcome to the Healius briefing on our capital management program and our margin improvement or SIP program. I have with me today, Malcolm Parmenter, our MD and CEO; Maxine Jacquet, our CFO as well as our Deputy CFO and Treasurer. As per our usual format, we'll run through the presentation, which was lodged with the ASX today and will be up on the web as we go. We will then open both the lines and the web to any questions. [Operator Instructions] Thank you. And so without further ado, I will pass you over to Malcolm. Malcolm?

Good morning, everybody, and welcome to this presentation. We've got a few things for you this morning, just a high-level update as far as trading for the last couple of months. And then I'm going to hand over to Maxine to take you through cap management, our sustainable improvement program and the commercials around our investment in our laboratory information system. So look, at a group level, the strong performance that we saw earlier in the financial year has largely continued into October and November across each of our businesses. In Pathology, we've continued to have strong year-on-year growth in revenues in October and November, driven principally by COVID testing but also by recovery in non-COVID testing, particularly as Victoria recovered from lockdown restrictions. And non-COVID revenues have trended up to be flat year-on-year. COVID testing volumes continued at around 7,000 to 10,000 per working day, and non-Medicare COVID testing continues to grow as well. And look, at this stage, we expect COVID testing at some level to continue for quite some time, perhaps for years, as we learn to live with this virus. It's unlikely that vaccines would eliminate it entirely. We also expect the COVID test fee to continue for the foreseeable future, as it supports the novel and flexible approaches to collection and the capacity that we can provide in that space. Our Imaging business has seen sustained and reasonably strong growth in revenues in October and November in all states other than Victoria and South Australia. In Victoria, activity has rapidly returned with the easing of restrictions following the lockdown there. And revenue in Victoria was above prior year in November. The short and sudden lockdown in South Australia temporarily impacted revenues in South Australia, although year-to-date, South Australia remains ahead on a revenue basis compared to prior period, although South Australia is quite a small business for us in the imaging space. In our day hospitals and IVF business, the strong revenue growth that we noted at the last update has continued with revenue materially ahead of prior comparative period in October and November. The Montserrat business continues to generate good returns, with the flagship Westside Private Hospital continuing to run at record levels. Adora Fertility business is also performing very well with record cycle numbers in November. So that's a brief update. And I'll now hand over to Maxine to take you through the other components. Thanks, Max.

Thanks, Malcolm, and good morning, everyone. And thank you for your time today. I'll be taking you through our capital management strategy, including our investment in Pathology's IT program upgrade and the margin improvement program. First, I'd like to recap on the Medical Centres sale. As you all know, we received $483 million in cash, including all of the deferred consideration for the Dental business. From a commercial perspective, our service levels are the key determinants for maintaining our referral income, not our ownership of the Medical Centres business. We have entered into long-term leases, with the majority having significant option periods. As part of portfolio reshaping, we are confident we will achieve $50 million of cost savings to rightsize the support cost base, as previously announced. The Medical Centres sale leaves significant capital headroom to recycle capital into growing our positions in business lines with more attractive returns from scale and better cash flow generation. We see 2 major value growth opportunities for investment in our portfolio. Firstly, our primary focus of investment will be ensuring we deliver margin expansions in our core business. This will require a certain level of infrastructure investment to unlock. We also believe there are value-accretive opportunities to enhance our domestic market positions inorganically. For day hospitals, this will be expansion through our unique Montserrat model through acquisition and/or roll-ins into new large multidisciplinary sites akin to Westside Private. Opportunities in diagnostic imaging and pathology will be considered on a selective basis as they fit our portfolio, either adding scale or quality assets complementary to our network. Our capital management strategy objectives are underpinned by the investment plans and a couple of core principles: Maintaining our capital investment and liquidity needs, optimizing our cost of funding, and delivering meaningful returns to our shareholders. To that end, we are pleased to announce an on-market buyback of up to 10% of our share capital in the next 12 months with the aim of to return up to $200 million to shareholders. In addition to the share buyback, we are revising dividend payout policy. Going forward, we will set this at a payout ratio of 50% to 70% of reported NPAT. We do have sufficient franking credits to sustain fully franked dividends at these levels. The level of buyback and dividend we are announcing today takes into account not only the anticipated capital investments but also our view on -- of the optimal gearing level for our business in the near term. Our target bank gearing will be 1.7 to 2.2x, which we foresee coming into effect in the FY '22-'23 period. However, in the immediate term, the proceeds from the sale of the Medical Centres will see our gearing levels well below this level. Once we have a track record of strong cash generation from current operations and investments, we will review our target gearing in the context of the interest rate and market environment at that time. Our expected improvement in free cash flow generation enables us to reduce our borrowing requirements. As a result, we will be reducing our debt facilities by $295 million to $800 million. This will yield annual interest savings of circa $3 million per annum. We will also be taking the opportunity to close out ineffective hedges. We estimate that these actions will reduce our average cost of debt to 3.2%. And that's comprised of unutilized fees, variable interest rate on the facility, costs associated with the interest rate swaps and amortization of upfront borrowing costs. Turning to our capital investment plan. With the sale of Medical Centres, BaU maintenance and growth CapEx will reduce substantially to circa $55 million to $75 million on an ongoing basis. In addition to BaU CapEx, we expect investments will be needed to participate in the domestic consolidation opportunities through M&A. For day hospitals, this will be selective M&A to leverage our day hospitals model. The investment is expected to be in the order of $50 million to $100 million over 3 years, depending on the size of the opportunities and the funding models we adopt. We are planning to come back to the market with a more detailed briefing on the day hospitals market and the future of day hospitals growth in the near term. For diagnostics, we are focusing on acquisitions in geographic areas where we can capture greater network synergies. These opportunities could be in the order of $30 million over 3 years. Technology and infrastructure investments will be needed to enable the margin expansion program, which I will go into more detail as we go through the margin improvement program and the associated investments. Moving on to SIP and the margin improvement program. To date, we have delivered $58 million in annualized SIP program benefits in our continuing operations. For clarity, at June 2020, we announced annualized savings of $54 million, $10 million of which were in discontinued operations, being the Medical Centres. This means since June, we have delivered in continuing operations a further $14 million in annualized benefits in the program. On top of what's been delivered to date, we believe there are substantial further scope for business improvement and margin uplift in the business. We expect at least 300 basis points of margin improvement in Imaging and Pathology are possible through 4 key areas: Digitization, workforce management, network optimization and sourcing. To deliver this step change in margin will require more extensive step changes in the business as well as investments in our people and our infrastructure. Some practical examples of the work underway include digitizing the end-to-end patient and referrer journey in Imaging. Some of the functionalities being implemented here include providing digital straight-through processing options and automating highly manual and routine customer transactions. Bookings and check-ins are examples. Currently, we estimate up to 80% of our clerical staff time are occupied with routine and automatable transactional activities. So the savings opportunities are substantial. Digitizing orders and forms to reduce double handling of information, manual data entry and paper waste. This also reduces potential for administrative errors. Providing a portal for patients to access their scan information, preparation instructions, reports and images. This improves the service experience and convenience to our patients. Tracking of the patient journey with us end-to-end so that we can ensure their continuity of care. Under workforce management, we are using data to bring more transparency on individual and site-level performances. These feed into dashboards to help our staff review and improve their team and own performances and also realigning incentives to reward better performances and customer outcomes. We're also getting better at measuring and predicting demand and using these to optimize our staffing levels. We are replacing outdated phone systems in our clinics with new phones capable of key management, automatic caller ID and tracking call demand and wait times. This allows us to optimize staffing and demand based on our service level targets. There are many more programs of work underway or within our plans. As mentioned, with these programs of work, we anticipate improving our margins in Pathology and Imaging by at least 300 basis points. Through a combination of this program and BaU growth, we are targeting EBIT margins of 14% for Pathology -- for both Pathology and Imaging as an FY '23 exit run rate. To deliver these changes will require investments of around $12 million per year from FY '21 to '23. This covers program resourcing, change management and training, technology and systems infrastructure, facilities and property costs and operating model and process redesign. Importantly, each initiative will be stage-gated, and release of each stage of funding is subject to proof of concepts and meeting delivery milestones. Translated into dollar terms, the program is targeted to deliver $80 million of run rate EBIT uplift by the end of FY '23. This is a substantial increment on our current earnings. Based on this, we've provided illustrative scenarios on Page 15 that show the potential outcomes of successful delivery of this program. This, naturally, is not a forecast. Moving on to the technology upgrade and the LIS system within Pathology. Pathology is traditionally invested in physical technology for its labs but under-invested in digital technology. This underinvestment has resulted in significant inefficiencies in the business due to the accumulated tech dip, meaning that the majority of our IT spend today is on maintenance rather than growth. We were aiming to get the balance back across the whole pathology process, from the digital interface at the site of collection to improve digital workflows within the lab as well as the critical reporting and billing functionalities that are important to our primary customers. The shift we are aiming for in the next 3 years is to turn digital technology into a driver of growth, rather than just a cost center. We have developed 5 principles that underpin this digital strategy. Firstly, while the Laboratory Information System is one of the key digital enablers of the business, the aim is to improve our digital capabilities across the board using the appropriate solutions and vendors for each component, while ensuring seamless integration and minimizing complexity. That is at the core of our first principle, which is ensuring and retaining modularity in our digital capabilities for both the LIS as well as our other tools. For example, we are investing in a project that will establish a new integration layer that allows our LIS to connect easily with third-party applications as opposed to the current direct point-to-point integration that is both risky and expensive. It is important to emphasize that the technological environment of pathology today is quite complex and will only increase in complexity going forward. We are now looking at how artificial intelligence can play an increasing role in our business or how we can use digital pathology to change the way we operate. These solutions will unlikely come from a single vendor. So we will need to ensure modularity in our tech stack to benefit from these innovations. Secondly, we want to make sure we invest for future growth. This means our digital capabilities need to be able to scale easily with the strategic direction of the business, whether that is in terms of future acquisitions or in terms of significant increases in data storage due to new business models. Thirdly, we are also excited about the prospect of standardizing our LIS from 4 different instances today to 1 single instance in the future. This is a highly complex process, as the businesses have customized their offerings and the internal workflows over many years. But the benefits of harmonizing operating model are significant. For example, we can process particular esoteric tests just in 1 lab rather than spread out over 4 different labs. Finally, we are working on implementing specific functionality enhancements, like an e-order solution, that will us to create a fully digital referral process, which has become particularly important due to the increased usage of telehealth. All these examples are all progressing and are agnostic of the more operational back-end modernization for LIS. For that project, we are in advanced stages of negotiations with potential LIS vendors. While we want to move forward fast, we do not want to rush this decision, as we expect the LIS vendor to be a long-term strategic partner. This is at the core of our fifth principle, that being, we need to have absolute confidence in their product road map and overall sustainability of the business we partner with. It also means that in the meantime, we are developing solutions to extend the life span of our current LIS to give us the appropriate time to manage the implementation and optionality. These are solutions like archiving parts of our database to create an ongoing space as well as the new integration layer. In aggregate, pathology IT's strategy expected to cost an incremental $85 million to $90 million over the next 4 years. This includes both costs by external vendors as well as internal program support costs. In addition to maintain and continuously improve our new digital capabilities, we expect a net increase in our IT operating costs after the implementation of a more modern LIS. However, this will be completely offset by direct savings coming from other parts of the business. And we expect an additional $25 million to $30 million run rate benefits to come from a more modern digital technology environment, and this is in addition to the SIP savings that you have seen on the previous chart. Examples include the benefits of interlab optimization, which will reduce FTEs in our lab; near elimination of data entry staff; as well as productivity improvements. Thank you very much. And now I will hand back to Janet.

Thank you, Malcolm, and thank you, Max. That sort of concludes the presentation that we launched to the ASX today. We now have questions coming through on the phone and on the web. So we'll start off with the questions from the phone line, please. Thank you.

[Operator Instructions] The first phone question comes from Peiting Liang from JPMorgan.

It's David Low here. Can you hear me?

[Operator Instructions]

Yes. Sorry, the line's breaking up all through it, but I'll continue on. Just if we could start with the corporate cost. I was a bit unclear what we should expect going forward. I mean, I understand that we need to offset the Medical Centres cost allocation. But if we look at the FY '19 corporate costs that were reported, a bit over $20 million, what should we expect going forward, please?

Look, I think, David, I expect it to be around that level, maybe a fraction higher than that, given the increases, the continued increases we see in -- particularly in the insurances area. And most of the savings that we're expecting are going to be coming through into divisions as well.

Okay. Great. That's fairly clear. Just on timing, I know the chart that you've shown there showed a significant improvement in both imaging and pathology. Could you give us any sense as to whether that's going to be front end-, back end-weighted or evenly split? How should we think about that in both divisions, please?

Look, it's quite similar in both divisions, other than the benefits for -- from the -- that have been specifically called out on the LIS. If you thought about the next 6 to 9 months, it is very much focused around building our labor management tools and also embedding some of the digital interfaces, which are going to have an impact on labor cost as well. We will start to see benefits starting to flow through into the -- if you thought about the back end of the calendar year next year. So it's certainly -- we'll start to see -- FY '22 is where you'll start to see meaningful benefits in those numbers and not really before. I expect some additional benefits coming through in the second half on SIP, but they won't be -- immaterial to these numbers.

Okay. And then just one more for me, please. The $12 million per annum is going to be a mixture of OpEx and CapEx. The LIS, we've got, I think, about sort of circa almost $100 million more as well. Just would like to understand how these costs will be reported. Are we going to continue on with the style of reporting which is showing us an underlying number and a reported number, with the difference being the ongoing cost of implementation?

Look, I mean, they will be one-off costs. They are a mixture of technology and people costs. And the exact split on the $12 million, we don't have at this point in time. We do have for some of the larger projects, like an upgrade that we're doing to our workforce management tool. But we will -- as we progress them through the program, we will actually report on the major delivery items in each of the program and what has been spent. That -- we've said that the LIS program, and that will stay as the only non-underlying item, and we're committed to continuing with that.

Okay. So the $12 million, the OpEx portion of that would be shown in the divisional results and corporate cost results and wouldn't be broken out as a noncore item?

We will call it out because I think it's important, is we show benefits, we show what investment that we're putting against each of the programs. So -- but they will go into the normal results.

So just firstly, just on the LIS system. Does the $15 million to $20 million benefits factor revenue benefits into this, for improved accuracy, advanced testing? I guess what I'm trying to understand is what potential share gains do you think you can have in complex testing post-implementation of this system?

That's a good question. And look, the lion's share of the benefits is cost-related. So -- but there are benefits in some of the more specialty areas, such as genomics and what we feel the revenue growth is in some of those specialized areas. So it has been -- it's not an overall revenue benefit. We've gone each year of pathology and taken a view around what we think is that additional revenue opportunity, but the lion's share is cost benefits.

Okay. Yes, makes sense. And then just in terms of collection center rationalization, can you confirm how the number of collection centers you've closed this financial year-to-date? Have you seen any revenue leakage as a result of what you've done so far?

So look, it still sits at a net 100 in terms of closures. So there are 128 closures, but we've added 28. And the -- it's been minor, the revenue leakage. And it's well above our expectation in terms of -- we were hoping for 60% leakage. But -- so 60% retention, 40% leakage. It's been more like 20%, which has been better than what we expected.

And going forward, do you continue to have that 40% leakage target? Or has that changed?

Look, it will evolve. And it is area-by-area as we go through this process. I think I've said before, we're building up more of a yield management approach to this. So it's actually -- it's partly about cost. But we're keenly watching what the impact on revenue is and how we can cluster our sites to retain revenue. So we -- it's -- actually, our primary focus is about retention of revenue.

Yes. And then just to relate that back to your trading updates, do you have concern that on your base business, you're still flat year-on-year despite the revenue leakage that you're seeing here? Is that correct?

Yes. Look -- and we -- comparing the areas and where we've closed collection centers, we can't correlate between closures and where -- what we're seeing in terms of the flat revenue environment, which is universal across the pathology network.

The next question comes from Chris Cooper from Goldman Sachs.

Can I just start with a clarification question on Slide 15? So the targets you have for pathology and imaging for fiscal '23, the way we should be thinking about this -- this is a follow-up to a previous question. The way we should be thinking about this, I think, is we -- due to your comment on corporate costs, there's a number perhaps a touch above $20 million that we need to factor in on top of those 2 segmental numbers. There will be some contribution from day hospitals and IVFs. But otherwise, those numbers include these implementation costs that you're talking about or the OpEx component of it, also any sort of OpEx component of the LIS number. The only other number which we need to factor here is the adjustment that you're going to make for the LIS, which will kind of be reported as a sort of non-underlying number. Is that correct? Is that the right way to think about these new targets today?

So let me clarify that. All LIS costs, so the $85 million to $90 million that we talked about, will be reported separately as a non-underlying item. So in that, there are no LIS costs associated with what you're seeing in that pathology margin improvement number. And then I think your first question was just clarifying LIS. So beyond that, we obviously have corporate costs, $20 million. I would -- to be conservative, I think I would take an adjustment upwards of that because we are seeing quite significant inflation in some areas, which are not that easy to control such as insurances. And then yes, there's a contribution from the day hospitals business as well.

Okay. That's very clear. And perhaps a follow-up to a comment Malcolm made earlier, suggesting that COVID testing may be something that lasts for years. Can I just confirm whether there is any assumption around COVID testing, either sort of PCR or serology, in those fiscal '23 numbers?

None, not at all. So -- and you can see -- look, we've taken a fairly -- what we've done here is we've taken, what we believe, is a fairly conservative view around BaU, looking at historical norms without any sort of Herculean assumptions and then really going through both commercially and operationally, what are the core activities that are going to deliver that margin improvement. So -- and it doesn't include any expectation around continuing COVID.

FY '19, as you can see there for that very reason, we wanted to get back to our last normal year and then just put in normal BaU assumptions, as Maxine said, without any of the pluses or minuses for COVID community testing.

That's helpful. And last question, on Slide 13, if I compare this to the sort of last update that you gave along a similar line back in the August result, the consumables saving in pathology of $5 million appears to be new. Can I just confirm what that is? And sort of how we should think about that over the next couple of years?

Well, look, I think how we're thinking about it, I mean, we're taking a pretty different view around all our sourcing. And whilst we have, in the past, sought rate reductions from vendors, we have taken a bit of a different view around a lot of our sourcing, particularly in the corporate areas and the support areas and in consumables by looking at direct sourcing a range of different vendors. And -- so I mean, we're expecting some reasonably material benefits not only in pathology, but also across all of our operations and corporate services in the next couple of years. And a key part of that $15 million cost-out is relating to reduction in our telco and property contract costs, which we're very confident of achieving.

The next question comes from David Bailey from Macquarie.

Yes. Just 2 quick ones on imaging, to start with. Just in terms of that recovery in Victoria, just wondering if you can talk to the drivers there. Is that a resumption of elective surgical procedures? Any sort of detail you can provide there would be helpful. And then if you go back to Slide 15, your high case has got 4% revenue growth; with indexation coming through, 1.5%, some volume growth plus mix. I mean, does that seem to be a bit light on? I'm just wondering if that top line assumption is a bit conservative as to really relative to what you might achieve over that time horizon?

Okay. Look, I might answer the second part of your question first, if that's okay. Yes, you look at it, it is conservative. But I think the way that we have planned this out is to take what we would call bankable and then be very specific about new contracts that we're chasing, or what our assumptions are around particular areas of either modality growth or in terms of our cost-out initiatives. So I think the way to view the BaU as best we can, understand the environment in which we're operating BaU, is definitely a conservative view of a historical past.

Yes. David, it's Malcolm here. Just on the imaging recovery in Victoria, our Victorian Imaging business has about 60% of its revenue from hospital contracts. And I mean, clearly, elective surgery has a big impact on that. Quite a significant part of imaging is around pre- and postoperative scanning. So the loosening up of restrictions around elective surgery is a significant part of it. The other bit of it is around the Medical Centres business in Victoria. Lockdowns also have a big impact on patients attending Medical Centres. And so telehealth doesn't tend to generate the same amount of imaging off the back of it. And as that loosens up, the revenue tends to come back. And it's come back pretty quickly, really.

Yes. Yes. Okay. Just a quick one on gearing. Are they pre-AASB 16 numbers, those targets?

Any more questions on the line?

Yes. David Bailey had a follow-up question.

Sorry. Just double checking those gearing targets, are they pre-AASB 16?

The bank is pre-AASB -- the bank for gearing targets is pre-16, yes.

Just had one last follow-up, actually. You sort of talked to, in that Slide 11, portfolio development and value creation. Do you see any opportunities within pathology from an acquisition perspective?

Look, yes. Yes, there are, but not any that we're willing to talk about.

Seeing and realizing are probably 2 different things at this point.

Yes. I think that's right.

The next question comes from the line of Andrew Goodsall from MST Marquee.

I did submit a couple online, but this might be a bit duplicative. But just the first one was just the metrics that you saw at the first quarter trading update, have you seen those metrics continue into second quarter, particularly around margins that you're seeing for each of the segments? And do you expect they'll sort of sustain through -- into, I guess, as a half -- a full -- half year number?

Look, we have. Look, we've seen -- just in the BaU, we've seen pretty good containment of cost just generally, and so comfortable that we're holding in the BaU. And when it comes to COVID, it's a similar level of margin. Maybe obviously, as volume tapers down, that will change.

Actually, that is my second question. It's just -- look, obviously, in the Australian data that we look at, we've seen a bit of a fade in December, I guess, as Victoria comes out, just where the -- your numbers have followed that fade? And just what your daily sort of test rates might look like now against the number that you've provided?

Yes. Look, the 7,000 to 10,000 still holds on a working day basis in December. Look, it can vary up and down quite suddenly. It only takes a few cases of the outbreak somewhere to set off quite a lot of testing. So look, we -- it will swing around a little bit, but it's been holding at about that sort of number.

Okay. Great. And just my final one. Just in terms of M&A, I know you've sort of highlighted that's a possibility. But just in terms of restructuring the portfolio, is that also sort of part of your overall thinking that in terms of moving forward with an optimized organization?

What, you mean further divestments?

Yes.

No. No, not at this point in time. I mean, we think there is good value to be realized in those existing portfolio assets before we make any further divestments.

The next question comes from David Stanton from Jefferies.

Apologies upfront, I'm having real troubles hearing most of this stuff. So I apologize if these questions have already been asked and answered. But look, I just wanted to go back to, and what I suspect is to beat a dead horse, Slide 15, where you talked in the upper case of about $250 million in EBIT from both Pathology and Imaging. Now I note that's pre-AASB 16. Unfortunately, we have to start modeling post-AASB 16. Am I right in assuming that the post-AASB 16 negative impact is around $40 million?

No. It won't be, no. No, it won't be that high. Yes, $10 million to $12 million is what we said.

Okay. So if I -- just to -- again, to beat a dead horse here, by F '23, the -- if I was to look at it in F '23 post-AASB 16, the case would come down by about $10 million to $15 million of that earnings number, the $80 million earnings number.

The EBIT or the NPAT number? The EBIT, and that the EBIT line will be positive AASB 16, negative at the NPAT line. We've sent you for the year, yes.

We don't have, at this point in time, an FY '23 AASB 16 forecast.

So we sent you the forecast for the year, for this year FY '20, which is positive at the EBIT and negative at the NPAT. And I think the best option in this -- it's just a scenario. It's not a forecast. The best option is just to roll that forward, I think, Doc.

Okay. Maybe we should take this off-line. And again, those -- so that 200 -- that, call it, $250 million does not include the LIS costs for the new pathology system. That's my final question.

No. It does not.

The next question comes from Rod Sleath from Rimor Equity Research.

Like some other people have mentioned, I'm having a little bit of trouble with some dropouts on the call. So it's possible that I will ask things that have already been mentioned. I was just wondering with, firstly, if I can just ask for a clarification on your current expectations for the LIS rollout costs. In that $90 million, are you able to give a breakdown of what you expect to be capital expenditure versus what will be operating expenditure?

Look, we're not at this point in time. And there's a deliberate reason. Because as we go through vendor selection, we do have optionality around how we treat various items. So we will give greater clarity on that as we go through the program.

Okay. No problem. And likewise, the -- sorry, I'm not sure which page number it was, but where you showed the drop in CapEx following the sale of the Medical Centres. That figure, which I think was $55 million plus potentially $20 million, is that -- so that is presumably excluding any LIS CapEx costs?

Yes. It is.

Excluding. Okay, great. Just a question on the indexation, which obviously is now in place on sort of 80% of the Imaging business. I'm presuming, from reading the rationale of the reintroduction of indexation, that there's a quid pro quo that there should be no or less increases in out-of-pocket expenses for the patients. Is that a fair assumption? So although there would be a net benefit to individual item prices from indexation, it's not going to be as high as the actual indexation effect across the portfolio?

Look, I think indexation has been put in place without any requirement about out-of-pockets. I think the market will determine where that goes to, I should imagine, across all providers. And depending on the socio-demographics of the environments that each of those imaging businesses are in drive it as well. So I don't think there is any sort of control over out-of-pockets.

Okay. Sure. Sure. And given the completion or must be very close to being completed, if not completely completed, of the rollout of the new PACS and RIS systems in diagnostic imaging, are you ever able to give us some color on how the new systems are performing and what the benefits are that you're seeing? And I was also wondering if you're able to -- like the numbers you suggested for the LIS rollout, are you able to remind us of what the total cost of the PACS and RIS rollout was and what sort of ROI you are hoping to achieve from that, as you get full benefits presumably over the next few years?

Yes. Look, we can talk about what the benefits are first in terms of the PACS and RIS system that we've rolled out. I mean, the obvious benefits are around the delivery of images to refer us in a format that they want and are used to, in fact, from our competitors. So to a large extent, that's a catch-up in technology that our Imaging business was well behind in prior to this. But the other parts around it are around -- in being able to do that, the significantly reduced necessity to print film around it. And so the cost of that has decreased significantly. And with the voice automatic dictation system that it has, the size of the typing pool is significantly reduced over time. So there have been a bunch of savings around that. Being able to provide images in the way that specialists are looking for certainly allows us to attract some work that we weren't getting previously. So look, it's -- to a large extent, doing this has caught us up to our competitors so far. We have aspirations to take it well beyond that with new technology that connects to this. But it's so far, so good.

Yes. So benefits to date just sit under $5 million. And that's been in things like typist costs, a lot of the operational pieces. And we'd like to get to a benefit profile of closer to $10 million for that program, and that really will rely on the additional uptake of specialists. And there is a program of activity around getting better utilization across the specialist group of the system. So I'd say another $5 million to go and largely focused on revenue.

Great. And are you able to give us sort of where the historic total cost ended up being?

$20 million, around about $20 million, yes.

The next question comes from Sean Laaman from Morgan Stanley. I'll move on to the next question. It comes from John Deakin-Bell from Citi.

Apologies, it's been cutting in and out. So I'd just -- not sure if this has been asked. But the -- I just wanted to focus on the LIS program. And I went back to your presentation from September '18 when you raised the capital and originally started talking about this. I think you said then $100 million of cash costs and expected benefit, $20 million. And you spent, according to the accounts, I think, $15.7 million in FY '20. So you're kind of at the $100 million to $105 million, if you add your $85 million to $90 million. And now we're at $15 million to $20 million. And I know you paused it in general. I'm still just a bit confused. We kind of get the similar numbers, but what exactly happened when you paused it and looked at it? How did we come back to the same type of numbers? Is this a different approach that you're taking now to the system?

Yes. So look, I might kick off just in terms of clarifying some of the numbers, and then maybe Malcolm can go back a little bit. So just in terms of what has been spent to date, of that, it will actually be on the program Serum Work Area, and LIS will be -- is $20 million, and a large part of that is the Serum Work Area. That work that has been done is certainly not wasted. It's been focused on workflow mapping and detailed technical specifications around desktops and panels. The -- going forward, the $85 million to $95 million envelope includes additional items that were not included in the original scope, being things like e-orders and a couple of other -- the digital technologies that weren't contemplated. It's not the lion's share of the program, but it is still a meaningful chunk of that. So I might hand back to Malcolm to just go back.

Yes. Thanks for your question, John. Look, the pausing of the program related to some things that were happening within the business around some potential M&A that would have required a different approach to this. Now we don't really want to talk too much about what that is at this point in time. But at the time, that was the case. And so it required us taking a bit of a pause from where we were at. But we need to keep moving forward with this. And so that's where we're at now.

Okay. Now perhaps if I could just ask one other question. It's very difficult from the outside with all the noise in COVID testing. But in terms of underlying market shares in the pathology market in Australia, do you think they've changed much in the last year or 2? Or do you feel it's kind of similar to what it has been?

Look, it's difficult to say through -- I mean, the noise of COVID and the impacts it has on BaU, the swinging around that occurs in various states with lockdowns and releases. Look, historically, market share in pathology doesn't change much. It -- and the main changes in market share, I think, over the last kind of 3 or 4 years have been the loss of the bowel screening contract. But the rest of pathology has stayed pretty static. So -- but you get tenths of a point of change from -- that appear to happen from period to period. But it's -- but referrers are pretty sticky, and it doesn't change that much.

The next question comes from Mike Younger from Rest.

First question, I didn't quite catch the quantum of investment you were talking about around day hospitals and diagnostics. Would you be able to repeat those, please?

Yes. Certainly. And look, this is obviously not set in stone by any means. So look, we -- over the next few years in day hospitals, we see opportunity to consolidate. And that could be both a combination of buying smaller sites to rolling to larger Westside-like sites. And the way we think about that is if a business was making, let's say, EBITDA of $2.5 million, that we potentially could buy those around 6, 7x. And the investment -- in terms of getting to a -- building out more Westsides, which is our strategy, particularly as we see the results in the Westside -- the success of the Westside business model, can be funded either through an opco/propco model. So it's a capital-light solution. But still, there -- we anticipate there would still need to be some seed capital for potential acquisitions of practices to commence that kind of operation. So we've earmarked up to $100 million over the next few years. But obviously, that will depend on how that pipeline and the opportunities develop and what multiples are being paid and what's available, and whether we think that makes sense or not. In imaging, it's certainly quite a selective process of looking at pockets throughout the network where we think we could improve our utilization of our existing network or where there are contracts, attractive contracts that we think we could secure. And so we've said $30 million potentially in the next couple of years in imaging, but again, not set in stone, depends on the quality of the assets. And as no doubt, you're all seeing that the multiples sort of being paid in the imaging are pretty high at the moment.

Great. And then a second question was just a clarification around the group support costs that you're looking to reduce by over $15 million in the next year or so. Is that part of the SIP or not?

Yes. It is. It is. All growth initiatives with spend associated with them, all cost-out reduction programs go into the SIP program so that we can properly track, provide seed funding and proof of concept. So it's a pretty deliberate program and architecture around that, so that we are making sure that we're actually getting the translation into margin rather than just a constant sort of trying to keep pace with cost growth.

At this time, we're showing no further questions via the phones.

Thank you, everyone. I think there's a couple of questions on the web. But in the interest of concluding in time, I will look at those and give the relevant people a callback. So with that, we will nicely finish on time and thank everybody for your attendance. And do feel free to give me a bell if you got any other questions. Thank you.

Thank you.