Healius Limited (HLS) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the 2020 (sic) [ 2022 ] Annual General Meeting of Healius Limited. Thank you for joining us. My name is Jenny Macdonald, and I'm your company's Chair. I'd like to begin by acknowledging the traditional owners of the land on which we meet today, in particular, the traditional owners of the Eora Nation and pay my respects to elders, past, present and emerging. It is past 11 a.m. Sydney time, and as the company secretary has informed me that we have a quorum present, I declare the meeting open. This is our first-ever hybrid meeting. And a little bit, unfortunately, we have had a little bit of a technical difficulty with the slides for people who are logging on into the webcast. Now if you would like to see the slides, they are on Healius' own website and the ASX. So please do that, and we will try and fix that during the meeting. Shareholders have the option to participate and vote either in-person at the meeting at the Four Seasons Hotel or online through the Computershare AGM platform. Here in-person with me today in Sydney, we have, on my left to right, we've got Kate McKenzie, an Independent Non-executive Director; Professor John Mattick, Independent Non-executive Director; Charles Tilley, Company Secretary; Malcolm Parmenter, which is our Managing Director and CEO; Sally Evans, who is our Independent Non-executive Director; Gordon Davis, Independent Non-executive Director; and Paul Jones, Dr. Paul Jones, I should say, Independent Non-executive Director. For those of you who are regular AGM attendees, the agenda today is relatively routine. However, we do encourage questions of any item of business. As outlined in our Notice of General Meeting, Gordon Davis is retiring by rotation and standing for reelection today as a Non-executive Director. Professor John Mattick is standing for election today as a Non-executive Director. In terms of remuneration, in addition to the remuneration report for the financial year 2022, we are also seeking your approval for the issues of securities under a new long-term incentive plan and also the issue of securities to Malcolm under that new plan and also under the short-term incentive plan. We also seek your approval for the issue of share rights and restricted shares to non-executive directors under the Non-executive Director Share Plan. Finally, we seek your approval to renew the proportional takeover provisions in the company's constitution for 3 years. Before we begin, a few brief housekeeping points. Should you require assistance during the meeting, if you're in the room, please raise your hand, and one of the Computershare team will assist you. For those online, a guide of how to participate is available on the Healius website. The phone number to get assistance is in this guide and on the slide in the screen now as well, which is just for people on the online, it's +61-3-9415-4024. Also, a recording of this meeting will be available on the Healius website afterwards. For those of you who feel comfortable with the technology, the polls in relation to all items of business are now open. This means you can vote from now on. You will have the opportunity to vote throughout the meeting. And I'll let you know when voting is about to close. The online question portal is also now open. You can also submit written questions online if you wish, and your questions will be placed in a queue. Charles Tilley, our Company Secretary, will say more about how to ask questions and how to vote when we move to the formal part of the meeting. Having covered the procedural matters, I'd now like to take a moment to speak to you about your Board and a few words on this topic. As you are aware, Rob Hubbard, our previous Chair, has sadly stepped away from the Board due to health reasons. Dr. Paul Jones, right at the end there, also announced his retirement this month, effective at the end of this AGM, and he tells me he's very much looking forward to his retirement. On behalf of the Board, I'd like to express my enormous gratitude to both of them for their steadfast guidance and valuable insights and considered approach throughout the period of considerable change at Healius Limited. They leave behind a great legacy. Company has a good balance sheet, a streamlined portfolio and multiple growth pathways. We have a dedicated team and a clear focus on sustainability, underscored by our role in ensuring Australians have access to quality health care, irrespective of their circumstances. It's a privilege to be appointed as a new Chair, and I am committed to helping Healius build on the achievements under Rob's tenure for the benefit of all shareholders. Together with Sally Evans, who Chairs our People and Governance Committee, I will look to fill the 2 vacancies on the Healius Board over the next 12 to 24 months and informed by an assessment of our current optimal mix of skills and experiences that the Board should have. We will undertake this assessment shortly, and that will be in November. I like the cadence of new director each year in terms of Board renewal. This is an opportunity to give us some different skills and different perspectives on the Board. As the new Chair, I'm turning my mind to executive succession planning. This is a priority for your Board. Over the past 3 years, we have come through a period of transition in terms of portfolio, strategy and technology as well as managing the near-term imperatives of COVID-19. Now we must look to establish the leadership team, which will best steer your company in the next phase of the evolution. We'll update the market where appropriate. So let me make some observations on our vision and strategy for Healius. Our vision is to create sustainable value through the provision of comprehensive diagnosis in support of clinical decision-making across the national health care system. This is why we're here, to make Australians healthy. Our strategy rests on 3 pillars: on delivering precise insights for screening, diagnosis and therapy; on providing patients and clinicians with superior health care experiences; and on creating value by investing in new and growing clinical domains. This strategy is underpinned by key drivers, including the increasing importance of screening and diagnosis in reducing downstream health care costs; the growing autonomy and choice of individuals as health care consumers; and the rapid expansion of innovation and technology and treatment of disease. We are building a digital future for diagnostics, changing for the better to serve experience for our patients and referrers and we are focusing on the highest burden disease group, including cancer and cardiovascular disease. As an example, in August, we announced a partnership with a U.S. company, C2N Diagnostics, and we'll soon be offering their blood test to help the evaluation of Alzheimer's disease. Making Australians healthier and reducing the cost burden to society is the essence of your company's vision. And now let me move to capital management and shareholder returns, which I'm sure all shareholders are very interested in. Your company remains committed to the target gearing ratio of 1.7x to 2.2x EBITDA. That's an optional -- that is our optimal gearing ratio. We have been below that over the last 2 years with the high level of COVID-19 screening. We will look to selectively invest where our money is best used: in our SIP digital and innovation programs; in M&A to improve our existing footprint and where we can see value accretion; and in shareholders' value. As you're aware, we carried out a $200 million buyback in calendar year 2021, funded by the sale of the Medical Centres in 2020. In March this year, we announced another more tactical buyback of up to $100 million, where we have brought back on market about $41 million worth of shares. In addition, our dividend has grown strongly over the last 2 years, marrying our performance with $0.1325 per share declared in 2021 and 16 shares -- $0.16 per share in 2022, and they were all fully franked. We would like to continue to grow dividends in real terms. But with profits fluctuating around COVID testing, this may be difficult in the short-term. Nevertheless, your Board will remain focused on the returns it makes to shareholders. We have set our payout ratio of between 50% to 70% of reported profits. And we will continue to ensure the discipline of a strong payout ratio is instilled in the company's capital management. Just on sustainability. Over the past year, we have set out sustainable aspirations and identified 5 priority areas. And I might just refer you to the company's website, which has got us the second year of our sustainability report. In terms of sustainability, our success is underpinned by ability to attract the right -- to attract and retain the right talent, providing them with the right tools and support to deliver the best possible outcomes. We recognize that climate change is a global issue requiring the collective efforts of every person, business, community and government. While we're not an emitter of a large amount of greenhouse gases, our priority is still centered around reducing our carbon footprint, reducing single-use plastics and disposal of medical wastes. In terms of our customers and in line with our vision, Healius aims to permanently change for the better, how consumers access diagnostic care in Australia. Our company considers information security and safeguarding the health data in our system to be a priority. We are executing a program of 30-plus strategies to further mitigate cybersecurity threats, including modernizing our firewalls; segmenting our networks to reduce exposure to attacks; and implementing an industry-leading security management solution. Our ongoing commitment to offer bulk billing for many of our services enables all Australians to access the care they need, irrespective of their circumstances. Our contribution to our community goes beyond this to charitable outreach as a national and local level and support of clinical university placements. We're also committed to supporting human rights by aiming to eliminate any modern slavery from any of our operations. We are currently using a sustainable development goals developed by the United Nations as the framework for our FY 2022 Sustainable Report. As I said, you can read more about our sustainability initiatives in our '22 Sustainable Report, which is online. Before I hand over to Malcolm, I'd like to extend my thanks and gratitude to the entire Healius team, especially those who work in the front line, who have demonstrated their unwavering commitment to service during the COVID-19 pandemic. It's been another extraordinary year, and I would thank them for their dedication and resilience. Finally, I thank you, our shareholders, for your continued support and look forward to delivering again in the financial year 2023. I'll now hand over to Malcolm.

Thank you, Jenny, and let me add my welcome to all of you, either here in-person or virtually online. Look, first and foremost, I'd like to extend my sincere thanks to our people for their dedication and commitment in serving the health care needs of Australians during the pandemic and during the last -- the past financial year, in particular. I'm very grateful for their untiring efforts. The last 2.5 years have been an unprecedented time for Australian health care with enormous swings in demand. There have been times when demand has been something like 40% down across all of our businesses only to swing to more than 40% up in a matter of weeks. And you can probably imagine the pressure that, that puts on people delivering those services. At Healius, our people have faced every challenge COVID could throw at them and have kept backing up. I'm very grateful to our people and very honored to have been a part of that. I'd like to also thank our executive team who are all nicely lined up here in the front row for their commitment and the outstanding results that they and their teams have produced during another challenging year. They're here to answer any questions that I don't know the answer to, so to back me up. So we might get each of you, as I call your name, to stand up so that everybody can see where you are. First of all, we have Maxine Jaquet, who's our CFO and COO. Thanks, Max. Janet Payne, our Group Executive Corporate Affairs; John McKechnie, who's the CEO of our Pathology division; Henry Barclay, CEO of our Montserrat Day Hospitals division; Prasad Arav, who's Group Executive Digital and Technology; Mark Neeham, Group Executive, Government Affairs. Now Peter Wilson, who was -- has been our Group Executive People and Shared Services, has recently announced that he'll be retiring. And I'd like to thank Peter at this point for his contribution and advice and support over the last 3 years, and wish him the very best. But I'm also pleased to welcome Rob Phipps, who's here today, who's been appointed Group Executive People, Culture and Sustainability. Rob has an extensive track record of experience in people and culture functions globally, and he is well placed to lead the area going forward. Both Rob and John have celebrating birthdays today, and I was thinking that -- I mean, AGMs tend to be such somber affairs that we might sing happy birthday to them. I've heard the executive team sing before, and I'm not sure that would be a good idea. So I don't think we'll do that. So look, finally, we are looking forward to appointing our new CEO of Lumus Imaging, who will start in January. So now turning to the year in review. From July 2021 through to January 2022, the focus for Healius was on the provision of COVID PCR testing across Australia. And indeed, over the course of the pandemic, Healius has delivered more than 13 million COVID PCR tests. However, since the peak of the Omicron variant in January and February of this year, demand for PCR testing has progressively declined. But during that period of time, PCR testing was only part of the story. Throughout the pandemic, we've provided critical non-COVID pathology, imaging and day hospital services, but at lower than historical trend levels, which have been impacted by various COVID-induced lockdowns, elective surgery and cancellations. The strong financial performance of your company is self-evident in the results with a more than doubling of underlying net profit to over $300 million and free cash flow of over $500 million in the year. Now as Jenny mentioned, just under half of this cash was paid out in buybacks and dividends. And our record results are underpinned by, firstly, the group's ability to successfully scale up and down with demand and to contain cost growth below revenue growth. Secondly, the implementation of nearly half of our Sustainable Improvement Program initiatives; and thirdly, progress across our digital program. In terms of our Sustainable Improvement Program, or as we call it SIP, we've made substantial progress on initiatives during the year, including optimizing our collection center footprint to improve the average revenue and margin per center; reengineering our back office and lab processes to reduce cost; the introduction of tools to better manage labor in line with demand; and a number of significant procurement wins. And we remain on track to exit FY '23 at the target margin of 13%, or 14% after AASB-16 benefits, assuming business-as-usual volumes continue to recover as we expect they will. The benefit profile of our Sustainable Improvement Program will be underpinned by the digital agenda that is underway. And this digital agenda has 2 types of work. One of fast-paced digitization of customer-facing workflows where both the customer -- where the customer is both the patient and the referrer. And the other part is a steady pace cutover of the components of our new laboratory information system. Now on the digitization front, we introduced a range of key consumer innovations in FY '22, which included e-referrals in pathology and imaging. Now for those of you who don't know what that is, an e-referral is a digital order that comes directly to our lab or imaging information systems from the referring practitioner, which, compared to, historically, a traditional piece of paper that is handed to the patient. Our other innovations are digital collections portal to deliver seamless customer experience in our pathology collection centers, and a digital voice of the customer feedback platform where our patients have rated our services highly, giving Net Promoter Scores consistently above 75. And we continue to use those NPS scores and embed them in management performance metrics. Now by the end of this calendar year, we will have installed a new digital image and report delivery system across Lumus Imaging that will significantly enhance the user experience for our referrers. And in calendar 2023, we have a pipeline of digital products coming, including queue management to reduce waiting times for patients; better digital pathology results delivery -- pathology results delivery for referrers; and e-bookings in imaging. And the difference between e-referrals and e-bookings is that e-bookings, a patient can make an imaging exam booking directly into our imaging booking system. Now the second part of our digital agenda is the steady-paced implementation of our laboratory information system, including the cutover of our laboratory instruments. And we've been talking about this for a while, but now we're underway with it. And we've already cutover 1 regional lab and are now configuring the first of 4 major labs to the new instrument manager. You may remember, we have already successfully moved our imaging businesses onto 1 unified platform, a significant factor in the recent Hunter New England contract win. Now health care has been historically slow to adopt new digital ways of connecting. Customers have consistently, over the years, complained of things like difficulty accessing the care they need, long waiting times and problems accessing results, let alone understanding them. At Healius, we believe our digital enhancements can change the traditional delivery of health care for the better. Waiting rooms are not places where we mostly enjoy spending time. I think that would be probably something that everybody shares. And -- but by the same token, they don't have to be physical either. Waiting rooms can be virtual, allowing you to arrive just in time to walk straight in and have your test. Pathology results don't have to be just numbers on a page. They can be dynamic with graphs and explanations that help you understand your health. And e-referrals preserve the accuracy of patient and referrer information and allow the sending of reminders for testing where needed. And patient portals can allow you to keep track of your imaging and pathology results on your devices. An imaging patient portal is imminent. Pathology will take a little longer. All of these and more are on the way, and they have the potential for real benefits to health as well. For example, we know that more than 20% of people who are asked by their doctor to have a pathology test don't actually ever get around to it. And perhaps with better communication, we can reduce that drop out. And as I mentioned, in addition to the digitization of customer interfaces, we're upgrading our laboratory information system over the next 18 months. Now there are efficiencies to be had from the standardization of many laboratory tests across all our labs and the unification of our multiple systems under 1 single platform. So that's the sort of seed for technology. Now as a company, we've come a long way over the last few years. We now have a streamlined portfolio with the sale of the Medical Centre business in FY '20 and more recently, the sale of Adora Fertility. As evidence of this, 99% of our FY '22 EBIT came from diagnostics compared to 59% in FY '19. We're now undertaking a sales process for our hospital division. And as you may be aware, Healius has been delivering services in day and short-stay hospitals for a long time, since the '90s in fact. The division grew substantially with the acquisition of Montserrat in 2018. The sale of this division will enable us to realize our investment and leave us with a portfolio of diagnostics businesses that are well placed for growth. In FY '22, we continued to invest in diagnostics. We acquired Axis Diagnostics in Queensland; developed 2 imaging facilities in New South Wales; and rolled out the new Lumus Imaging brand. We've won a substantial hospital imaging contract, covering 32 hospitals across the Hunter New England Local Hospital District. Now this means that together with our Northern New South Wales contract, Lumus Imaging provides reporting services for almost all hospitals in New South Wales, north of Newcastle. In January, we acquired Agilex Biolabs, one of Australia's leading bioanalytical laboratories. And while too small to report separately, Agilex has high growth and high margin potential, and is a logical adjacency to Healius' existing core pathology business. And we've seen growth in Agilex with year-on-year revenues of up -- being up 52% and the pipeline up 80%. Our current focus is in supporting Agilex to service the demand that is patently there and grow profitably. And we expect it to achieve a double-digit ROIC target within 5 years and become an integral part of a specialty pathology division over this time. Now while investing in growth, as Jenny stated, we intend to maintain a strong balance sheet with a target gearing of 1.7 to 2.2x. We're focused on small bolt-on acquisitions, such as the Axis Diagnostics. We will also create space for more medium-sized acquisitions in imaging, when trading returns to higher levels and where we see value accretion. In terms of the trading update, our business-as-usual, or non-COVID revenues grew 5.5% compared to the prior comparable period in quarter 1. In imaging, we're seeing progressive and strong above-market growth. With last week's revenue was up more than 13% on the average it was in July, which was our low point for the year. It's the result of the investment we've made and continue to make in digital, together with a rebound in hospital volumes. In non-COVID pathology, trading is also growing steadily but progressively. Last week's revenue was up more than 8% on July's average. However, COVID testing has continued to drop away in Australia, and our test per working day are now under 4,000 per working day in October. And we've moved COVID testing into our normal network. And as have many other providers of pathology services, we've shut down many of our drive-through's. And we now treat COVID as part of our BAU service, and I believe that, that will continue to be the case. In terms of profitability, managing this transition away from COVID testing, the costs of sick leave, of site closures when understaffed, and of last-minute patient cancellations made performance choppy during the quarter. And we're resetting our cost base as we progressively close COVID infrastructure and align to where long-term volumes appear to be landing. We will have a reset our cost base in the second half of this financial year. Conditions changed rapidly in the first quarter. The trend in business-as-usual testing is definitely improving, but still has some way to go to reach the long-term trend line. In terms of potential FY '23 outcomes, we would like to see a few more weeks of trading. And armed with that knowledge, it's our intention to provide a full year forecast for the first time, I think, for about 3 years before the end of the calendar year. Most importantly, underlying health care demand drivers remain strong, including population growth and an aging population with greater longevity but more complex health issues. With these drivers, reversion of our volumes and revenue to long-term growth rates is expected to occur. It always has in the past. I also expect to see a period of catch-up under the -- for the known underdiagnosis in the system over the past 3 years. Unfortunately, diseases such as cancer did not simply go away because we stopped testing and because people stopped being screened. In fact, as we know, they progressed. And the level of underdiagnosis in Australia remains a concern. A small baseload level of COVID-19 testing, we believe, is also likely to continue as COVID-19 also remains a clinical concern. The exact timing of the return of business-as-usual services is hard to predict as there is still some hesitation around accessing care, especially among the more vulnerable in society, although this is definitely reducing. There's also a well-published shortage of GPs in the country, with many of the older GPs having hung up their stethoscopes during the COVID-19 pandemic and not enough medical students opting for a career in general practice has been well publicized recently. The government has indicated it will free up the red tape that slows the migration of overseas trained GPs to Australia, and probably allocate some funding in the upcoming budget to improve the financial attractiveness of general practice as a career for medical graduates. The reversion to long-term BAU growth trends, the backlog of underdiagnosed illnesses, and a small but likely baseload level of COVID testing, in combination, should deliver strong growth through the latter part of FY '23 and into FY '24. And Healius is well positioned to capitalize on that growth. In the meantime, we're adjusting to a world with lower COVID screening, resetting our cost base and delivering on our Sustainable Improvement Program, and moving at pace with the digital initiatives we spoke about. So in conclusion, if we compare where we are today with where we were before the pandemic, we're in a far better position. We have a well-placed scalable portfolio in attractive diagnostics markets; more competitive networks, including more profitable collection center footprints; growing margins through our Sustainable Improvement Program; a compelling digital proposition with a customer-centric reorientation; broader growth options, including high-burden disease groups and pathology specialties such as genomics and clinical trials; less capital intensity in our business; and greater free cash flow to deliver this growth. So thank you for listening. I'll now hand you back to Jenny. Thank you.

Thank you, Malcolm. We now move to the formal part of the meeting. So hang on because we've got a few things to go through before that. The notice of meeting was sent to all members, either electronically for those who have opted to receive it in that way or in the mail. In accordance with our usual practice at our AGMs, I will take the notice of meeting as read. The minutes of the previous meeting of the members of Healius Limited, which was the AGM held on Thursday, the 21st of October 2021, were approved by the Board and signed by Rob Hubbard as Chair of the meeting in accordance with Section 251A of the Corporations Act. The original minutes are tabled, and a copy of those minutes will be made available for inspection should any shareholder wish to see them. To do so, simply make contact with the company secretary after the meeting at cosec@healius.com.au. Company Secretary, Ben, Charles Tilley. I will now hand over to Charles Tilley, our Company Secretary, to explain the procedures for asking questions and for voting.

Thank you, Jenny. We're grateful to everyone for taking the time to attend today, and we want to ensure that shareholders have adequate opportunity to ask questions. Today, as we move to a hybrid meeting format after 2 years of purely online AGMs, we'll be returning to a more conventional order for questions. The meeting will consider each item of business in turn, the proxy position will be reported, and then there will be an opportunity for shareholder questions before the item is formally put to the meeting to be voted on. Please remember that the right to ask questions is limited to shareholders. If you are not a shareholder, you will have been registered as a guest when joining this AGM. This means you are in attendance as an observer. And for those online, the buttons for asking questions and voting will not be activated in your case. This year, we will be taking shareholders' questions on each item of business in the following order. First, questions asked by shareholders attending in-person. We received questions in advance of the meeting from 2 shareholders who indicated they will be joining us today. It's good to see them here, and they would prefer to ask their questions from the floor. Second, we will deal with written questions asked online. And finally, we will be dealing with any spoken questions asked online. When the Chair invites questions from those attending in-person, please raise your hand to make yourself known, and one of our roving microphones will be brought to you. When the mic is brought to you, please confirm you're a shareholder by showing your blue attendance card, looks like that, that you received when you registered on arrival this morning. Before asking your question, please give your name, and if you represent an organization, the name of that organization. For those online who wish to ask questions, you can start entering written questions on any item of business now to join the question queue. You don't have to wait for us to reach that item of business. For those in the room, you can also use your device to submit the question online, if you wish. We'll deal with your question in the same way as for shareholders who are attending online. If you wish to ask a question online, please tap the Question-and-Answer icon on your screen. It looks like a speech bubble, then type your question in the text field at the bottom of your screen, then press the Send button at the bottom right of your screen to send your question. Your question can be general in nature, or it can relate to one or more of the items of business. If your question relates to a specific item of business, please remember to include which item or items of business your question relates to. If you'd like to ask more than 1 question, please send each question separately so that we can easily alternate between shareholders and allocate each question to the correct item of business. This will also allow us to group questions that relate to similar subject matter. Once again, if you are intending to ask a written question and you haven't already lodged your question in advance of the meeting, I encourage you to start submitting now. Your question will be placed in the queue. There is a slightly different process for asking audio questions online. To ask a spoken question, first, pause your meeting on the Computershare platform and then dial the number provided on your screen. You will be prompted to enter your participant PIN and transferred to the operator where you will be required to provide your name and company details if applicable. Once connected on the call, you can continue to listen to the meeting while waiting to ask your question. To ask you a question, you'll need to press 0 followed by 1 on your telephone keypad. And if you wish to make a comment rather than ask a question, please follow the same instructions as for questions. And likewise, if for any reason, you wish to raise a formal or a procedural point, please follow the same instructions as for questions. I'd now like to turn to the procedures for voting. Firstly, voting for those in the room. To vote in-person, if you haven't voted in advance, you can fill in your votes on the back of your blue shareholder card. Please sign and place your card in the ballot box, which will be staffed by a Computershare representative at the end of the meeting. And please remember, if you have voted in advance but you do wish to vote in the meeting today, your blue card will override any advanced votes that you have cast. For those online, as the polls have been open since the meeting commenced, you should be able to see the voting icon on your device's screen. When you press this icon, the voting screen will appear, and you will see votes available for business items 2 through to 8. Remember, item 1 is not a voting item, so you won't see item 1. To cast your vote, simply press the button of your choice for, against or abstain, which will then be highlighted on screen. There's no need to do anything further. And to change your vote, simply press your new selection. There's no send button needed for voting. Whichever option you have highlighted at the time the polls close or if you log out before the polls close when you log out will be recorded as your vote. If you have voted in advance of the meeting, you will have been given the choice when you registered today to let your advanced votes stand or alternatively to vote in the meeting. If you choose to vote in the meeting, please ensure you do vote because your advanced votes were canceled when you registered. Again, if you have not yet voted, I encourage you to vote now to ensure your vote is recorded. You can change your vote on any item right up to the closure of the polls, and the Chair will provide a warning that the voting will shortly be closed for all items of business to enable you to finalize your votes. Following the closure of the meeting, the results of the poll on each item of business will be published via the ASX and on the company's website. Turning now to proxies. The Chair has made rulings on the appointment of proxies, the number of proxy forms received by the company's registry, Computershare, by 11 a.m. on Tuesday, the 18th of October 2022, was 588. The Chair has ruled all of those proxy appointments as valid. In accordance with Section 251AA of the Corporations Act, the minutes of this meeting will record in respect of each resolution in the notice of meeting. The total number of proxy votes exercisable by all proxies validly appointed, the directions in the proxy forms and the total votes in favor, total votes against and total of abstentions. I now hand back to Jenny to continue the formal part of the meeting.

Thank you, Charles. There are a few other procedural matters to cover before we move to the items of business. To ensure a full representation of our shareholders in the hybrid meeting environment, I've determined that all items of business will be decided by a poll. Maria Dzopalic of Computershare will also act as returning officer for the poll, and Maria is just over there. Subject to any required voting exclusions, I'll be voting all proxies available to me as the Chair of this meeting in favor of each item of business. Likewise, subject to any required voting exclusion, any open proxies received by the directors or other key management personnel will be voted in favor of each item. And just before I go on, I'd just note that at item 1, I will be asking for general questions. And moving now to item 1 in the notice of meeting, the company's financial statements and the reports of the directors and auditors for the financial year ended 30 June 2022 are before the meeting. Item 1 in the notice of meeting concerns the receipt of the company's annual financial report. I would, therefore, like to invite Gordon Davis to, in his capacity as Chair of the Audit Committee, to speak on this item. Thank you, Gordon.

Thank you, Jenny, and good morning to everyone. I'd like to add my thanks to our people for the achievements of producing an excellent performance in financial year 2022. Turning to the 2022 annual financial report of your company. While we cannot dismiss the significant benefits of COVID PCR testing, what the statements really highlight is the ability of the business to keep its cost down and particularly the ability to flex costs are against dramatically changed demand fluctuations, which Malcolm pointed out. Also apparent is the continued focus from management on the digital program to open up new sources of revenue. And also, it's a good example of the business isn't just sitting on its laurels from the pandemic effects, but looking to its next challenges. I note our auditor, Mr. Doug Bain from EY, is in attendance today should there be any questions for him, and I'm sure he's looking forward to them. This is Doug's final AGM as Healius' audit partner as he now hands over to [ Katrina Grelig ] as part of the usual partner rotation process that's essential to maintain auditor independence. I'd like to thank Doug, who's been the audit partner since we appointed EY 5 years ago, for his efforts in getting to know the business, and for his and his team's hard work over the past few years. I think it's fair to say that the audit process under the COVID umbrella had to be significantly changed. And credit to EY in keeping up the standard and the quality in what must have been a very difficult time. Thank you. I'll now hand back to Jenny.

Thank you, Gordon. And as I was ex audit chair, I'd like to also thank Doug. I would like, if there's a possibility for a really hard question, to go to Doug. So anyone, if you're open, that would be great. Good. Item 1 is now open for discussion. So we will now move to the question session on item 1. In addition to questions about the financial statements, this is your opportunity as a shareholder to ask questions about or make comment on the management of the company. These can be general questions, which may not relate to any specific item of business before the meeting. If you could, any questions should be directed to me at the first instance. The benefit of being Chair is that I can throw it out to anyone else in the management team or to the directors. So everyone watch out because it might come to you. Now it's the time in the meeting where questions for the auditors may also be asked in relation to the conduct of the audit. So this is your time for Doug to answer that. However, no written questions for the auditors were received prior to the deadline of 5 business days before today. Any questions for the auditor should also be directed to me in the first instance. As there were no items or no questions on this item, any other items submitted in advance of the meeting, we will start with questions from shareholders in attendance in-person today. To ask your question, please raise your hand and a microphone, it will be either Gemma or Janice, will be brought to you by Janice or Gemma. Please remember to show your blue attendance card and to identify yourself and your organization if applicable. So could I ask for questions? I saw I've got 2 people, and I think Natasha might have been up first.

Thank you, Chair. And I'd like to thank the Board and the team of Healius for their results. So I've just got a few questions. Do you want them one at a time or?

Yes, look, one at a time would be good. And Natasha, maybe if you go through yours and then I'll hand to Patricia from the ASA.

Natasha, shareholder, by the way, if you can go [indiscernible]

Yes. Thank you, Natasha.

I was interested to hear about how the company -- about the company's work on cancer biomarkers. And if you could give a bit of information of does this involve the liquid biopsies from blood or genetic analysis or solid tumors? And how this is associated with your various partnerships with various universities?

Thank you, Natasha, and thanks for the question. Probably, to give justice to your question, I will be passing that on to Malcolm. But before I do, I'm just going to mention one thing. Today, I think on item 4, you are electing to your Board a world-renowned expert in this area. Professor John Mattick, that -- that way. So maybe in sort of at the end of the meeting, if you want to have a cup of tea, I'm sure he will be happy to talk to you. But in the meantime, I'll pass it to Malcolm to answer your question.

Thanks, Jenny. Genomics, from a clinical perspective, has been evidence that a conference that Maxine and I at quite recently is quite a long way behind where the science is in terms of the demand from clinicians for genomic testing worldwide is -- trails where the science is at. Having said that, we have a number of tests across solid tumors and proteomics that we provide, but we don't do liquid biopsy at this point. It's an emerging science. It is clearly part of the future. And it's coming very quickly from a scientific perspective, but there is little or no funding in the private sector right at this point in time. So it -- in terms of the provision of genomic testing, we need to find a way to kind of make that viable from a commercial perspective as well. And that's where it is. So as Jenny mentioned, the C2N assay, the proteomic assay that we will be providing that's part of a U.S. thing. These tests are expensive, right? So that test sells for USD 1,600. We're not sure about what the pricing in Australia will be. But that obviously limits the number of people who can actually access that until you've got some kind of MBS funding. And there is a process for achieving MBS funding across this, and there will be a lot of work in that space, particularly as we get to targeted medicine and precision diagnostics. In other words, where you have a particular mutation with the tumor that you're looking for, and there is a viable treatment for that tumor on the end. And those tests will come quick and fast. Our previous health minister had a real focus on this. We haven't really heard whether the current government has as much of a focus in that area going forward. But it clearly is an area that will grow quite quickly, we think, over time. And we have the expertise to do it. We just need to find a way to commercialize it.

Thanks, Mal. You've got more?

Yes. Yes. I noticed that there's been a large increase in loans and net debt in the last financial year. What -- and Malcolm did touch on this a little bit in his presentation. What is the company's position on the level of debt going forward? And I presume at least part of the net sales from things such as the day hospitals will be used to reduce the debt level?

Yes. Thanks, Natasha. I'll take that one, I think. Look, as we said, sort of, I guess, the medium-term optimization for our gearing is probably between 1.7 to 2.2x EBITDA. Probably in the longer term, it's probably about 2x EBITDA. You're quite right. Our debt has gone up, and it's gone up because of the Agilex acquisition, which was all debt funded. So we feel that, that's probably optimal for us. In terms of the day hospitals, you're right, any proceeds from that divestment, it will always look at the amount, what's good for the company, our capital management strategy, and it might be used to reduce debt, but we'll look at it at the time.

No, that's fine. Look, I understand that these things are sort of a work in progress, and there may be an opportunity to purchase another asset, which would generate income. So you won't reduce debt. You'll use it to buy something else. But...

That's right, yes.

Yes. Just to get that fuel. While I understand the company's strategy to have as many possible services bulk bill. There is the risk effect, which I'm sure you're quite mindful of that, that your margins could be squeezed of rising inflation if the government doesn't increase its contribution. What is the company's strategy to manage the situation?

Thanks, Natasha. Another good question. I'm going to answer it probably in 3 parts because we do look at the strategy in 3 parts. Look, I think we should understand that Healius is committed to providing affordable health care to the Australian community, and that will involve bulk billing. So we will always have bulk billing, and that's part of our strategy. But of course, we are growing and diversifying our revenue streams with private billings, such as the commercial initiatives that we're going after. And also something like Agilex that we've bought. It's not reliant on Medicare. It's purely private billings. The second part of your question, which is good in this economic environment is about inflation. We are very conscious of the economic environment that we're working in, and we're very cost conscious, and we're looking at our costs all the time for the reasons that you've spoken about. And I guess the third thing that I would say is that we are part of a lot of industry associations. And with those and us directly, we are talking to government all the time about those issues that you talk about. So they're sort of the 3 strategies that we go after.

That's great. And the final question is a number of pathology patients, and I know that Malcolm has talked about this on your digital strategy. A number of pathology patients request a copy of the results of it the commodity via health, me being one of them. These reports are generally posted. And I'm sure you're looking at this, but I think that it would be more efficient if there was some way either for the results to be e-mailed to patients or establish some sort of secure site where we can download the reports directly?

So look, I will pass to Malcolm on this because he's an expert in this about patients, et cetera. But just before I do, just a couple of comments. Look, patients' needs, and data are really complex. And I'll get Malcolm to go into that a little bit further. It's -- and I think you have touched on our digital transformation. So I think you're getting to the heart of our digital transformation. So I'll just pass to Malcolm to that one.

Natasha, look, I basically agree with you. I think when I have a blood test, I'd quite like it to turn up on my device. So -- I mean, clearly, there's a range, though, of results, and not all of them are suitable for that kind of delivery. But there are -- there clearly are things that are. Like, if you're on warfarin and you want to know what your INR level is; if you're a diabetic, and you want to know what your HbA1c is; if you're on cholesterol-lowering drugs and you want to know what your cholesterol is, you really don't necessarily need a clinician to interpret that. I mean you probably don't want to get a HIV-positive result turning up on your device, right? So there are -- there's a range of things around what you can and can't do from that perspective. There's also an expectation around our customers who, as I was explaining before, is a mix of referrers and patients. And so there is a transition that's happening between the empowering of the consumer and where referrers, where doctors are still at in terms of the way they think of the world. Now COVID has moved that on quite a bit. We've gotten used to getting our COVID result on a device, negative or positive. And prior to that, that was almost unheard of that a result would turn up like that. So it's changed the way people think. And I think that's a trend that will continue. And I think doctors will get less frightened about results turning up on devices as we go. As I said, we're about to introduce it in imaging. And in imaging, you can -- because you can send the images and not necessarily the report at the same time, you can control bad news, right? It's easier that way. Pathology results, which are a number that give you a normal range, and it's clearly out of range, tend to frighten people sometimes. So you've got to manage that balance between that. You don't want to be terrorizing the community. At the same time, you want to be trying to improve the way in which they're engaged in their health care where that's appropriate. And I think there is a balance there, and that's what we're working to do. And that's why I was saying, imaging is coming imminently in terms of delivering that. Pathology probably takes a little bit longer to get there, but it will go the same way, I think.

No. Thank you, Malcolm. Yes. That's quite informative. Obviously, I'm looking at things from my point of view and doing the analysis and not very much frightens me. So that's...

That frightens me.

But yes, yes, I understand that's part of this involves a conversation between the GP and the patient and on sort of what box a tick saying, do you want to receive your results electronically? Or do you want to come in and have a chat about them. But that's great. Yes. And yes. I just also like to say, look, it's great having even a hybrid or at least having the face-to-face meetings. It's -- the last couple of years have been terrible. And also, I'd like to express all the best for Rob going forward.

Natasha, thank you very much. And we'll pass that on to Rob.

Look, I believe Patricia, you are next, if I could.

Thank you, Madam Chair. And yes, I'm Patricia Beal, I'm an independent shareholder, and I'm also representing the Australian Shareholders Association with proxies from 54 other shareholders and over 385,000 actual votes. So we try to pull significant weight when we get our proxies from both shareholder -- association shareholders and others who, even if they're not members, regard us as the voice -- voice for independent shareholders who hold their own shares individually. So firstly, thanks for the opportunity and good wishes to Rob. We were sorry to hear that he needed to resign and do wish him well for the future.

Thank you, Patricia.

Next, congratulations on a good year. And even if the share price is not precisely reflecting that we mostly understand that lots of things move share prices that are not necessarily related to the merits or otherwise of the particular company. But equally, the -- our company is changing with the way that things have come and gone from being owned by the divisions or in different sections of the company have come and gone. And we -- while we certainly welcome the purchase of Agilex, which will add significant merit, I would imagine, in the coming years. However, things going at Lumus because it seems the CEO resigned with apparently no appropriate succession plan, if you still haven't appointed a permanent successor. And I know there's a lot of other companies in the imaging field. And we wonder quite how those are -- comparisons are going? So I do have another question, but maybe I'll leave it at that for the moment.

Yes. And I'll come back to you. Yes, absolutely. So Patricia, first of all, I'd just like to thank you and the ASA for your interest in Healius. You always -- we are grateful for your interest. You always come very well prepared. So you do represent your members very well. So thank you very much. Just in terms of imaging, Lumus. We do have a new CEO coming in. They will start at the -- I think the first week of January, can I just -- not the January, could I just -- at the moment, we've got an interim CEO. So anything further on that, he can tell you [indiscernible] I think. So that's the first thing. And I think you're right about Agilex. We think it is a really good acquisition. It is part of our diagnostic. It's right at the very start of the diagnostic journey. So we're really excited about it. And you might have read in the -- in your report. It's -- the growth last year was 52%. So -- and we've got a very good pipeline. So we're very excited. In terms of just sort of imaging overall. In the short-term, we're really looking at greenfield acquisition -- greenfield growth. Any bolt-on acquisitions that make sense and winning of contracts, which we've done just very recently, haven't we? So that -- we believe that we can really grow imaging, and the current CEO is on the hook to make sure that, that happens. So thank you, Patricia.

Okay. Well, I'll press on with my other question was basically regarding the audits. And we had...

Fantastic.

I'm glad you're happy. Pass the question yet. Well, we had noticed that it was the fifth year that the 1 person had done the audit. So we were hoping and presuming that, that had also become apparent to you. And so -- and glad to see the future replacement in attendance. The other part of the question though is regarding other matters that were also audited by the same firm, and we were not so thrilled by that, seeing we would rather see it spread amongst different firms. If the extra auditing needed to be quite a substantial compared to the main audit?