Healius Limited (HLS) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Healius 1H '26 Results. [Operator Instructions]. I would now like to hand the conference over to Mr. Paul Anderson, MD and CEO. Please go ahead.

Good morning, and thank you, everyone, for joining us today. Alongside me is our Chief Financial Officer, Andrew Thomson, who will present the financial results in detail later on the presentation. Today, we're presenting our results for the first half of FY '26. We have delivered revenue growth on lower-than-normal episode volumes in an environment of flat MBS volumes. Cost-out benefits and in particular, labor are now being realized, and we're making tangible progress against our strategy. We're very much focused on improving customer service for patients and referrers, modernizing the network with digital technology as an enabler and building out our emerging diagnostics and higher-value growth areas. In the first half, we continued executing that strategy. And importantly, you see that execution beginning to translate into revenue and the cost base impacts beginning to take shape. Turning to the group results. Revenue grew 3.8% to $688.1 million. Pathology revenue increased 3.5% and Agilex delivered strong revenue growth of 16% to $21.8 million. Underlying EBITDA increased 13.1% to $122.2 million, reflecting improved operating leverage and early benefits from the cost reduction initiatives we have been implementing. Underlying EBIT for the group improved to $7.9 million compared to a loss in the prior period, which included an element of corporate costs. Cost reduction initiatives along with reducing corporate and stranded costs have flowed through the results in 1H '26. We ended the period with a net cash position of $11.6 million at 31 December. Turning now to Pathology. Pathology revenues grew 3.5%. And importantly, that growth has been delivered with total operating cost growth reduced to 1.9%. Labor costs remain a key focus and reduced to 49.3% in the second quarter as the labor optimization program progressed. Consumables reduced to 15.8% of revenue and are below 1H 2025 in absolute dollar terms. Operationally, GP attendances were down 1.5% versus the prior corresponding period, while specialist attendances increased by 2.5%. MBS volumes were flat over the comparative 6-month period. Revenue growth has been a combination of volume growth and more importantly, improved volume mix, particularly growth in B2B areas, including genomic diagnostics, veterinary pathology and clinical trials. The majority of our labor optimization program is now complete. We've also continued to deliver on our technology road map with Medway Collections Portal successfully delivered and the Medway Results Portal significantly improved. Other major changes for Pathology are the Australian Defense Force contract, which commences in April 2026. This is a major win for our business with approximately $60 million of revenue in the initial 5-year period. We have now deployed 2 AI coworkers, Reva AI and Julie AI. Both are now fully deployed and the beginning of our AI journey to improve operations with well-defined and purposeful use cases. Reva AI and Julie AI are coworkers in every sense. They form part of our organizational structure. They report to a manager and are currently responsible for improving our cash flows and workforce planning. The financial impact of the Fair Work Commission decision on gender-based undervaluation commences from April this year. Whilst the final decision has not been provided by Fair Work on all matters, what we do know is that there will be a circa $1.8 million impact of 4Q '26 with regard to our collector workforce. The annualized impact will be fully determined once the final decision is provided by the Fair Work Commission. With regards to the financial consequences of the Fair Work decision, we're working closely with Australian Pathology and the Department of Health, Disability and Aging to find a solution through the Medicare Benefit Schedule to support these increases. Now turning to Agilex. Agilex Biolabs delivered a strong first half. Revenue grew 16% and EBIT increased by 145.5% to $2.7 million, with margins expanding to 12.4%. This reflects 3 deliberate strategic decisions, enhancing our capability, focusing on large molecule development and exiting the toxicology business. The new Brisbane bioanalytical laboratory is a significant milestone and represents the benchmark operating model for future expansion. And importantly, our order book has now returned to more normal levels. In terms of digital investment, this slide marks an important milestone for our business. We have now built substantial digital capability through our multiyear modernization program. From 1 January 26, our digital expenditure will be treated as business as usual and no longer treated as a non-underlying charge. This program has delivered a range of technology enablers. They are set out on Slide 7 in detail and cover every area of our business. From a customer service perspective, we now have a front door for our business with new websites, e-referrals from all major practice management systems, a new fully digitized Medway Collections Portal, an upgraded Medway Results Portal with new CPD offerings and new billing capabilities with simplified pricing and upfront payments. And from a clinical perspective, we now have a Pathway lab portal with a modern foundational platform to deploy nationally standardized pathology workflows, including the use of AI-enabled decision support. The key point here is that a large part of the heavy lifting is now done. These capabilities are now embedded in the business and position us to drive both productivity and improve customer service going forward, all part of our normal operations. Now the T27 Scorecard, this is a busy slide, so I won't go through everything, but I'll touch on some of the key points. We've launched a modern collectors portal in the first half to improve patient service and collection efficiency. Around 2 million episodes were collected digitally in H1 with 12% now fully digital through e-referrals. This is materially changing our workflow through the front end of our business. Alongside that, we have deployed new pricing infrastructure across private tests and introduced upfront charging where relevant for criteria-based MBS tests such as B12 and urines. Importantly, we also introduced informed financial consent. Since October, around 480,000 informed consents have been provided, mostly through digital channels, reducing billing risk and improving transparency for patients. Appointment booking continues to gain traction. We launched this for complex test to manage peak demand and reducing waiting times. It has already enabled around 100,000 bookings. We're also now using real-time data along with AI to optimize ACC opening hours, increase productivity and improve service availability and wait times. We've also nationalized our collector training program through our Healius Training Academy to ensure we have skilled collectors deployed across the network at the right times. We simplified our field structure by combining business development, medical liaison and collection teams into a single national team. This structure has created a single point of contact for referrers, improving engagement and accountability. In our laboratories, we've delivered major efficiency improvements across our network. Our main laboratory headcount has reduced by 2.2% through workflow and rostering changes. Across the broader regional and urban network, labor reduced by approximately 6% as we rebalance where work is performed and optimized our footprint. Carrier operations have been digitized across multiple regions with optimized routes, reducing unnecessary stops, overtime and costs. Paper reporting has also been reduced by up to 40% in some regions with around 10,000 doctors now receiving fully digitized reporting. On emerging diagnostics, genomics continues to perform strongly with 21.6% revenue growth versus the first half of last year, driven by oncology, cardiology, pharmacogenomics and hematology supported by new product launches. Our focus in the second half will be on omnichannel promotion, digital workflow automation, revenue assurance and improved result reporting. In Diagnostics, our revenue is ahead of plan, supported by improved service experience and turnaround times. Our Victorian operations are now fully integrated into the Heidelberg Laboratory, delivering standardization and cost reduction with minimal client impact. Medway Clinical Trials continues to grow strongly, supported by our modern trials platform, and we expect this momentum to continue into the second half. Finally, on digital technologies and our ways of working. We continue to deploy new digital capabilities as part of our business as usual, including lab flow work digitization starting with genomics. We've also made strong progress in AI with digital coworkers now live in accounts receivable, improving speed to cash and in rostering, combining collector availability with network demand to optimize coverage and reduce closures. These capabilities will continue to evolve as we gain operational insights. So the overall message from this slide is that we're making tangible progress on our T27 initiatives. The operating model is changing, and we're seeing measurable improvements in service, productivity and costs coming through. I'll now hand over to Andrew to take you through the detailed financial results.

Thanks, Paul. I'm delighted to be presenting today for the first time as Healius Chief Financial Officer. I'll walk through the first half performance and what it means for the rest of the '26 financial year. As Paul has already said, the key message in today's results is that we're increasing revenue through top line growth and revenue mix while also reducing our support costs, keeping a disciplined approach to capital allocation and setting up delivery for the second half. Let's begin with the group result and the key contributors to the turnaround versus the prior period. The group revenue grew $25.5 million or 3.8% to $688.1 million, driven by both volume and fee growth in Pathology against flat Medicare volumes for the period and strong revenue growth in Agilex. Group EBIT was $7.9 million, improving from a $2.7 million loss in the prior period. Pathology EBIT was up $9 million to $5.2 million and importantly, now includes corporate functions that were reported separately in the prior year. Agilex EBIT more than doubled to $2.7 million, with revenue growth translating into margin. Non-underlying items for the half were $20.8 million, predominantly the digital transformation program and also restructuring costs to right-size the business in regional labs, men lab optimization and in the contact center. Interest costs in the first half were primarily finance costs on properties with very low interest costs on debt and are down versus the prior period due to our average debt levels We remain on track to deliver $20 million of targeted annualized support cost savings over the year. We achieved $7.3 million of annualized savings in FY '25, an additional $10.7 million of annualized savings in the first half of this year with more planned in the second half of the year. Full run rate benefit is expected from FY '27 onwards. Next, I'll unpack Pathology, what's driving the revenue mix improvement and how productivity is tracking. So in Pathology, we're seeing improved volumes despite a flat MBS market and better revenue mix, supporting an increase in the average fee with revenue up 3.5%. That growth is underpinned by a better mix across specialists, hospitals and B2B revenues. As Paul said, genomics continues its strong momentum with a 21.6% increase versus PCP. And also clinical trials has had an exceptional growth and a forward pipeline, so up 118.6% versus PCP, although on a low base. Looking at labor and productivity. Labor increased 2.9% versus the prior period, primarily from EA rate increases, although that's been partially offset by a reduction in headcount across the organization. Labor as a percentage of revenue improved to 49.3% in the second quarter of 2026, reflecting the benefits of the labor efficiency program to date. Our consumable costs are also well controlled. They're 1.8% lower than the prior period in absolute terms despite higher volumes, and they're also down as a percentage of revenue, so 15.8% in this half versus 16.6% in the prior period. The network costs, so property, including our depreciation and finance costs are trending higher as a percentage of revenue, driven by the timing of new sites versus exits within the portfolio. I'll now turn to Agilex Biolabs, where the mix shift is driving margin expansion. As Paul said, Agilex is benefiting from a strategic pivot to large molecule work, is contributing to that margin growth. EBIT margin for the half is 12.4%. So that's reflecting the mix shift away from the small molecule work, the pivot to the large molecule work and also the closure of the loss-making toxicology business that closed during the first half. Agilex has also expanded its national footprint. The Brisbane bioanalytical lab is performing ahead of expectations and really forms the blueprint for all future lab openings. And those other lab openings are planned. The industry fundamentals for Agilex remain intact and the strategic rationale also. We have a strong pipeline for the remainder of FY '26 with continued growth expected in both revenue and in margins. Given the investment we're making to support growth, I'll cover capital management and cash movements next. So as you've heard in the past, we're being conservative with capital until earnings consistency is achieved, but we are still funding targeted growth initiatives through CapEx. Maintenance CapEx for the period was $9.4 million, largely the replacement of lab equipment and also IT hardware, and we're doing that in a very targeted way where the business case stacks up. Growth CapEx was $12.3 million, primarily investment in larger-scale independent ACCs, also equipment for new hospital contracts and around the AI development that Paul talked about before. Our net cash position reduced from $57.2 million to $11.6 million during the year. But that was mainly as a result of nonoperational issues. So we had a large payment to the ATO. There were the underlying or the non-underlying digital costs that Paul has talked about and also the restructuring costs that I talked about earlier. The cash bridge in the slide provides a graphic representation of that movement broadly aligned to the stat reporting. We remain well within bank covenants for the period and expect to remain that way for the rest of the financial year. So Paul, I'll hand back to you to talk about the second half outlook.

Thanks, Andrew. Just looking ahead to the second half. So as we said, we expect earnings for FY '26 to be in line with current consensus. As we set out earlier, we're on track to deliver $20 million in annual support cost savings. Our digital transformation program is now complete and future digital spend is just treated as business as usual as of 1 January. Revenue and profitability, as we know in this sector is expected to be weighted to the second half, reflecting the seasonality and the timing of cost savings for us. And we continue to expect to achieve high single-digit EBIT margins by June '27 and doing this by growing volumes through our own ACC footprint and our restructured customer and commercial operations as well as pricing initiatives. Continuing to aggressively grow the high-margin parts of our business, and we've talked about some of those today, leveraging our technology investment and the benefits from that and continuing to reduce our costs. That concludes the formal part of the presentation today. Thanks very much for your time and now open the session to questions.

[Operator Instructions] Your first question comes from Lyanne Harrison with Bank of America.

Can I start with guidance? I know that you're saying you expect earnings to be in line with current consensus. And I just wanted to confirm, by earnings, do you mean EBIT? And are we looking at sort of a $49 million, $50 million EBIT number?

Yes. Sorry, we're referring to EBIT, Lyanne. And I think that number by our calculation with Visible Alpha is around $48 million. I think there's a couple of issues that Visible Alpha has to sort out. So -- but yes, sorry.

Okay. So if I'm working on that $48 million and you delivered $7.9 million EBIT for the first half, obviously, it feels like there's a lot to catch up on in the second half. What sort of assumptions have you made for revenue in the second half in terms of growth? And if revenue or volumes remain flattish as we saw to date, do you still expect to hit that EBIT number?

Look, without taking you through our model blow by blow, Lyanne. Look, so first of all, I think you will know that there's quite a major skew between H1 and H2, and you saw that last year, I think it was 4.1% and 24.1% across the 2 halves. We expect volumes to improve in the second half. I think we've shown that we have grown our revenue ahead of volumes. I think there's -- without giving you a specific number, the rationale for that, I think, one, a number of people have talked about bulk billing and the potential for that to increase volumes. I think for us, it's more about us generating revenue out of our own network. We have spent that first quarter of this year restructuring our customer and commercial team as we set out. So we've got a single point of contact into our collection center footprint, which is now designed or monitor on an SA3 footprint. And that's the way that our sales team is structured as well. So we've been bedding that in Q2, and we expect to see an improvement in our own volumes in that second half. So it's a combination of that without giving you a specific percentage increase and our continued cost improvement program, particularly around labor, where we've reduced our labor cost as a percentage of revenue from Q1 to Q2 by more than 2 percentage points. And we see that further improving in the third and fourth quarters. So that's a very long-winded answer.

Okay. So whilst you mentioned labor, I'll continue there. So well done in terms of managing that labor cost in this first half. So in terms of second half, obviously, you said there's going to -- there's a bit more to come. But should we expect dollar cost labor to be relatively flat sequentially given what we've seen from second half '25 to first half '26?

Yes. Look, that's our ambition. I think we said that at the AGM that we expect labor cost to be broadly flat year-on-year ex the impact of fair work. We've obviously made all of those changes in the first half of the year and the major -- mostly in the first quarter, not just in customer and commercial, but also across our main labs, our regional laboratories, in particular and also across support costs.

Okay. And if I think about, obviously, all the initiatives you have, including the T27 initiatives, what's your targeted revenue as a percentage of labor as you exit fiscal '27? I know it's a long way ahead, but I'm sure you've thought about your initiative program.

Yes. Look, clearly, labor is running at 49.7% or whatever, 49.2% or 49.3% in that. We're obviously hoping to reduce that by several more percentage points below that. Now you naturally get a kicker in that second half just because revenue is skewed to the second half. So look, I'm not going to give you an absolute number, but we know that, that number needs to be in the 40s and reducing.

Okay. Great. And just wanted to clarify just some of the wording around the annual savings made as part of your cost-out program. So the wording was additional and further $10.7 million achieved in the first half. Is that on top of the $7.3 million? Or should we just think about it being $10 million achieved?

No, that's on top of the $7.3 million, yes. So you've got $7.3 million that was kicked off in FY '25. You've got $10.7 million in the first half, so that total was $18 million and more to come in H2.

I think it's important to say that those are annualized cost saving numbers, Lyanne, and we'll see the full benefit of those in FY '27. But on an annualized basis, the $18 million that Paul spoke about.

Okay. Fantastic. And with some of the further restructuring costs still to come through on labor, what's your anticipated restructuring costs that you expect in the second half for that?

Look, we think we're broadly done with that, Lyanne. So most of the heavy lifting was done in that first part of this year.

Your next question comes from Andrew Goodsall with MST Marquee.

First one, just your growth on private pay and co-pay as a percentage of revenue. Just wondering whether -- what percentage that's sort of grown -- sorry, as a percentage of revenue and then whether phlebotomist can now take that payment?

Sorry, what was the second question, Andrew?

Sorry. That's all one. I jammed it together. But just your growth in private pay or co-pay as a percentage of revenue, just how much that's increased? And then whether the phlebotomists can actually take that payment at the point of collect.

Sorry. So the second one is the easiest one to answer. So we've got Square payment terminals in each of our collection centers now. So absolutely, they can. And that's part of our Medway Collections Portal. So the answer to your first question, look, we're obviously very difficult for us to give you an absolute percentage. B12 adherence is probably as good as an example as anything where there's been changes to Medicare criteria. We're doing tests still for patients that don't meet that criteria. So we are taking upfront payments for those where we can and for those that we can't, that will give an invoice. So look, I can't give you a percentage. It is obviously growing because of some of the changes to Medicare, and we can't be expected to be doing those tests for free. And there is a number of tests that we do that are not part of the Medicare schedule that for us to be able to take those payments upfront and be transparent with patients and get informed financial consent at the same time is important. So that cures a whole range of chasing up debts or sending out invoices. So it improves our one, collections and our revenue assurance.

And sorry, my second one was that just with the Fair Work Commission, can you just be -- we had one of your competitors report earlier in the weekend, you've got 50% more collection them, but a similar number on the impact from the Fair Work Commission. And then just also if you've got any estimates on the impact of the health services, the professionals when their increase comes through next calendar year.

Yes. Look, so this is incredibly confusing and maybe even more confusing because we've had half the decision and not the whole decision. So just on what we know for collectors, we think we've got a charge of around $1.8 million for this year, and that is split $1.2 million for our collectors and around $600,000 one-off increase for annual leave on costs. The reason for the differential between us and ACL, which I think is what you're asking, without trying to reconcile that for you, I think the way that the decision works is there is an immediate 4.1%, 4.0% increase that comes on the 1st of April. And that increase has to take into account -- that's above award. So what has to be taken into account across each of your EBAs across each of the states is where your current pay exists. So that's the differential. And the third component that we don't know is the further payments because it says up to, but there's very little clarity around that for collectors. I think it's even less clear on health professionals, and we're just waiting to hear from Fair Work what that is going to be. And they've said that, that will be split equally over 5 years.

Sorry, I was trying to keep it, but just to clarify, if you're already paying a little bit more, you're basically saying, well, therefore, our net increase on the 1st of April as well.

Would be less.

Does that put you in any disadvantage that you're paying more for a particular reason in the past, now you won't be paying more?

Look, I think everyone has EBAs in each state that kind of happen at different cycles. So I think there's always going to be some differences. There's this -- when you're negotiating EBAs, you've got to navigate that the award wage that goes up each 1 July. So depending on the number of years that you do, you're trying to navigate the fine line between your uptick here and not falling behind award because then you actually have to go back and start changing everything again.

Your next question comes from David Stanton with Jefferies.

Perhaps we could start diving into guidance to beat a dead horse. Consumables, 15.8% as a percentage of revenue in the first half. Should we be thinking about that kind of number as a percentage of revenue for F '26, please?

Yes. I think the reality is it's been a good improvement this year. We've made, and it comes in 2 different forms, right? One is the contractual cost for the volumes of things that we buy, so effectively negotiating better contracts. The other part of it is the volume usage of those things, and we found savings there. Some of the CapEx that we've spent in the first half has been around buying equipment that uses or is more efficient with those kind of consumables. So we expect to see that into the second half with hopefully a further improvement.

Okay. And interest expense in the first half, should we just broad brush double that for the full year?

Yes. I mean I think the guidance that was given in the -- at the start of the year was somewhere between kind of $1 million and $3 million for the year for interest. It's been bank interest, yes. So bank interest has been $1 million. Look, I think it very much depends on where we end up the year, obviously, based on where we think we're going to be, that's the guidance that we would still go with.

Okay. And any cash flow sort of targets that we should be thinking about for end F '26?

No. Look, I think what we've said is that, one, the digital costs, that has become business as usual from the 1st of January. Those restructuring charges from the first half of the year, that is now done. So the ambition is to have that now be relatively clean in H2.

Your next question comes from Craig Wong-Pan with RBC.

Just wanted to ask about your ACC rents. Like I've noticed that your D&A expense went up despite that kind of reduction in ACC footprint. So could you talk us through what you're seeing on a rent or kind of lease basis?

Yes. I think, look, there's a couple of elements to this, right? Craig, one is that the guidance we gave for the year for the total D&A number was $230 million. For the half, it's been $114 million. I think for the right-of-use assets, so effectively the leases you're talking about. Full year guidance was $192-ish million. We've hit $96 million. If you look at that, just that component for the right of use, sort of $96 million versus $93 million in the prior period, which is a 3% increase in those kind of 3-year leases, which is kind of what you would expect given that most of them are tied to a CPI number. Now in terms of the footprint change, look, there's obviously you're looking at like kind of a difference in the number between 1st of July and the end of December. There were movements during the period. There's timings of when we entered and when we exited. So some of those ACCs we carried for a longer period in the year.

Okay. Next question, just on the ADF contract, $60 million expected revenue over 5 years starting in April. How should we think about that ramping up over time? And what kind of contribution could we expect for this fiscal year?

Look, it starts on the -- I say, the 1st of April, starts in April. So it's standing start from 0 to 100. So it's not a ramp-up over time. Look, in terms of contribution, that's pretty hard for us to set out, Craig. I think probably a good way of just explaining there's a difference between the existing contract that exists and the new one and the defense force have -- they have 56 joint health command centers around the country, of which we provide collectors for 22 of them, and they staff the other 34. They all use our system. So we have a fully digitized appointment booking through to results system in place, which is new for them as well. So the model is very different this time. The previous model had the majority of people going to an existing part of the ACC network for either ACL or us. So that's not answering your question around contribution. Look, it's obviously a fairly significant revenue item. And it's a fully digitized system as well. So we're very excited about.

I guess what I'm sort of asking is that $60 million, can we apportion that sort of on a straight-line basis? Or is it expected to be kind of building up?

Yes. Sorry. Yes, you can.

Yes. I think that's what Paul sort of alluded to at the start, which is on day 1, there's no ramp-up here. We don't sort of ease into the contract. We take over what's already happening.

Your next question comes from Davin Thillainathan with Goldman Sachs.

I guess to sort of help us bridge your EBIT from a first half, second half perspective, it does feel like your cost-saving initiatives could be a pretty material driver of that. So could you sort of help us understand just how much more benefit comes into the second half from that initiative, please?

The majority of the change between the halves is not so much costs. It's just the skew of revenues. So if you look historically, and all of the players have this, is that you have a skew from H1 to H2. And the very simplistic way to think about this is your cost base is relatively fixed across the 2 periods. Now yes, we expect to achieve some additional cost savings in H2. But the big benefit comes from the additional volume you get in the second half. And the only cost associated with that is your circa 15% of consumables. So a 49-51 split kind of gives you that answer. Now 49-51 is not the absolute number. It bounces around a little bit, but that's kind of where it lands.

But in terms of the cost savings, I think we've talked about the $10.7 million that we've achieved in the first half. Clearly, those are -- as I said before, that was an annualized number. So you do see more of that coming through in the second half on the basis that the 6 months where we've already put those things in place. But as Paul said, that's not the majority of the delta.

Okay. And then another question, I guess, on your balance sheet. There seems to be a step-up in payables sort of between June and December. I understand you've grown your revenues, but that rate of step-up seems a bit higher than the rate of growth of revenues. Could you sort of help us understand what's driven that?

Look, I think partially, there's the normal seasonality that you see with the December numbers. That's definitely part of it, but nothing really outside of that, that's materially changed.

Okay. And last one on my end, just to help with modeling your interest costs. Could you help us understand what the effective interest rate you'll be incurring having drawn down some debt over the half, please?

Look, I think what we're seeing is in the first half, it was effectively $1 million of bank interest. That's not all interest. Some of that is obviously the fact that we have a $300 million facility that we haven't fully drawn. We pay a fee on the undrawn component as well. But I think you could assume a sort of linear relationship between where the debt is at the half year-end and the forecast of where it will be at the full year-end.

Your next question comes from Saul Hadassin with Barrenjoey.

I'll stick to 2 questions. First one, again, just reflecting your labor cost being flat effectively this year versus fiscal '25, that suggests your labor cost in absolute terms needs to reduce in second half '26. And on our revenue estimate, which allows for that seasonality, I think as a percentage of revenues, it has to come down circa 300 basis points in second half versus first half of '26. Is that the magnitude of improvement in labor that you're expecting in second half?

It's probably in the realms of that, yes. So look, you get -- there's 2 components of that. There's the reduction in dollars of labor that exists in the second half and then the naturally higher revenue, which a combination of those 2 things should bring your percentage -- your labor cost percentage cost as a percentage of revenue down quite significantly.

Yes. I guess it does imply a $15 million reduction in sequential labor costs, but I'll leave that to follow up with you guys later. And then the second question, Paul, I know you kind of asked this question a lot of different ways. And I think the confusion has been debt-related interest versus lease liabilities going through the interest cost line. But just to be clear, is second half '26 likely to be similar in terms of that circa $24 million of all-in interest expense that flows through?

Yes. I think so you can assume that that's the right number.

Okay, which effectively means your PBT.

Within a range, yes, yes.

Sure. But just to be clear, it effectively means your profit before tax, if you assume consensus EBIT will be $0, just to clarify that.

Sorry, say that again.

Well, if you're effectively guiding to consensus EBIT at around $48 million for the year, and if we allow for the interest expense, it suggests profit before tax will be effectively breakeven position for the business in '26. Yes, I asked because consensus, I think, is sitting with $17 million of NPAT profit for the year. So I just wanted to clarify that.

Yes. And again, I think the issue here is that we did give the guidance number on the D&A and the right-of-use D&A, and we're kind of tracking in line with those. So not entirely sure why the profit after tax number is so far off.

Your next question comes from Sacha Krien with E&P.

I just want to ask a couple of clarifying questions on the Fair Work Commission impact, and then I've got a question on the volume versus mix growth. Just on Fair Work Commission. So you're sort of talking about $1.2 million impact for collectors in the quarter. Given sort of your comments around some uncertainty about how it's going to be implemented, are you basically saying there's a step-up in that $1.2 million when we get to January, 9 months later?

So what we're saying is that we can calculate that to 30 June. What they haven't given us is absolute clarity from the 1st of July. And the factor there is what step-up you have under your current awards and they're different across each of the states and how that impacts the total cost going forward. So that's the collector piece and then the health professionals or the scientist piece is even less clear. So I think we are going to see a relatively significant impact in that second half -- sorry, in the -- from 1 July, we just don't know what that number is yet. So -- and it's hard to just go by 4 for collectors.

Yes. I'm just interested you've maintained that high single-digit margin guidance in that context. Is there an asterisk next to that depending on what the final numbers are from the Fair Work Commission?

Look, I think that's -- it's probably fair to say that. I think there's a couple of things there. There's one, understanding exactly what that impact is. And then two, there is the ongoing dialogue with the Department of Health around how this is dealt with. So I think submissions to Fair Work have been pretty clear that elasticity and pricing doesn't exist in this industry. So any significant impact from these wage increases, there needs to be a solution for that.

Yes. Okay. And my second question was just on volume and mix. I'm just wondering if you can give us a bit more color on MBS versus non-MBS volume and mix growth.

Look, the reality is that the majority of our revenue, and look, I'm not going to give you a percentage, still relates to MBS. There's obviously been some changes with things like B12 and urines. There's a range of non-Medicare items that we are reviewing or have changed our pricing already. And there is also B2B testing, testing, clinical trials and so forth. So still a high percentage of our revenue is still related to the Medicare benefit schedule.

And I think we've seen on that. You'll have seen the numbers, right? Medicare volumes are flat for the same period. Medicare spend is up 1.8% for the period. We're a component of the industry.

Okay. And then just in terms of -- I mean, just looking forward to '27, you sort of talked about the bulk billing incentive change. We're going to be cycling the B12 and possibly some other cyclical issues. Where do you think we can get back to in terms of MBS? Is there something structurally wrong? Or do you think it's more just an FY '26 story we see a better growth rate in '27?

Look, I think that's pretty hard to predict, Sacha. I think there's lots of factors at play here. Obviously, everyone hopes that the change in bulk billing incentive improves GP attendances and specialists for that matter. So it's pretty hard to predict. But look, I think there's no doubt that the industry is changing to a certain extent. Telehealth has grown as part of GP attendances and MBS published those numbers. So that's increased by kind of 4 percentage points over 24 months. So there's kind of lots of things happening. I think there's clearly cost of living pressures on people attending doctors, the cost of a doctor visit, bulk billing. There's lots of things rolled into that. So it's pretty hard to give a definitive answer. Of course, we all hope that volumes return to kind of historic 4% levels. But our job is to manage our way through that and grow the higher growth margin parts of our business like genomics, which is growing quite fast.

Your next question comes from Steven Wheen with Jarden.

Just back on the lease payments. I'm just a little surprised that the total payment amount hasn't come down by more now that Lumus is no longer part of the business? Or are you still carrying some of their lease costs? And when -- what happens at the end of FY '27 when I think those lease arrangements expire?

No, we're definitely not carrying any of the Lumus lease costs.

Okay.

And guidance was quite clear. Yes. I mean I think where we are is in line with the guidance that was given at the full year of last year.

Okay. All right. Next question. Just with regards to the ADF contract that you've won or secured. Is there much of an offset from the Western Health contract loss? Just trying to understand what the net benefit will be of those 2 contracts going forward.

Yes. Look, I mean, we're not going to kind of give you a reconciliation of one offset to the other. Look, Steve, there has been changes in the makeup of a bunch of things. So we've obviously won ADF. We have -- in this past 6 months, we've taken on the Northwest Tasmanian contract. We renewed our Grampians Hospital in Victoria and took over the Horsham Hospital as part of that from ACL. And in terms of losses, obviously, Western Health leaves us this month and also Hollywood in WA. So there's ups and downs and swings and roundabouts with those. I think the combination of all of those is you have to say, is positive in terms of revenue when you've got 3 new contracts and 2 disappearing.

Okay. And then last question for me, just with regards to the private billing that you speak of that's been able to sort of help offset some of the pressures from the Medicare changes. Has the Health Minister softened his stance on this because he seemed to be more averse to the idea of private billing. But I guess the argument from the industry was because of the time prescriptors, you could claim that they weren't covered by Medicare if they were prescribed those tests within a period of 12 -- twice within a period of 12 months. So has that argument resonated with the Health Minister?

Look, I think that's probably a question for him. I mean we should be quite clear is that if we just use urines as an example, and the patient comes in to get a urine test and does not meet criteria for whatever reason, we are entitled to charge them for that service. So -- and that is what we mean and what we have been doing. So this is not about us trying to increase prices elsewhere to offset that. There's been some specific changes made to B12 and urines. And we should also be quite clear that, that has reduced volumes not insignificantly across the whole sector. So -- and the cost or the revenue that we have charged patients that do not meet criteria has not filled the whole lift by those reductions in B12 and urine.

Your next question comes from Bryan Tan with Macquarie.

Question I have is I saw that you put a note out on the impact of AI and health misinformation. I'm just curious to understand how you feel that would impact your business moving forward?

Look, Bryan, so we first did this research back in November '24, so 15 months ago. And the reason we did it. So we do -- we publish this report and we publish a report on diabetes. And part of that is we have that information, and it's actually quite valuable for us to go to the government and say, here is the result of -- in diabetes terms, the cost to you. And here is our idea is how you can use information to reduce those costs. So it's kind of part of us being a good corporate citizen as part of the health care industry. The health misinformation piece is fascinating in that 15 months ago, half of the population would self-diagnose using Dr. Google. And half of those that did self-diagnose got it wrong. The really interesting fact that came out of the most recent research is if you put your symptoms into the Internet now, you don't get 5 or 6 different links to click through to. You get a nice little AI summarized paragraph upfront, which summarizes it all, which 80% of people trust relatively highly. So there's a kind of health misinformation piece for the government here. But I think for the industry, it's a fact of life. We know from that research that you've got parents with young children at home are more likely to go online and check out their conditions before they go and see a doctor to a pretty large extent. So I think it's just another factor that goes with cost of going to see a doctor, doctor availability. And look, the upside in all of this is that you're more informed before you go and see your doctor. The downside in all of this is you have potential for less people to go to the doctor because they think they know what's wrong with them. So the purpose of the report was really to highlight the prevalence of people checking symptoms online. And we've seen that go up, and that's gone up over 15 months. So it's just another factor, I think, to take into account.

I guess where I'm going with this is if what you're saying means that people are less likely to go see the doctors and you're already having a drop in your GP volumes, will this have a significant impact? And if so, when? But also with the MBS indexation pass-throughs, would that be enough to essentially but for you before any significant impact happens?

They're pretty hard to answer questions, both of those. Second one is incredibly hard. Look, as I said, it's just another factor. What I would say is that it was 15 months ago when we did the original survey. Have things changed dramatically the way that you receive the information has. So it's not as though this has materially changed the fact pattern of how people go to GPs, but it does give us more of an understanding, along with the things that we do know about like the cost of going to see a doctor. And on the positive side of that, since then, bulk billing incentives have changed as well. So we're yet to see that play out.

Great. And just one last question. How sustainable do you feel is the fee mix uplift with your genomics and B2B and business? You're getting really nice growth numbers. Do you think it's a structural shift or just episodic at this point?

Look, I think there's clearly a shift -- sorry, there's clearly an increase in wellness companies out there that are doing pathology testing. I think the vet pathology market is -- it is non-MBS related. We are the largest vet pathology provider in the country. So focusing on that, the average fees are significantly higher than for human pathology. So leveraging our network, which is what we're doing, that is an achievable and sustainable increase. And then on the genomics front, precision medicine is growing significantly. And we have a genomics business that has real scale. So I think you see the Medicare benefit schedule items coming on each year. A lot of those are cancer-related and genetics related. And we've launched 8 new products this year. So our challenge, I think, as we've set out in here is to improve our ability to process volume across the different products that we've got and to be able to market that. So that's what we mean in large part by growing the higher-margin parts of our business.

Your next question comes from David Stanton with Jefferies.

Just a follow-up on the previous question then. We have seen the CROs in the U.S. come under share price pressure on the back of concerns around AI. How is Agilex going to avoid that going forward, please?

Look, I'm not sure I'm probably qualified enough to answer that, Dave. Look, I think what we've seen with Steve McIntyre and the Agilex team is they are a small part of the clinical trials chain. They are highly specialized in what they do. We've obviously got a good or a very good environment here in Australia in terms of speed to market and also the R&D incentives. So those are all the things, I think, that along with the pivot to large molecule work. So the one thing I would say is that, that market has been continually changing. Some of that's been through politics in the U.S. And as you say, there are other things coming down the pipe like AI. So -- which I think historically, Steve and his team have actually been pretty good at navigating their way through. So I don't think I fully know the answer to that, but I kind of -- they know their strengths, they're playing to their strengths and they're growing quite significantly because of that.

Your next question comes from Sacha Krien with E&P.

Just a question on the cash flow and cash burn. Look you got $300 million facility, I think $40 million is drawn down. I'm just wondering if there's any sort of restrictions on your ability to draw down given the cash burn or whether or not that could potentially be reviewed depending on what happens with the sort of the Fair Work Commission outcome?

No, there's no restrictions. Look, our ambition and part of the -- we've been very clear about from the 1st of January that the business becomes much cleaner in terms of any of that cash going out below the line. So becoming cash flow positive is the #1 ambition. And I think if you strip out those one-off costs for the last half, which have been very deliberate to achieve that, then that's the answer. But the answer to your first question is no.

Yes. And so all else equal, you would have better growth and better cash flow into '27, maybe some of that comes off with the Fair Work Commission. I mean, I guess my final question would be, do you think you can still grow cash into '27 with Fair Work Commission impacts?

Well, look, Sacha, we don't know what the what the Fair Work impact is going to be. So I think there's one, quantify what the Fair Work impact will be. And then what is the quid pro quo, if you like, in terms of how do we actually support that cost increase.

Thank you. That does conclude our question-and-answer and conference for today. Thank you for participating. You may now disconnect.