Healius Limited (HLS) Earnings Call Transcript & Summary

Thank you for standing by and welcome to the Healius Limited FY '24 Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Ms. Sharon Ng, Head of FP&A and Investor Relations. Please go ahead.

Hello and welcome, everyone, to the Healius FY '24 Results Presentation. With me today, I have Paul Anderson, our CEO and Managing Director; and Steve Humphries, our CFO. I will now hand you over to Paul to kick off the presentation.

Thank you, Sharon, and good morning, everyone. We're pleased to announce our full year results today and provide you with additional financial information and commentary on the performance of each of our business units. We will also be providing you with an update on our transformation plans and strategy for our pathology business. Whilst there's been a lot of change in the past 12 months, we have a plan and we are methodically working our way through this. Following the equity raising last November, we have refinanced our bank facilities, completed an operating and a strategic review culminating in the sale process for Lumus Imaging and set about improving the pathology business with a redefined strategy that is focused on doing the basics well and repositioning our business for the current economic conditions and future growth. The Lumus sale is well advanced with several parties currently undertaking detailed due diligence and we will be announcing the outcome of this process at the appropriate time. We have a new national operating model within our pathology business that has a local focus and which is designed to create a standardized and uniform way of working across our organization. Group BAU revenue was up 6.1% to $1.74 billion for the year. Group EBITDA was $346.6 million and group underlying EBIT of $65.4 million was at the top end of our guidance. Improved trading conditions in the second half of the financial year, complemented by the revenue and cost initiatives in our transformation plan have contributed to the group's EBIT growth with an EBIT margin of 5.5% in the second half compared to 1.8% in the first half of FY '24. In the Pathology segment, which includes Agilex, BAU revenues have grown by 4.7%, which is reflective of pathology volumes gradually reverting to historical trends. COVID revenue is down $61 million and going forward, we'll no longer distort our comparatives as that impact has cycled out. Lumus Imaging continues to demonstrate strong growth with revenue up 12% in the community and hospital segment, which accounts for 81% of our revenues and which is ahead of the MBS benefits growth of 9.1%. From a debt and capital management perspective, our net debt was $361 million at year-end and gearing has remained within bank covenants. Now moving on to the segments and starting with Pathology on Slide 5. BAU revenues, excluding Agilex, improved in the second half of the financial year, resulting in BAU revenue growth of 4.2% on the back of 4% volume growth for the full year. In terms of the pathology market, inflationary cost pressures and headwinds have been well publicized and continued to put pressure on Pathology's ability for margin growth and expansion. Labor costs in Pathology are approximately 50% of our cost base and rent accounts for a further 20%. We have plans in place to respond to these, which I will come to later. Our company continues to have greater exposure to the GP market where attendances are down 1.5% for the 12 months and where specialist attendances were up 2.7% over the same period. We are focused on developing our specialist referrals segment, which has significantly higher margins. It is also not subject to coning, unlike GP testing, where a portion is performed for free. Along with our industry peers, we will continue the sector-based Australian Pathology campaign to keep pathology bulk build. Collectively, we do not believe that the federal government's response to index only 1/3 of pathology items is sufficient to maintain a sustainable and viable sector. The campaign will continue until all pathology tests are indexed. As previously announced, Pathology has a broad transformation program in place aimed at increasing revenue and improving productivity at our collection centers and laboratory operations and levering technology to facilitate more effective and efficient ways of working. Pleasingly, net benefits of $20.4 million were achieved in FY '24, which was ahead of our guidance of $15 million. In FY '25, this program has a renewed focus on revenue growth while still driving efficiencies across our network through our national operating model. Now I would like to spend a little more time explaining our pathology strategy as set out on slides 6 and 7. As part of the recent operating and strategic review, the strategy has been redefined and repositioned for both current economic conditions and future growth. It is focused on delivering better services for our patients and referrers and it is about improving how we do this through the use of technology, AI and our ways of working. Healius Pathology is a clinically driven business with an extensive footprint of 93 laboratories, 1,981 collection centers, which is led by a team of 185 pathologists and their clinical advisory council. Our strategy is focused on improving services for our patients and doctors, continuing to become more efficient in the way we process tests in our laboratories and expanding into emerging diagnostic categories with higher margins and faster growth potential. These outcomes are all being enabled by our investment into digital technologies and our ways of working design for the future. We have accelerated the pace of change in transforming the business through a national reset to our operating model. On the customer front, we are optimizing our collection center network footprint as well as significantly improving our collector experience, capacity and capability to ensure that our sites are open to serve our patients and consequently improve revenue. We have improved our contact center service through technology, with significantly lower waiting times for doctors. Growing referrals from GPs and specialists is a key part of our transformation, utilizing the considerable experience and expertise of our pathologists. We are also developing a new service model for our pathologists to provide personalized support to referrers and select high-value specialist segments. On the laboratory front or on the laboratory modernization front, our priorities are adopting digital technology for histopathology, supported by AI reporting tools and reducing manual specimen handling and results validation processes across hematology, biochemistry and microbiology to lift productivity. On AI, we have established partnerships with globally proven solution providers such as Ibex in order to achieve faster speed to market and also to give us flexibility to adapt as technologies evolve rapidly. On the emerging diagnostics front, we have built capability to accelerate growth in genomics, clinical trials and select personalized health services. On genomics, we are capturing new opportunities around reproductive screening, pharmacogenomics and cancer care. With clinical trials, we have recently announced a major partnership with Nucleus Networks for pathology safety testing related to Phase I clinical trials, which was one on the back of an innovative digital service proposition. Our digital capability has matured significantly with a suite of digital products under our Midway brand now becoming core enablers in improving our services. We have installed a new telephony platform across all of our call centers, digitized collections processes, including rolling out easy-to-use payment terminals for patients, which has also increased average fees and enabled e-ordering of tests from leading specialist practice management systems and the specialist market. Inside the laboratory, the instrument manager being rolled out underpins the flow of orders and results to and from analyzers with a user-friendly interface for laboratory staff. Our new laboratory portal modules under the Pathway brand underpin workflows across the life cycle of test episodes, allowing national sharing of cases where relevant. Our Ways of working have been redesigned with key functions established to reduce the complexity inherent in our state-based business and move towards a leaner structure, a national model that has a local focus. These 3 areas are: commercial and customer, which is solely focused on improving services for patients and referring doctors; laboratory operations, which is about operating our network as efficiently as possible through standardization, automation and leveraging the use of artificial intelligence to drive a step change in efficiency and productivity; and clinical integration, which is ensuring that our pathologists and scientists, led by our Clinical Advisory Council are involved and play an active role in the strategic and commercial decision-making process. Whilst it is still early days, we are seeing very good engagement from our staff, our collectors and our patients and referrers. This strategy is well communicated and understood within the business and a crucial part of our business plan. Now moving to Agilex on Slide 8. Revenue grew by 20.8%. EBITDA increased by 102.3% and EBIT nearly tripled to $5.1 million for the year. We have now signed several new commercial agreements with various international partners were together. We are offering a global Phase I to Phase III proposition to the market. These agreements not only open new channels of work across different regions, but it also underpins the businesses above market growth in the bioanalytical sector well into FY '25. The team has exercised strong cost control, matching labor to required capacity and flexing our scientific team across departments to improve productivity. The leadership team is focused on client services with a science first mantra in all our marketing efforts. Our new Head of Business Development has a wealth of industry experience and with the recruitment of key business development staff in the U.S., we have enhanced our presence in our largest market with improved geographical spread and essentially gaining earlier access to potential clients and scientific experts. Agilex is well placed to take advantage of global pharmaceutical research and development opportunities. As it gains traction with global partners, Agilex continues to elevate its status as the preeminent science-focused bioanalytical laboratory service provider. Now turning to Slide 9 and to Lumus Imaging. So we are pleased to report that we have continued to see very good revenue, volume and margin growth in FY '24 for the Imaging business. If we compare revenue to last year and exclude the Northern Public Hospital, where we no longer operate BUPA, which only recommenced last November and medical centers, our revenue growth was 12% and well ahead of the MBS benefits growth of 9.1%. We are also pleased to report that we are on track to achieving our $5 million revenue target on average for our community sites and they are currently averaging $3.9 million per annum. EBIT margins have continued to improve and were 8.1% for FY '24 and 9.1% for the second half of the financial year, which is a 40 basis point improvement for the full year. These results are part of our 5-year strategic plan, which centers around expanding our footprint of comprehensive community sites, investment and hiring modalities and attracting quality radiologists. On Slide 10, Lumus is focused on increasing the number of comprehensive community sites in its network through adding strategically placed MRIs and PET machines, where we expect future growth as a result of greater MBS funding and increased use cases in targeting areas with known demand. In FY '24, Lumus successfully commissioned 2 new greenfield sites, one at Jimboomba and one at Narangba as well as adding 4 new MRIs. The business has a solid pipeline of 4 new greenfield sites planned for the next financial year and is well progressed to achieving its targeted $5 million average revenue per clinic. Our investment in hiring modalities has contributed to improved modality mix, along with pricing initiatives that are driving above-market growth. In our hospital segment, Lumus opened 2 new clinics in the second half of '24 at Ramsay's Northern Private Hospital and Healthscope's La Trobe Hospital. Radiologists costs and radiologists recruitment continue to be a key measure of success and performance for the business and we have had 30 new radiologists join us in FY '24. With the implementation of a new workflow management tool, we expect to see improvement in radiologist productivity as the work is more effectively and efficiently allocated. The new employment model has been very well received as it enables and supports radiologists in their own personal and professional training and development. With regards to the Medical Centres segment, this continues to show signs of improvement with their renewed focus on urgent care centers and double-digit growth since year-end. And with that, I will hand over to Steve Humphries, our Chief Financial Officer.

Thanks, Paul. So Healius FY '24 group results are summarized on Slide 12. Group underlying EBIT of $65.4 million compares with consensus of $61.5 million and is marginally above the top end of our most recent guidance range of between $60 million and $65 million. I will talk about these results by business unit in the following slides. But in summary, there is nothing new compared with when we last updated the market in June. We're pleased with the pathology volumes in Q4 and how they're trending in FY '25. However, the mix of our pathology is heavily biased towards GP referrals and average fees for FY '24 were relatively flat compared to PCP. On the cost side, wages, ACC rents, consumables and other costs were all impacted by inflation, such that margins remain under pressure. As Paul said, Agilex results are really encouraging. The pipeline of [ one work ] is strong on the back of large contract wins, and we expect significant growth again in FY '25. Lumus has also had a strong second half, particularly the last 4 months in terms of both volume and fee growth, where it has consistently outperformed the market. This has continued in the first almost 2 months of FY '25. Looking at Pathology, and that's excluding Agilex, COVID volumes were negligible in FY '24 with $60 million in revenue in Q1 FY '23 distorts the comparatives for total revenue. So BAU revenues increased 4.2% and volumes were up 4%. As I noted in the previous slide, average fees were flat year-on-year. Labor is 47% of our cost base. I think Paul said 50%. It's actually 47% of our cost base and in absolute terms, increased 1.5% year-on-year. But that's 3.4% when you exclude COVID labor costs that were removed during the year. With a 1% fall in FTEs, partially offsetting the impact of EBAs and other legislated increases such as superannuation, the mental health surcharge and the COVID levy. Property costs are up by approximately 4% and consumables by 3.1%, both reflecting CPI. What we have been calling transformation initiatives are now embedded and ongoing in the business with $20 million in benefits achieved in second half '24. This comprised various revenue assurance and cost savings, which improved margins in the half. Second half EBIT margin was 4.7% compared with first half EBIT margin of only 0.7%. Turning to Agilex, Paul has already covered most of these highlights. In short, revenue was up 21% to almost $40 million, and the business is achieving strong gross margins and controlling its fixed overheads, resulting in growth in EBITDA to $9 million, growth in EBIT to over $5 million. The one work pipeline is very strong, and we expect the growth trajectory to continue in FY '25. Turning to Slide 15. Lumus gross revenue grew by 5.7%. However, revenue from its hospitals and community segments, which represent more than 80% of gross revenue, grew by more than 12%. This above-market growth in Lumus community and hospitals businesses, plus a rebounding BUPA immigration work since November 2023 has underpinned EBIT growth and margin expansion. The hospitals and community segments achieved exam volume growth of 7.3% and growth in average fees of 4.7%. This growth reflects our investment in high-value modalities in new greenfield and brownfield sites. In FY '24, the business was successful in employing 30 new radiologists and opened 4 new clinics with a similar number planned for FY '25. FY '24 growth rates have continued into FY '25. Managing cash flows is a constant focus for the team. Cash conversion was 85%. That's operating cash flows as a percentage of EBITDA, less the cash costs of non-underlying items and discontinued operations. Maintenance CapEx of $27 million is consistent with the prior year. And growth CapEx reflects spend on ACC site expansion and improvements, greenfield and brownfield site expansions in Lumus, new equipment and technology costs, including the build of new front-end modules such as MedWay Collections and MedWay Resorts -- MedWay Resorts portals and e-referrals and the ongoing upgrade of our laboratory information systems. Staying on cost and debt management. The debt refinancing in March 2024 and equity raise in November 2023 are obviously the big call-outs. As Paul said, at 30th of June, both gearing and interest cover ratios were within covenants and we expect this to continue in FY '25 as we cycle out of the disappointing 1H '24 results, remembering that the covenants are calculated on a rolling 12-month basis. I'll now hand back to Paul to talk about the FY '25 outlook.

Thanks, Steve. Turning to our outlook on Slide 18. So pathology volumes have continued their growth from FY '24 into the first quarter of FY '25 and are trending slightly ahead of 4% for the year-to-date. Imaging is continuing to perform very well for the financial year-to-date, with exam volumes up approximately 15% and revenue up 12% when compared to last year. Agilex is also trading very well with a significant proportion of the first half '25 revenues now either under contract or part of our one work. With Lumus and Agilex trading well, the primary focus for our business, as we have set out earlier, is on continuing the transformation work within our pathology business and embedding that strategy across all parts of our business. So that's the end of today's presentation. With that, I'll hand back to Sharon and open up questions.

Thanks, Paul. And now we will open our Q&A session.

[Operator Instructions] Your first question is from David Low from JPM.

If we could just start with the cost base post the Lumus sales. It seems the Lumus sale has very well progressed, and we should expect news there in a matter of weeks. Just wondering how the overhead costs, head office costs, et cetera, will be managed in a post-sale environment, please.

Look, I think, David, that is yet to be determined. It obviously depends on a couple of things. One, the sale process is completing and if it does complete, who the buyer is. Look, you're right, there's obviously a head office cost base that is set up at the moment. There'll be a number of costs that will be transferred across to the new buyer. There will be a transition agreement and then there will be a number of costs that actually have to come out back with essentially a pathology only business. So we can't give you a definitive answer on that at the moment. We've obviously done a lot of work on that and are cognizant that in a pathology only business, the costs need to come out to -- for us to get back to the margins that we're targeting.

So I mean it sounds like you're reasonably comfortable that it can be done though.

Look, I think that they can all be done. It's -- these things are always difficult, I think, when you're trying to split costs up across businesses. But I think we're comfortable that we'll get there. And yes...

All right. And just the other one on cash flow. I mean, when I look at the cash flow, I can see that the lease costs and interest costs are above operating cash flows. I didn't calculate what happened in the second half, but it seems like a pretty challenging environment given the fixed lease costs the pathology business has. Presumably the debt will be repaid post the sale of Lumus. I'm assuming that that goes ahead. Are you comfortable that the lease costs can be covered or perhaps can be reduced?

Yes. Look, I think -- I mean, just a general comment on lease costs. Look, they are circa 20% of our total cost base. We've reduced our collection center footprint across the year by just under 4%. I think the whole market has kind of contracted a little bit. We are very focused on optimizing that footprint and the rents that go with that. So naturally reducing that footprint this year, revenue per collection center has gone up by something like 7.5%. Now, this is about -- I think we've talked about this before, hygiene factors with all of the collection centers that we operate to make sure that they are operating as efficiently as possible. And some of that comes back to actually us operating our business and having our collection centers staffed and open as well. So I think it's a combination of all of those things. But look, there's no doubt that there is pressure on rents right across the business, right across the sector, rather.

When you say pressure, you mean downward pressure, I take it.

Well, downward pressure from our perspective.

Sure.

Correct.

Sorry. I don't mean to presume. But what do you mean when you say there's pressure on rents?

Well, I think there's -- in pockets, there is pressure on rents in terms of competition for collection centers. We have a formula when we look at new collection centers or collection centers that we are trying to win from competitors. But on the flip side there are -- the people that own the collection centers are targeting rent increases.

I think David also -- I mean our ACCs have remained relatively constant in the last -- particularly last -- in the second half. And I think we're pretty comfortable with where our ACC numbers are at right now. Most of those leases have CPI built into them. That probably gives you a flavor of what our thoughts are around that.

The next question is from Lyanne Harrison from Bank of America.

Great work on surpassing the transformation cost out target. Can you give us an indication on what cost savings you might have targeted for financial '25? And any sort of key areas where these savings might come from?

Look, we can't give you a number or guidance, if you like. Look, I think we've set this out before and we said that it relates to revenue, the footprint that we've got with both our laboratories and our collection centers and people, which is 50% of our cost base. I think we have, like most transformation programs, we've got a structure in place where we have a prioritized number of initiatives that we've set out for the year with some pretty ambitious targets. I think transformation is kind of a bit of a misnomer. Really, most of those items that we've got in there really are just part of our business as usual. We have an enormous focus on collection centers and our collectors. So keeping our collection centers open. So training, retaining and our collectors, making sure that we roster them so that those collection centers are open, which clearly just translates into additional revenue. And we've made some pretty good progress on that since May, and we're kind of circa 15% better off in terms of our closures on a weekly basis now than we were at the start of May. And in some pockets where we had real problems, we're kind of 30% better off. I think the other part is answering our phones and our call abandonment rates have kind of reduced by 50%, which is partly due to technology, but mostly due to the ways of working and having a nationalized standardized approach right across all of our call centers. So, look, that's not answering your question, but giving you a bit of a flavor as to the 3 buckets of money that we are targeting. And it's -- as I said, most of them are business as usual. They're actually not true transformation pieces.

Okay. So can you clarify what you meant by when you're saying your collection centers are 15% better on closures on a weekly basis? Is that that you're staying open for longer? Or you're more efficient when you're open? Can you -- I'm just wanting to understand that better.

So we have -- without giving you an exact number, a number of our collection centers that are [ 1,991 ] that are just not open each day due to pretty much staffing shortages. So we are much better at training and we've got referrals programs for experienced collectors to come back to us and just improving the way that we roster them. So we have an electronic rostering system in place. We have a latent demand of people who want to work more shifts. But we need to be better at rostering people to cover those. So that's what I mean. So we are -- we have less centers closed each day. That's what I'm saying.

Okay, fabulous. And on those labor rates, so what we saw in '24 was, I guess, the labor rates, given that they're based on inflation, was growing faster than FTE reductions. So if I think about where you're going in '25, talking to what you just said there about people coming back better rostering, do you think your efficiency and productivity initiatives can offset those labor rate increases to the equivalent amount? Or do you still expect labor rates to grow faster?

Look, I think our labor rates ex COVID grew by just under 3.5%, 3.4% in FY '24. I think, in terms of productivity, absolutely, they do. So this business has to drive revenue growth by reducing collection center closures. At the same time -- that is the sole focus of driving revenue through -- whether it be through keeping your collection centers open, answering our phones better, hygiene with our GP clinics right across the country in terms of reducing that revenue leakage technology with e-referrals to drive additional revenue. All of those things are kind of priority #1. As we deal with, we've got 2 EBAs on at the moment in Queensland and WA. And we all know that the minimum wage is going up more than 3.5% a year. So we're managing it. We're managing all those things together, but very focused on the revenue piece.

The next question is from Gretel Janu from E&P.

Just on the pathology strategy. So you have talked through kind of your renewed strategy here, but you haven't quantified what this means either from what costs you have to put into the business in order to achieve the turnaround, but also what you expect in terms of improved margin performance. So I guess, do you have targets on both the costs and then the medium-term margin for pathology that you can share with us?

Look, not specific targets, other than to say if you look through that pathology strategy outside of the emerging diagnostics most of those other things are just about being efficient within our business and being better at what we do in the front line. So we get those things right and there's kind of 100 things in there to get better at they will improve the margins and we've got to work on all of them at once. So, look, I think if part of your question is do we have a large chunk of money to have to invest as part of this renewed strategy, I mean, the answer to that is, on the whole, no. We do have to automate things like some of our more manual processes like histopathology and microbiology. We have to invest in technology. We currently invest something like $21 million a year between growth and maintenance in our pathology business. Maybe it will take a little bit more than that, but what we are not -- what we're not saying is that it's going to take a significant increase in CapEx.

Great. Understood. And then just in terms of kind of the medium-term overall pathology margin target, what do you expect to get back to?

Look, we don't have a -- haven't put a target out per se. We're obviously aiming at improving our margin to those kind of sort of single high single digits. There's a lot of things that go into that. But yes, that's kind of our broad target, if you like.

Yes. Understood. And then just in terms of time frame of when we all see significant gains in that margin, will it be throughout FY '25 or more of an FY '26 story?

Look, I think we talked about pace of change and we've had a -- this transformation program, if you like, running now for the best part of 8 or 9 months. We have a pretty good idea how to execute each of those initiatives, if you like. So we're getting faster. And there's, I think, more of an urgency across the organization. We're a bit more coordinated now, too, because we have this national model of working whereas before we had a very federated business model across the states, which was not only technology based. It was actually -- it was siloed to a certain extent. So that is a big part of us trying to do things faster.

The next question is from David Bailey from Macquarie.

Paul, selling the imaging business, there's going to be some funds presumably coming through the door. You're going to pay down some debt. I'm guessing there might be some leftover. I mean, outside of -- following up from Gretel's question, is there additional uses for some of those funds that could go into pathology? And if so, what sort of returns do you think you could get on spending more money on path to improve the overall performance outside of the pathology strategy on Page 7?

Look broadly you are right, if we do sell Lumus then clearly, one thing we would do is repay debt and then we would assess and work out what the rest of that means. In terms of investment into pathology, as I said before, there are things like microbiology which -- and histopathology, which we do want to automate. But I don't think there is -- that is not an enormous amount of capital that's required for that. So I think we're working through that at the moment. One thing we are very cognizant of is return on capital. So when we're evaluating those things, probably you got to make sure that we're getting the appropriate return on that at the same time is balancing up trying to be more efficient in our laboratories. I think one of the issues that we've gotten kind of have at the moment is that the cost cutting that we have done over the past couple of years is kind of make it harder for us to operate in the laboratories. And we need to make sure that we've got staff that are engaged and able to do their job and able to do their jobs better so we can actually get those efficiencies. And we're just trying to work our way through those things. So that's kind of like a rambling answer, but we are extremely cognizant that with any automation and spend on that, there's a return on capital that's absolutely required, which translates to margin.

And that return hurdle, roughly?

I don't think we've ever said that, but it's kind of in the mid-teens.

Yes, that's fine. And in terms of government funding, I think the indexation was probably a little bit below where the industry hoped it might have been. Just your views on any discussions or updates subsequent to the budget that could lead to some additional funding coming through [ for pass ]?

Look, I think we are unified as an industry. In particular, we've been running this key pathology bulk build campaign now for 8 or 9 months, and that is gaining some real traction. I think we've had good dialogue with the department and the minister's office. I would say that the government obviously have competing pressures. And whilst we have a good case, there's lots of competing interests for that money. And I think we saw that in the budget where there was part indexation for 25% of the schedule. There was also some cuts there for B12 and urine testing, which are under review again now. And as an industry, we're pretty exercised about that and the way that the process has been undertaken. So we've made our views very clear to the department as an industry and as an individual company. And basically what we're asking for is this review of the remainder of the schedule that we are involved and it's a transparent process. and we actually get proper input into it. So that's a long way of saying there's lots of dialogue going on. I think you're right, the budget this year, there was kind of some things were given not till '25 and some things were taken away, which have got kind of convoluted in the meantime. So I think from our perspective, if we think about it financially, it was kind of a net-net neutral. So this next phase is very important.

The next question is from Craig Wong-Pan from RBC.

Just wanted to touch on the trading performance year-to-date for imaging. It mentions there that exam volumes are up 15%, but revenue is only up 12%. Just wanted to understand the dynamics there.

Look, most of that is due to our reporting only contracts that we signed last year. So the 2 don't necessarily go hand in hand. So -- I mean, what I can say is when you look across that 12% increase is across all of the components of imaging revenue and not excluding any. So that's a long way of saying that all of those parts of the business are going really well. Average fees, obviously, for the reporting contracts is much less. So that kind of just reduces the revenue a bit.

Okay. And then on the $30 million to $40 million maintenance CapEx expected for FY '25, can you say how much relates to Lumus versus pathology?

Probably 50-50. That's roughly what it is every year.

Okay. And then last question, just on the Agilex business. You mentioned that growth -- there has been growth year-to-date. Just wanted to understand how much has come or if any has come from those new commercial arrangements.

Look, it has, and they've got 3 of those agreements in place, a couple of which are still -- we haven't or can't talk about. So the budget for FY '25 has a not insignificant chunk of that is coming from those new contracts. And we can -- we have line of sight on those. I think as we said in the outlook there for H1 '25, they are a long way down the track to having their top line target already.

The next question is from David Stanton from Jefferies.

Firstly, I'd be interested in understanding what you think second half F '24 BAU volume growth in Pathology was please. You talked about full year, but I'm interested in the second half, if that's possible.

Look, David, it was almost the same as the first half. So it was 4% for the full year. I think it was 3.9%, 4.1%. I mean the -- without going into too much detail, it was kind of -- it did bounce around across the quarters and Q2 and Q3 were less and Q4 was actually quite a bit stronger. So don't read too much into that as you head into FY '25, but I think what we're saying is it's kind of above 4% at the moment.

Understood. And I will read something into your second half FY '24 EBIT margin of 4.7%. I mean, is that a reasonable way to think about an F '25 EBIT margin potentially in Pathology?

Look, we're not going to give guidance on margins, David, other than to say all of those things that I've said before, we are trying to manage our cost base as prudently as we can, but the absolute focus is on driving revenue. And there's kind of an immediacy that we can see around collection centers. And just we know if we keep them open, people will come in the door and we haven't been great at keeping them open. So naturally, if you can drive that top line growth, especially around the GP around the collection center piece, then that does fall to the bottom line and your margins naturally improve. So that's probably about as much color as we can give you.

Fair enough. Fair enough. And one for Steve before I get back in the queue and it's a 2-parter. Can you give us some commentary around potential D&A expense in '25 versus '24 and potential interest expense in '25 as a reference to '24, please?

Yes. For the group, for Pathology? What do you --

Yes, for the group. No. Just for the group, please.

Yes. Just checking. For the group D&A next year, it was $281 million this year, probably $285 million next year, FY '25.

Brilliant. And interest expense potentially?

And finance cost, $71 million this year, probably increased to $74 million. This reflects slightly higher average debt levels in the second half continuing at the moment.

The next question is from Steven Wheen from Jarden.

I just wanted to go back to collection centers. You've obviously been cutting or closing them at a decent clip over the last 12 months. I think you mentioned that that's done now. Steve, I think you said that in your prepared remarks. Just trying to confirm that. But also -- or more importantly, is the lease cost savings and the labor-related cost savings from those closures fully embedded in the second half? Or is there more that we could expect to see come through FY '25 from those closures to date?

Look, I think a lot of those closures happened in our kind of hygiene period in the second half of '24. So, look, I mean, we have 1,981 collection centers at the moment. We're down 4% on last year, so that's a net 86. We got out of about 155 centers last year that we deliberately decided to get out of. And that was either because they were unprofitable or we had had a chat or tried to negotiate rents down and that didn't succeed. So off the back of that, I think we had net wins of 15 collection centers from competitors. And we had new sites which were around 55, I think. So that's kind of the net-net. As you know, this is just a moving feast at the whole time, the collection center thing. So we are extremely focused on our footprint and where those collection centers should be and being mindful of the rent pressures that exist in those negotiations. But at the same time, we have laboratories, which have a fixed cost base that also need volume. So that's the other factor, I think, that weighs on everyone when you're making those decisions. So...

And so I guess the follow-on to that is as a result of those closures, are you seeing anything -- any impact to the volume that could sort of impact your ability to achieve that overhead recovery out of your labs?

Well, look, I think -- so what we are -- so naturally, average rent per collection center has gone up by 7.5%. What our focus has to be on now is one to just keep servicing all of those collection centers that we would ordinarily do with our MLOs and our business development team. But what is 100% within our control is to keep the centers staffed and open and making it easier for those guys to do their job. So MedWay now has been rolled out in about 600 of those centers. They've got payment terminals now, which is not only helping us with collection of revenue, it's also increasing our average fee. So what we have to be able to do is to have enough collectors to staff all of our centers to be able to make it easy for them to do their job and to be able to do their job faster and that's part of our initiatives and our transformation plan. And there's a whole lot of flow-on benefits come from that. So if you can make them -- make their job easier that they can process more patients, if the technology allows you to collect the right number of samples, you reduce your consumables and all those things have flow-on impacts in a good way through the laboratory. So that's the piece that's 100% within our control that we are driving very hard at.

Okay. Great. Can I just talk to the EBA agreements. You mentioned 2 that are underway. What is the sort of -- what's the outlook look like for any other EBAs that are due to renewal?

I think we're quite lucky in that we've actually got through a whole lot of EBAs in the last couple of years. So we've just got 2 states going at the moment or kind of 3 agreements, I think. Look, I think the pressures with that are obviously just the minimum wage pressure and then getting an EBA up. You've obviously got to get it through fair work. And a lot of these that have, especially at collectors, then it's -- you've got to find that balance. What we are trying to do is that there's various levels of staff within those EBAs from collectors through to all the various levels of our scientists. And we're trying to make sure that we are paying appropriately because that obviously goes straight to staff engagement. And if staff engagement is good, your laboratories are a lot more efficient in your collection centers.

Okay. Two more quick questions for me. When you were CFO, Paul, it was described that Agilex was non-core. Just wondering if you've got any change of view on that.

I can't recall saying non-core, but I'll take your word on that. Maybe...

It actually wasn't -- it actually wasn't you -- it wasn't you. It was Maxine.

Look, Agilex is an extremely well-run business by Steve McIntyre and his team in Adelaide. They have been diligent in the way that they have turned that business around. So it is not soaking up an enormous amount of our management time. They've attracted -- well, they've signed these several commercial arrangements now. They've had their first big pharma client. And that is, I think, a real step change for an organization like that. So look, it's doing a terrific job. It's clearly a growth area and we are more than happy with what they're doing at the moment and have no plans.

Excellent. Last one. I just noticed in the Lumus business, the proportion of your revenue between gross and statutory, which I guess is the difference is how much you're sharing with the radiologists. That amount that you're sharing appears to have reduced between FY '24 versus FY '23. Is that -- could you just explain what's going on at the radiologist level that is facilitating that?

Yes. I mean, that's just simply radiologists transitioning to the new operating model. I mean we really don't talk about statutory revenue because it's kind of a slightly -- well, slightly misleading number. Gross revenue is kind of the important thing. So it's just a change in the employment model.

The next question is from Andrew Goodsall from MST.

Just starting with thinking about FY '25. Just noticed you've got a couple of sort of headwinds and just trying to understand the size of them, particularly, I think it's Western Health in Victoria.

Sorry, in terms -- sorry, headwinds in terms of?

Oh, just I think the contract is now reverted back to the public.

Yes. Look, I think there's -- there's clearly been a move in some of those areas in Victoria in particular. What we have seen is that some of those contracts that have been in-sourced have now been delayed. So our contract has been extended. It's something that I think -- look, we are conscious of -- we're conscious of it. We kind of look at it on a pure commercial basis and it cannot be cheaper for them to insource it than operate it with us. So it's something that's kind of on our radar. I think public hospital contracts are less profitable for us. But it's, look it's -- it's just something that we're kind of keeping an eye on.

Okay. And sorry, you mentioned that's been extended. Will that sort of go out for another half a year or just [indiscernible]?

It wasn't that one. It was a -- it was a separate one. So, yes. It's not public how much longer it goes out for. So...

Okay, got it. But the Western one terminates -- has already terminated, if I'm correct in what I've seen in the press.

It's coming up, I think. Yes.

Okay. Okay. And just the size of that. I mean, I guess, is that probably not a number you want to give away. But I guess just a sense of like, is it something that's not overly material or where does it [ fit in your thinking ].

It's not overly material, no.

Okay. Great. And I know we've probably tortured this a bit, but just on the pathology collection center closures. As you mentioned, it's down 4%. I just wondered whether your sort of run rate in the sort of fourth quarter was sort of more indicative and just whether you're prepared to give us a bit more of a sense of where those margins were for the underlying pathology business, sort of as you finished out the fourth quarter.

Look, we can't give you guidance, but I think we kind of -- from the start of May was when our real focus commenced on the collection centers. So if there's one thing I'm exercised about in this business, it's collection centers and keeping them open. So -- and that is literally about recruiting and retaining these people and rostering them appropriately. And it kind of sounds a bit silly, but getting your rostering right, so you get the shifts that you want within your area is a large part of retaining collectors who are a vital part of our organization. And we did a survey with these guys, with the collectors, and had an astonishing response rate within 24 hours with a lot of very constructive feedback. But what that tells you is that we have an extraordinarily engaged workforce on the front line that we need to do better with. So we're armed with lots of things on our to-do list and we've actually knocked a lot of those off already.

Excellent. Maybe just quick, a different way to -- same question in a different way. I guess I calculate just ex Agilex the Pathology EBIT margin second half at around 4.7%. But would I be wrong to sort of suggest or think that that's sort of pretty much fourth quarter weighted?

[ Ish ], yes. Look, I mean -- yes, ish, probably.

Okay.

We can give you.

No problem.

You've got January in Q3, anyway, Andrew. So that's always going [to be Q3 ].

Yes. And you had a sort of great sort of winter type recovery in the pathology volumes in sort of May, June. So you've got to take all that into account. So -- just trying to understand sort of run rate, obviously exiting better than you started. That's like -- congratulations on that.

Yes. And, I mean, part of it's cyclical as well. Isn't it? As you say you've kind of got those winter months, which we're kind of pretty happy at the moment that volumes have actually held up relatively well. So -- in comparison to last year, they bounced around quite a lot.

The next question is from Saul Hadassin from Barrenjoey.

Just a couple of quick ones. The significant items ex the impairment, obviously, a large number again this year. In terms of fiscal '25 as it relates to maybe some of that investment or transformation, can you give us a sense, should we expect some ongoing expenditure that's going to come in below the line in FY '25? And if so, any sense of magnitude?

Saul I reckon -- I mean, what we're thinking is our digital transformation, probably slightly less than this year. And in terms of anything else that is one-off, there's nothing on our radar at the moment. Yes, so that's where we are.

And just one other one. Just I noticed there's a loss from discontinued operations of just under $10 million. Can you tell me what that was related to?

Yes. So at the half year we talked about the warranty claim that we'd had with BGH when we sold medical centers. So the loss in the year relates to payment of that. And then also, we had some old medical centers, which we are still -- which we are lessors for, which didn't go with the sale. And we've -- and those -- they are 2 medical -- 2 sites, and they are quite long leases. So we have taken a conservative view and impaired those leases. And that second one is the majority of that number.

And just with that -- so with the warranty claim, is there any -- could that -- is there any additional amount that could be recognized in FY '24? Is that completed now?

[ Yes. ]

The next question is from Mathieu Chevrier from Citi.

My first one was just on the revenue in imaging to date. Is that 12% statutory revenue?

That's gross revenue. Yes.

And do you have a stat revenue for us?

No, we don't. That's just -- what we're trying to give you an indication of kind of the quantum of how they've tracked for those 7 or 8 weeks to date.

Okay. And is that for the entire division or are you taking some of them out?

Yes, every -- no, that's for every segment. So that kind of tells you something around, look clearly, we've got the reporting contract in there. But it's -- all of those segments are trading well.

That stat revenue is a pretty irrelevant number these days. We're really focused on gross revenue.

Got it. Got it. And just on that digital transformation. How is that money spent across the different segments?

All pathology. It is all pathology, Mathieu.

And just on CapEx, sorry if I missed it, have you given us a number for what you think CapEx should be in F '25? And again, by -- roughly by division, how much should we think about?

Yes. Let me just -- by division. Can I come back to you on that, Mathieu, by division?

Yes, yes, of course. No worries. That's all I have.

I mean, in the slide -- on Slide 16, we've got FY '25 maintenance CapEx, $30 million to $40 million. And we'll come back to you on growth CapEx.

There are no further questions at this time. I'll now hand back to Sharon for closing remarks.

Thank you very much, everyone. Given there are no more questions, we'll close the presentation for today. Thank you for attending.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.