Integral Diagnostics Limited (IDX) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Integral Diagnostics, IDX, Half Year Results 2023. [Operator Instructions]. I would now like to hand the conference over to Dr. Ian Kadish, CEO and MD. Please go ahead.

Thank you very much, Tashi. My name is Ian Kadish. I am the Managing Director and Chief Executive Officer of Integral Diagnostics. I'm joined here this morning by Craig White, who is our Chief Financial Officer. Thank you all for joining our results call this morning. You may have noted that we brought the call forward because we were ready, we had had a clean half year, and we have completed our auditor review. From a consensus perspective, you'll see that we were slightly above for revenue, we were in line for EBITDA, and we were divergent below the operating earnings line at EBIT and NPAT. We've also called out, you'll note in the presentation, a revenue improvement in quarter 2 over quarter 1 and double-digit improvement over January last year. Turning to our second page, delivering on our values in the first half of financial year '23, Integral Diagnostics is a value-driven diagnostic imaging company. We served 590,000 patients last year and performed more than 1.2 million exams. We invested $13.6 million in CapEx, including a PET CT at Smith Street, an MRI upgrade in Robina, both on the Gulf Coast, a CT at Mauranui and a SPECT-CT at Millennium, both in Auckland. We've continued to develop and to implement technology, including AI, to enhance the patient and their referrer experience. We employed 249 reporting radiologists across the group, and we continued the development in this half of our Integral Diagnostics IDXt business, our teleradiology business, reporting for external as well as internal clients. Everyone counts at Integral Diagnostics, all 1,984 employees. We conduct regular temperature check and pulse surveys, including in the past 6-month period with our employees showing continual improvement in employee engagement. We continue to focus on delivering our ESG strategy. With regard to creating value, we saw an operating net profit after tax declined by 36% to $7.8 million in an environment that we're still recovering from the wide ramifications of COVID-19. We declared a first half FY '23 fully franked interim dividend of $0.025 a share. We've invested $5.1 million in growth initiatives. We've continued the integration of The X-ray Group that was acquired in November of 2021 and completed the acquisitions of Peloton Radiology and Horizon Radiology that were both acquired on the 1st of July 2022. We currently have 6,632 shareholders as of the 31st of December. We've implemented new clinical and corporate IT systems in this half to better support the business and to facilitate workflows to help drive shareholder value. Turning to our financial highlights on the next page. We've grown our revenue by 19.2%, reflecting a slow, gradual recovery in patient volumes and the acquisition of the X-ray Group, Peloton Radiology and Horizon Radiology. We saw a 58.2% increase in statutory NPAT to $16.1 million by a decline of 36.4% in operating NPAT to $7.8 million, driven by a write-back of $8.3 million net of tax from one-off nonoperating provisions, transaction and integration costs, amortization of customer contracts and the like. We increased our operating EBITDA slightly by 2.4% to $39.8 million, but also saw a decline of 48% in operating diluted earnings per share to $0.033 per share, driven by the decreased [ NPAT ] and the increased number of shares on issue post the acquisitions. We improved our free cash flow by 56% over the period to $38.5 million. And our net debt increased -- net debt-to-EBITDA ratio increased slightly to 3.1x. It was a challenging first half result, and it was driven by the slow gradual recovery of patient volumes. Further recovery is expected to drive positive operating leverage and improved profitability over time. We received limited price increases with Medicare legislation of 1.6%, well below inflation, and no inflation adjustment from the Accident Compensation Commission and the District Health Boards in New Zealand and limited inflation indexation from the private health insurers in New Zealand. We implemented selective price increases in both Australia and New Zealand, wherever possible, while remaining market competitive. There were significant cost pressures in the first half, especially higher labor costs driven by inflation, and supply shortages in the labor market, together with higher interest funding costs. Management are very focused on containing and reducing these costs wherever we can. Our operating EBITDA margin decreased by 300 basis points compared to the prior comparable period, 230 basis points relative to the full year FY '22. And both acquisitions, Peloton and Horizon have experienced very similar volume trends to the IDX's existing businesses in Queensland and New Zealand, respectively. We declared a fully franked interim dividend of $0.025 a share compared to $0.04 in the prior comparable period. This represents 74.4% of our operating net profit after tax. Turning to the industry growth rate graph on the next page. You'll see that the industry growth rates in the 12-month rolling basis came back strongly in calendar year 2021, but declined significantly in calendar year 2022 given the onset of the Omicron variant of COVID-19 together with influenza and the lingering impact of these events. In Australia, IDX recorded solid market share gains evidenced by a 4.1% revenue increase in our organic business, same clinic growth in comparison to Medicare benefits for the state in which we operate, which saw a 1.2% decrease in weighted average benefits paid for the first half '23 adjusted for working days. Importantly, quarter-on-quarter, the first quarter saw at 2.0% growth. The second quarter saw a 6.2% growth, a significant increase. And in January 2023, we recorded double-digit revenue growth. Turning to the shareholder returns on the following page. We declared a fully franked dividend of $0.025 a share. It represents a payout ratio of 74.4% of operating NPAT. This dividend record date is the 3rd of March 2023, and the dividend will be paid on the 4th of April. We have a dividend reinvestment plan available for participation in the 1H FY '23 dividend. I'm going to now hand over to Craig White to take us through the numbers in a bit more detail.

Thanks, Ian, and good morning, everybody, and thanks for joining the call. I'm just turning to the detailed results for first half FY '23. As Ian mentioned, we saw a 19.2% revenue growth, reflecting the inclusion of the Peloton Radiology and Horizon Radiology acquisitions as well as solid organic growth in the Australian business of 4.1% and similarly in New Zealand. We did see some fairly significant EBITDA margin compression of 300 basis points, driven by the increase in, particularly labor costs driven by inflation. And we would expect that those margins revert to more normal levels, around the 20% level as the volume recovery continues across the business. In terms of free cash flow, we saw strong free cash flow in the first half relative to the prior corresponding period. Free cash flow conversion of just under 100% at 97%. Our leverage ended the half at 3.1x, up from the prior corresponding period of 2.6x, essentially driven by the partially debt-funded acquisitions of Peloton Radiology and Horizon Radiology. And we would expect that leverage number to trend back down towards target leverage around 2.5x over time. Just turning to the next page to talk to revenue in a little bit more detail. You can see they are broken down as the contribution from each of The X-ray Group, the additional 4 months from July through to October, for Peloton Radiology and Horizon Radiology for the first half, both of those acquisitions completing on the 1st of July. You can see that in terms of our organic revenue growth in Australia of 4.1%, there's a definite trend, an improving trend over time where we saw in Q1, 2% weighted growth in the first quarter, 6.2% weighted growth in the second quarter and in January, we saw double-digit growth. So certainly an improving trend and well above the Medicare industry weighted average 1.2% decrease in benefits for the same period. We also saw our average fees per exam increased by 5.2% in Australia reflecting an ongoing trend towards the higher-end modalities of CT, MRI and PET. And New Zealand, as I mentioned, also contributed 4.1% growth in organic revenues. Turning to operating expenditure. We certainly felt the impact of inflation, particularly on labor costs in the first half. We saw a lift in our operating expense as a percentage of revenue, 3.1%, including acquisitions. And as I said, we would expect that over time, as we continue to see a recovery in patient volumes, the impact of price increases and ongoing improvements in modality mix that we would see operating expenses come down to more normal levels as a percentage of revenue. Important to just point out that, as far as occupancy costs and other costs go, we did reclassify telecommunication expense of about $1 million between those lines. They move from occupancy costs into other costs to just simply reflect a more appropriate characterization of those costs. And finally, in terms of our interest expense. That did increase given we debt-funded the acquisitions of Peloton Radiology and Horizon Radiology. And we saw interest expense on borrowings lift to $5.8 million in the first half of FY '23. That is up on FY '22. I should just point out that, that FY '22 comparative number is the full finance cost for FY '22. Within that, the actual interest expense was $3 million. So $3 million would compare to the $5.8 million. Just turning to capital management. As I mentioned, we have leverage sitting at 3.1x at 31 December, but it's expected to trend back down over the course of the second half. We have significant liquidity headroom available under our facilities. And you can see that cash decreased at 31 December from the 30 June balance given that we closed the acquisitions of Peloton Radiology and Horizon Radiology on the 1st of July. You'll also note that the current tax receivable reflects our tax installments paid on FY '22 earnings, and we are due a refund of about $5.6 million, which we would expect ordinarily to receive this month. You'll also note that the contingent consideration provisions have decreased significantly. Effectively, they represent the write-back of provisions relating primarily to Imaging Queensland, but also to the X-ray Group totaling $14.1 million, and that's offset partially by the inclusion of the earn-out provisions for Peloton Radiology and Horizon Radiology. Turning to cash flow and cash conversion. As I've mentioned before, we've seen strong free cash flow in first half of FY '23 with cash conversion at just under 100%, 97%, and you can see that from a CapEx point of view, we had growth CapEx of about $5.1 million in the first half of FY '23. Just turning to capital expenditure. Total CapEx over the half was $13.6 million, split between $8.5 million replacement CapEx, $5.1 million growth. Most of that growth CapEx was enhancement of equipment in existing sites and obviously targeted improving services to patients in those times. Depreciation for the half stand at $12.1 million. That excludes the AASB 16 adjustment for right-of-use assets. I'll now hand back to Ian just to talk to the regulatory update.

Thank you very much, Craig. On the 1st of November 2022, the Federal government de-regulated MRI services in regional and rural areas, defined as the Modified Monash Model areas 2-7. Importantly, 3 more MRIs -- we now have 3 more MRIs in these regional areas that have a full Medicare license. I'll draw your attention to the table in the appendix of this investor presentation, where we list the number of licensed MRIs we have in the regional areas, MM2 to MM7. The other Medicare changes that were introduced over the period, including the indexation of 1.6% that we spoke about, the bulk billing reduction on MRIs reduced to 95% of the CMBS from 100% on the 1st of July, only affecting MRI services that were currently being bulk billed to Medicare and did not have a material impact. And importantly, for us, from 1 July 2022, 2 new PET items were introduced for patients with prostate cancer. These items allow for the initial staging of intermediate to high-risk patients with prostate cancer. And it's important because the addressable market of prostate cancer is large, and it's a meaningful reimbursement. In New Zealand, there was limited indexation of pricing in New Zealand and the emerging practice of non-arm's-length referrals continues in New Zealand over the period. But we are developing our referral base in New Zealand to include more of the general practitioner market, especially on the back of the Horizon acquisition and on the back of market development activities that we've undertaken in the area. The GP market is less impacted by non-arm's-length referrals and by encouraging GPs to work patients up themselves prior to the referral to the surgeons, allows the GP to order the test, including the MRI, and have the patient fully worked up before the patient presents to the surgery, where the decision for surgery can go ahead without the need for additional standing because the scans would already have been done and ordered by the GP. Moving to our management's strategy on the next page, good medicine is still good business. Consistent with our values that patients at the heart of everything we do, the company has remained committed to maintaining our workforce and infrastructure to ensure that we're well positioned to service patients as demand increases. Underlying fundamentals of the radiology industry remains strong and we're confident that patient volumes and historical growth patterns will over time return to the pre-COVID-19 levels. Our focus in financial year '23 is to continue working on building our organic growth, sweating our assets more, integrating our recent strategic acquisitions and actioning select brownfield and greenfield opportunities. In the absence of unforeseen extraordinary circumstances, the second half of FY '23 is expected to be materially stronger than the first half. Our replacement and growth CapEx for financial '23 is expected to total between $30 million to $35 million. Turning to the last page of the presentation. Our focus areas in FY '23 are to drive organic growth through improved utilization of our existing assets, through selected price increases, cost efficiencies and selected brownfield and greenfield site. We have a strong focus to build and enhance our relationship with our referrers, where pricing now to better reflect the value that we deliver, while remaining competitive and partially offsetting our cost inflation that we're experiencing. We're looking to build new referral pathways with general practitioners in New Zealand and leverage the acquisition of Horizon Radiology and IDX's leading New Zealand radiologist team. We're going to accelerate the use of teleradiology, digital and AI technologies. We'll continue to drive our ESG strategy, We'll nurture and develop our culture and leadership further. And we'll make sure that we integrate our recent acquisitions well. No further acquisitions are contemplated at this time as we're focused on driving our organic growth of the strong platforms that we have. I'll now open the floor up to questions.

[Operator Instructions] Your first question comes from Dave Stanton from Jefferies.

Look, a question about what you said about second half of F '23. And you said that it's -- second half of F '23 is expected to be materially stronger than first half of F '23. Can you give us a bit more color on that? Do you mean materially stronger in terms of revenue, materially stronger in terms of margin or potentially both, please?

We did call out that we're seeing progressively stronger revenue numbers, David, from the first quarter to the second quarter and then double-digit improvement in January versus the PCP. We've also called out that we're expecting operating leverage to return with improved revenues. So in answer to your question, we believe that both revenue and earnings will be better in the second half.

Yes. And I'd probably, David, just to add to that. I think it's this operating leverage that we would expect to kick-in in the second half on what is obviously a fairly high fixed cost base. And so instead, I think the expectation is we would deliver additional revenue, additional EBITDA on improving EBITDA margins.

Understood. So does that come from -- that operating leverage, does that come from basically higher revenue? Or can you get your employee costs down as a follow-up, please?

I think revenue is clearly the driver, David. We're not expecting further cost inflation on the first half base. Clearly, we -- as revenue grows, we do have some variable radiologist costs as a percentage of revenue, but revenue will be the main driver.

Okay. And my final question, please. You've mentioned that entire leverage should be coming down. I wonder if you could sort of give us a potential target for F '23. In terms of your operating leverage at 3.1x, should we be thinking more like the longer-term average of 2.6x by the end of F '23. And then as a follow-up to that, can you sort of explain your covenants, please?

Yes. Sure, David. So look, I can't -- not in a position to give you a specific guidance on where we'll then leverage at 30 June. I did mention earlier that I think is an overall target, we would see that sort of the medium to longer-term leverage would sit around 2.5x, and certainly would expect that we would trend back towards that from the 3.1x in the second half. To your second question, just around covenants, we have a net debt-to-EBITDA covenant to 3.5x.

Sorry, last question. That's pre or post AASB 16, that 3.5x?

That's pre AASB 16.

Your next question comes from Craig Wong-Pan from Royal Bank of Canada.

Just wanted to understand the improving organic revenue growth that you saw throughout the first half and then into January, wondered if you could talk to how much of that was coming through from like greenfield sites or kind of growth CapEx and how much might be just the low comp number given that there was the Omicron variant throughout that sort of PCP period?

Yes, it's -- it would be a combination of both. We haven't differentiated between the greenfield, brownfield and organic same-clinic growth. The prior comparable period, especially at the early part of July and August was impacted in the major states in Victoria specifically by the Delta variant of COVID-19. So when we looked at last -- the number in the first half of this year compared to the prior comparable period, there was that greater improvement in the areas in the states that have been impacted. States like Western Australia and Queensland were relatively unscathed by Delta. They were only hurt later in the year by Omicron. So the prior comparable period, the numbers there were a lot higher than they were, particularly in Metropolitan Victoria in the Melbourne area. I don't know if there's much more granular detail we can give on the revenue numbers.

Yes, probably, Ian, the only thing I would add to your question and probably just to add to Ian's response, Craig, I think that organic revenue growth has been mostly delivered from the base as opposed to, if you like, new greenfield, new brownfield in the period. I mean there would have been a few, but those -- they would have been marginal drivers. I think most of it's coming from the base business.

Okay. And then my second question, just on that comment about getting back to a 20% EBITDA margin, could you just clarify around that time frame for your expectation there? And what your thoughts might be on the longer-term margin for the business?

Yes. I think, Craig, the -- again, we're not giving sort of specific point guidance at 30 June. I think we've said that we expect second half to be materially stronger, but I think directionally, we would certainly expect off that stronger second half to see margins expanding again. At the end of FY '22, our EBITDA margin is 20.8%. We would expect all things being equal, that this cost inflation will at some point moderate, and that we'll see continued improvement in volume recovery, pricing, hopefully, some better indexation over time that will allow margins to move back up to where they have been historically, but it's difficult to say exactly when that's going to be.

Your next question comes from Steve Wheen from Jarden.

I just wanted to focus on that EBITDA margin as well. Can you talk through the more recent acquisitions and what effect they are having on the margin? Specifically whether or not that has been a bit of a headwind or a benefit whichever way it's going? And is there further synergy opportunities to actually help that recovery of the margin for the group?

Yes. I think, Steve, a couple of comments there. If we take Peloton, margins were probably just a touch higher than our Australian margin. So there would have been a slight contributor to the margin. However, important to realize that Peloton probably has a higher variable cost base than the base business. And all things being equal, you would expect that as volumes recover and revenues recover, that we should see greater operating leverage in the base business relative to Peloton. So you would expect that the base business margin would perhaps expand faster than Peloton. I think with Horizon as a New Zealand-based business, our margins in New Zealand are higher than they are in Australia. So it would have been a small contributor to margin support in the first half, but Horizon is a small business relative to the size of the rest of the group. And again, has a fairly high variable cost base. So you would expect to see less operating leverage in that business as volumes recover.

Yes. Okay. That sort of touches on my next question. The situation of the split between Australia and New Zealand has always been New Zealand, much higher margins than Australia. I just wonder, in the current half, what has happened with that delta of margin between the 2, particularly now that we don't have indexation and there's been a loss of volume in New Zealand.

Yes. Look, I think it's fair to say we don't disclose those numbers for Australia and New Zealand separately, but it's certainly true that New Zealand's EBITDA margin is still quite a bit higher than Australia.

Right. But would -- and it would have come down, obviously, quite a bit, but there's still a significant difference between both? Is that what you're saying?

Yes, yes. I mean, the New Zealand margin, I guess, particularly with some of the business in New Zealand was impacted by referrer-owned practices in the musculoskeletal area that was very high margin. So certainly, the New Zealand margins would have come down. But as I say, they're still significantly above where Australia is.

Okay. And then specifically on labor, obviously, that certainly was the biggest surprise from my perspective with this result. That has continued to deteriorate in terms of its impact on margins. Have you seen any reduction in your reliance on temp staff to fill the sort of shortages of employees?

Yes, we have. So in Western Australia, we used to rely on a lot of temp staff based in Perth to service our Western Australian business because the borders were closed for so long. We've been able to reverse back to our model, where we service the regional areas, the more regional areas in Western Australia from the East Coast, and that's alleviated a chunk of that problem. And the other area of labor that drove our cost high, with the advent of Omicron and the wide dispersion, I guess, of Omicron in July and August of the half -- in the first 2 months of the half, where we had a lot of sick leave. And that sick leave progressively has improved. And as COVID has become much more conditioned that we're all living with and the quarantine requirements and the like were removed, we've seen sick leave come down. And with that, labor costs come down proportionately.

Okay. So going into this half, we're going to start this half with not as much use of casual staff in WA and certainly not as much sick leave as what has historically been used in -- what has been the case in first half '23.

That's fair to say.

Okay. And you're obviously expecting to get some improvement in volume, I'm just trying to understand the fixed cost nature of your labor cost versus the variable. You've obviously -- if you're going to have a big step-up in volume, does that mean we're going to see a step-up in the variable cost component of labor. Just trying to understand what the mix looks like there to get a better read on the leverage that exists in that line?

Yes. I think, Steve, my comment there would be that whilst acquisitions of Peloton, Horizon, may have more variable costs, they're small in the context of total group. And I would expect that the operating leverage that exists in the base business, which has got the higher fixed cost component would be much greater, and therefore, a driver of EBITDA margin expansion as volumes come back.

Okay. One final one. The average fee per exam has gone up, was at 5.2%. Just trying to understand what the components of that, is that mix of test? Or is it co-payments that you've been able to successfully put through?

I think it's mostly a function of mix, Steve. If you look at Australia from a price point of view, we've only had 1.6% indexation from Medicare. We have introduced out-of-pockets on select modalities in a couple of areas, for example, MRI in Queensland. But I think the mix is the major driver there.

Yes. Okay. Actually, I did have one other. I mean have you seen some of the other imaging companies -- listed companies that have released their results and it would appear that your pressures, cost pressures are far more pronounced than the likes of Sonic and Healius. Do you have any explanation as to why you'd be feeling that a little bit more pronounced than they are? And in fact, this is improving with an increase in volume.

Yes. So we've obviously taken a look at our competitors' results, Steven, we don't comment on specific competitors. Both Sonic and Healius, the 2 that you've mentioned, do have pathology that did very well from COVID testing over the period. And I'm not sure how clean the margin is, I guess, between pathology...

Sorry, Ian, I was talking specifically the imaging division without -- it doesn't include the pathology.

Yes, we don't comment on our competitors' results. It's -- I mean we can only comment on what we're seeing. And very definitely, we saw a lot of sick leave at the beginning of the half, that sick leave paid it off over time, but that drove a lot of increases in our labor costs. And we saw that particularly in the first quarter of the year. We have moved to a more variable cost model with the acquisitions, but the bulk of our business is still on the fixed cost radiologist model, which means that we do get that operating leverage as the revenues return. And with the good strong recent revenue numbers we're seeing, we would see some of that operating leverage come back into the business and margins would improve on the back of that.

Steve, the only thing I'd add is it must be something to do with the variable or fixed nature of the way each of us operate that would explain that difference you're talking about.

Your next question comes from Lyanne Harrison from Bank of America.

I might just follow on about that labor -- the labor cost there. So if I look at the half, there's a 23% increase in employee benefits, but understanding you had acquisitions and you mentioned some of the nonrecurring items with temporary staff and sick leave. So if we strip all of that back and look at like-for-like wage inflation, what would that look like?

Wage inflation itself is pretty similar to general inflation. So there are in the group, some CPI-linked contracts we have and those contracts linked to CPI would be very definitely linked to the 6% inflation we saw in June, which is when most of our increases were put into place for July -- 1st of July. The other driver of higher cost is that there has been a shortage of specific professional service types, sonographers, for instance. Radiologists, the shortage continues. It has not been any worse over the period. In fact, it's slightly better when the board is open, but there's been -- there's been increased competition for sonographists, and we have had to implement some price increases there and some temporary staff to come in to help out over the period. And because -- on the revenue side, the Medicare indexation was nowhere close to what inflation was, we're seeing the difference between CPI-linked wage inflation and the indexation we're seeing from Medicare and the others.

Lyanne, I suppose I'm sure you've seen it, but just -- when you look at the operating expenditure slide in the investor presentation, if you strip out the acquisitions, then you saw that there was an $8.1 million increase in labor costs. Majority of that would have been probably on the clinical side of the business, but that's the increase that we're seeing on a revenue base that hasn't yet recovered.

Okay. And then if we could come back to that 5.2% increase you saw in fees. You comment that, that was largely due to mix. Do you think that move to higher-end modalities is permanent? Or do you think it might shift back to some of the average -- back to average once we get through or come back to normal levels of activity?

I think that, that's going to continue. If you look around the world, the move is more and more to the higher value-added, more expensive modalities of nuclear medicine, including PET, CT, MRI and high-speed CT. And you're seeing proportionately fewer entry-level x-rays and basic ultrasound. So we will see that mix continuing. It's the right thing for the patient. It's something that we, as a business, have tailored our offering around and it makes good sense. It's further backed up by the increased move in the doctor population to increase specialization. So if more and more doctors are specializing, the fewer GPs or fewer graduates or deciding to remain on as GPs. And as doctors specialize, they tend to order a lot more of the higher value-added test, the MRIs, the nuclear medicine, PET scans. In the case of cardiologists, for instance, the high-speed CTs, which are very useful. So we would very much expect that move to higher-end modalities to continue. I don't see anything that's really going to change that over the horizon that we're looking at.

Okay. And just one more for me. When we look at the free cash flow slide, I noticed that there was a working capital change benefit from, I guess, elevated payables. Craig, is there anything that we should be noting from that? Or is it just a timing issue?

No, just a timing issue, Lyanne. To be honest, part of it was actually driven by the implementation of a new ERP systems, so we implemented workday financials. We processed a lot of accounts [ public ] prior to the switch from a Microsoft Dynamic System. And then as we made the switch, there was probably a little bit of a backlog. So it's just timing.

Your next question comes from Mathieu Chevrier from Citi.

Craig. My first one is on the revenue. And I was wondering if you think there still is a backlog and whether you think we should see a double-digit kind of growth for all of the second half? Or should we be expecting something closer to what you've seen in Q2?

Well, with the double-digit growth has -- the second half the started that way. We're not calling out that it's going to continue that way for the full second half, but what we will call out is that the Diagnostic Imaging growth rates since COVID have declined significantly, and the underlying disease has not gone away. So cardiac disease, cancer is still in the population. Those patients still need to be serviced. The scans still need to be done. And there would be a backlog that still does need to come through the system. So I would expect that we would see higher than normalized growth over the next period as we catch up for the COVID years, where scanning was not done to the extent that it should have been.

Understood. And then do you have a view on how long do you think that will last for?

Yes, it's hard to say. There's no doubt in my mind that patients are presenting later. They're presenting sicker. There have been fewer screening tests that have been done over the period, which means that fewer cancers have been picked up early enough to act on them. So there is the underlying latent demand, if you will, amongst the patient population that does still need to be serviced. And I think we're going to see a catch-up of that over the next year or 2 would be probably the best estimate that I'd be able to give. It's not been like in previous COVID cycles where each time there's been a lockdown. When that lockdown has been lifted, we've seen a spike in patients returning. This time, it's been much more gradual. But I would think that the underlying latent disease burden is still there in the community and will still need to be serviced.

Understood. And then just a final one on the revenue increase of 4.1% in Australia, and the average fee per exam being up 5.2%, does that -- should we read into that, that volume has decline?

Yes, there was a very small decline in actual number of exams about 1%.

Decline would be appropriate in the -- in terms of bigger picture, where patients are getting one MRI that can substitute for a battery of basic x-rays that were previously done, ultrasounds that may have been non-definitive, whereas the MRI gives you the answer. So it makes sense that we would continue to see the movement towards these higher value-added modalities and the actual volume of tests we're looking at an x-ray and counting that as one and counting a PET scan is one just doesn't really make any sense. So revenue is the number that we focus on more than volume.

Your next question comes from David Low from JPMorgan.

Could I just start with the indexation. Any thoughts on what indexation we'll see in Medicare for the year ahead? Also, if you might comment on New Zealand on the same basis. Just wondering if you have any sense of things given where CPI is and your feedback from the department or the government, please?

We don't have any specific feedback on where indexation is going to land from Medicare this year. But looking at when the timing of the decision is made on indexation, I am a little optimistic that we should see a better indexation number this year because last year, the decision that was made must have been made around March or April prior to the inflation numbers -- the higher inflation numbers really being seen and the decision was announced in April or May of last year to be enacted from the 1st of July. So the decision was made, I think, based on inflation numbers that were not as high as what they turned out to be in the June, July, August time frame. So I would hope that this year, we would get an indexation number that would be closer to inflation. I also think supporting that argument would be the publicity that there has been around some doctors, particularly GPs, to receive the same indexation as what we received and around the bulk billing rates that have gone down amongst GPs because of the lower reimbursement and the low indexation that was received. So for those reasons and based on the fact that the Medicare indexation is supposed to reflect CPI and wage indexation, a product of those 2, it was nowhere close to it last year. I would hope that, this year, we would get a number that was much more reflective of where CPI and wage inflation is.

Yes, I agree. I've not focused on indexation in the past because it hasn't be particularly important. I mean is your sense of it over the years that the Medicare indexation doesn't necessarily match up with CPI? I mean, does it -- is it quite volatile relative to CPI? Or does your experience sort of tend to match roughly with CPI at the time?

So the largest divergence was last year when CPI was so much higher than Medicare indexation. In previous years just because CPI is not used without inflation.

20 years without inflation, I guess it hasn't mattered. Just New Zealand, do you have any sense there as to whether you should get indexation from the accident insurance Board and the DHBs?

Yes. We don't have any specific information on it other than the fact that New Zealand inflation has been very high, and we would hope that, that is taken into consideration.

Okay. And the timing of that is...

Just one other point to add and no idea whether this is impacted on that decision, but probably important to note that the DHBs in New Zealand have been going through a consolidation process, so effectively moving to like one system like the U.K. or the NHS and whether that whole sort of consolidation has affected their thinking around the -- yes, the pricing, their offerings may be part of it. But who knows?

Any sense as to whether that -- I mean, the media attention here on GPs, we probably all know well. I don't track New Zealand news to the same degree. Any sense as to whether that pressure is similar that doctor -- medical groups are calling for the need to increase?

Yes, there are. So I don't know if it is as prevalent as it has been here recently. But very definitely in New Zealand, there has been a move amongst many of our referrers to lobby the various payment authorities, the government and the other payers with regard to increases that more closely reflect inflation. And certainly, from the private insurance companies, we have been able to negotiate rates that are closer to what inflation is.

Okay. And just one other topic. I mean you've commented on private billing. We've seen the average price. Sort of wondering what -- how's the private billing experience matched your expectations, by which I presume means a volume hit certainly initially but, in due course, a benefit? I was just wondering if that's been the experience and then whether you could comment on what the plans are on that front, please.

It's -- there is a decline in volume when we do introduce our debt or increase our debt. We do see that volume decline. Generally, in almost every case where we have done it, we've -- and we've monitored the market well in each case, the increase in the GAAP payment more than offset the decline in volume. What we've also noted is because we have a fairly concentrated presence in each one of our markets, that our competitors tend to follow our price movements quite closely. So we've not seen instances this time around when we've increased prices this time of competitors that are fast billing in order to attract or retain patients. So for the most part, everybody is facing the same kind of margin pressures, and they're looking for our lead in terms of price increases when we do put them in place.

So this would suggest more should be done?

Yes, we can probably be bolder around our increases. I think that, that's right. And we've systematically increased prices. So we did a price increase on the 1st of August. We did another one on the 1st of January in some of our businesses. We don't -- every market we do treat differently based on local dynamics in that market, the competitive environment in that market, et cetera. But the big changes that Craig spoke about earlier, the $150 co-payment for MRIs that was put in -- took place in the Gold Coast on the 1st of July and then on the 1st of August in other areas in Queensland, and we did see competitors following us with much the same kind of GAAP payment after we implemented that. So I think you're right. I think we probably could be bolder. In every discussion that Craig and I have with our general managers, and this is top of the agenda in each meeting we do have with them. We do look to encourage each one of our local businesses to be bolder around the price increases because the volume decrease has not been there to nearly the same extent as what a lot of the GMs are concerned about when they put the price increase in place. So we will do more price increases. We do, do them selectively. We do them in each one of the local markets based on -- yes, local market conditions, and we're pressing harder to do more and to do larger ones each time.

And probably just to add in, I mean, we -- in terms of the comment we made about the second half being really stronger, part of that is driven by price increases that will -- are being implemented now that will predominantly affect the second half.

I mean I must say I think from both of your answers that you don't really see this as a material contributor. Or am I misunderstanding that?

I think it's a fair point, David, that it's difficult to just say we're going to take, for example, a 5% across the board, every business, every modality. It's just -- the business doesn't work like that. I think each of these are businesses that operate and compete in the markets they operate in. And you have to take a slightly bespoke approach to make sure that you take price to recover costs where you can but remain market competitive. And in some cases, we have been a price leader, and others have followed. But it's -- you can't just sort of load a 5% higher price in your system and then have that sort of wash through all the patient studies that you deal with.

Your next question comes from Saul Hadassin from Barrenjoey.

I'll try to stick to 2 questions. The first one is -- just in that commentary around the growth rates in 1Q, 2Q, I guess, for us to contextualize those, we need to know what growth did in the previous year. Was there significant difference in revenues generated in 1Q versus 2Q? Can you give us a sense of -- I think you did mention there was a step-up in revenues in the second quarter. How material was that? Can you give us any quantification of what that actually means in dollars?

Yes. Look, Saul, good question. I think I'll just answer to say that I think you should see that the second quarter revenues were higher than the first quarter. Those percentages that were quoted are weighted based on the revenue in each month, so July, August, September, October, November, December. So you are seeing an increase in absolute dollars. July was particularly poor.

I'm assuming January PCP was also a particularly weak comp. So again, just trying to contextualize the 10%. Is it fair to say that the January of 2022 was indeed a soft month?

I think that's true. But when we called out January double digit, it wasn't sort of just sneaking into double digit. It was stronger than that. And I think if we look at February month-to-date, I think it's fair to say that February is still double digit.

Okay. And then just the other question was on -- Craig, this is a clarification, but I think you mentioned the total OpEx dollar cost in the first half. Do you expect that to be sort of replicated in the second half? Is that effectively what you're saying?

Look, I would say broadly, yes, but you need to -- or you would need to reflect the fact that we're expecting higher revenues in the second half, and obviously, our radiologist remuneration does have a variable component. Part of it's fixed. Part of it's variable. So as that revenue grows, you'd expect that radiologist cost to grow. But it's just that part. If you exclude all the radiologist costs, then I think we would expect to see second half probably not dissimilar to first half.

Your next question comes from Andrew Hodge from Credit Suisse.

The first one, my understanding at the end of second half '22 was that the New Zealand referrer issue had been, in effect, stabilized. So we -- through the second half of '22, we saw a decrease in the run rate but a stabilization that effectively becomes an average through FY '23. So it's lower in effect, but your commentary suggests that New Zealand referral, issue hasn't quite stabilized at this point in time. Is that correct? Or is it stabilized, but it's just running through as an average now?

It's stabilized probably and running through at an average now. We were still impacted by it in the second half, but we're probably at that lower base now. There are still -- there is still activity by the New Zealand Institute of Independent Radiologists to look at curtailing those activities around non-arms' length referrals. Importantly, for us, though, we put commercial mechanisms in place where we're getting to the GPs before the GPs make the referrals to those orthopedic surgeons who own their own facilities. And I think that, that has begun to help. And I think we'll see further traction from that going forward.

And just one second question or a second question. Craig, I know you answered before on the working capital with the payables. Nothing to read into that. My question relates to just whether the working capital on a proportional basis is sustainable going forward as your revenues increase. So is this the level of working capital we should be thinking about for the business going forward?

Yes. I think we will see the point around accounts payable being a timing issue, I think we'll see some reversion there that will go against us from a working capital perspective. So I think we probably need to normalize that. But yes, I'm not sure there's much more I can add to that. I just think accounts payable at 31 December was sitting higher than they ordinarily would have been had it not been for the systems implementation.

Your next question comes from David Bailey from Macquarie.

My question was just around radiologists. You mentioned some tightness in the labor market. Just with -- specifically in relation to radiologist, just wondering what the driver is there. Is it lack of graduates coming through? Or is it some offshore dynamics as well driving that tightness at the moment? And do you think that will sort of in the near term? Or is it sort of a longer-term issue?

I think it's an issue we're going to face in the medium to longer term, David. I think it will be sorted out with technology as well as new graduates as well as overseas graduates coming in. And none of those options are short-term fixes. So for instance, artificial intelligence and improved technology around digitization of the images, we would see improvements in efficiency based on that coming through. But it's going to -- these things do take time. The borders have opened up. We have -- we've welcomed our first international medical graduates back into the country last year or during the first half for the first time in a long time. And that does alleviate some of the shortages we have, particularly in those areas, in those regional areas that depend on international medical graduates and in New Zealand, where we've been taking in international graduates not just radiologists but in the technical staff as well. So I think that the changes in immigration in both countries will alleviate some of the problems we have. But the long-term shortage of radiologist is -- radiologists in particular, which is the question you're particularly asking, is an international phenomenon. And that will be addressed when artificial intelligence plays a bigger role. So to give an example, radiologists 15 years ago used to do maybe 50 scans or so a day when they were still hanging X-rays and looking at the X-rays in front of a life box, whereas today, everything is digital on the screen. They're using their PAC systems, and they've seen 3x as much than they did 15 years ago, 10 or 15 years ago. So there have been quantum improvements in productivity from the digitization of the old analog X-rays from the new PAC systems. We've introduced the Clario system, which is a middleware system that allows radiologists to go into any underlying radiology information system and read those scans. And that, in itself, improves productivity. We see that these productivity improvements will continue to assist with the shortage as each individual radiologist does more, but it takes time.

Understood. And then just maybe a couple of questions for Craig, just hopefully, your financial questions, D&A net interest for the second half. And then also the AASB 16 adjustment you used for covenant purposes in relation to EBITDA, that would be useful, too.

Sure, David. So look, I think you can see -- probably I'll just refer you to the interim financial report, Page 8. If, we talk about depreciation first. So depreciation and the right-of-use assets, the amortization of the right-of-use assets are separately disclosed. So you can see for the first half, it was $12.2 million for -- what I call true depreciation, then the AASB 16 number was $8 million, so in total $20.2 million for the first half. That compares to the prior corresponding period of $9.8 million for depreciation and $6.2 million for the AASB 16 adjustment, so totaling $16 million. The bulk of that movement is caused by the 2 acquisition -- acquisitions of Peloton and Horizon. If you look at interest, so you can see finance costs also disclosed on Page 8 of the interim financial report called out that true interest expense on debt is -- sits at $5.8 million. The total is $8.6 million so the difference is basically the AASB 16 adjustments. I did clarify earlier that the total finance cost for FY '22 is $5 million. $3 million of that is interest on the debt and $2 million would be the AASB 16 adjustment. Again, if you look at the driver of the lift in the AASB 16 interest adjustment that's moved from $2 million to $2.5 million, that's driven by the acquisitions, the lift in underlying interest expense is predominantly driven by the drawdown of just under $100 million of debt on 1 July to fund the acquisitions of Peloton and Horizon. But obviously, interest rates have been rising, too. And that would be a smaller contributor to that lift in interest costs from, say, $3 million in the prior period to $5.8 million in the last half. We've been shielded a little bit from rising interest rates on the basis that, typically, our debt tranches are locked away for either 30 or 90 days and roll. So those are the drivers on the interest expense line. Does that answer your question?

Yes, just more the first half is going to be -- your second half sorry, it's going to be similar to the first half as well as going with it?

Yes. I think in terms of interest expense, might be a touch higher that as we roll out of -- some of the lower-priced tranches, obviously, got continued rising rates. I should probably also just clarify that we basically have variable interest expense. We haven't hedged that position on the basis that the bulk of the debt was drawn down after rates have already moved quite significantly. We looked at it very closely but form the view that the cost of the hedge would exceed the benefit that we would receive. And we're just locking ourselves in to a rate that ultimately was well above where the market will ultimately move on rates, particularly over a sort of a 3-year period. So I think probably interest expense is probably a touch higher in the second half. The depreciation and AASB 16 right-of-use asset amortization, probably in line with first half.

And just sorry, just the last one with just the adjustment to EBITDA to get to your covenant. What's the AASB 16 adjustment to EBITDA to get to your covenant EBITDA versus your reported EBITDA?

So we would adjust out the right-of-use asset amortization of that $8 million as well as the interest AASB 16 amount of $2.5 million. So in total, it's $10.5 million. That's the AASB 16 adjustment, but obviously, you then have to put in the rent expense back above the line. So we've actually called out in the notes the adjustments that you need to make to restate the numbers on a pre-AASB16 basis.

Your next question comes from Andrew Paine from CLSA.

Just trying to think, what are the proportion of fixed radiologies cost versus variables? And do you have any idea how this compares with the industry?

We do know how it compares in each local market, I'm not sure about an overall comparator. So for instance, we pay fixed salaries in Western Victoria and in -- on the Gold Coast in Southeast Queensland, and most competitors in those areas are also paying radiologists on a fixed salary. We're paying a variable salary on the Sunshine Coast in Central Queensland, and most competitors are similar in those areas. In Western Australia and in New Zealand, we have a hybrid model with both. So that's sort of how we compare overall. If we look at the majority of our doctors today, we still have fixed remuneration for most doctors in the group -- for the majority of doctors in the group. With the acquisitions, we have more doctors on variable pay, but we still have the majority on fixed.

Okay. Sure. I'm just trying to think about how that trend is going to look like going forward. I'm just thinking that the radiologist probably benefited from the fixed contracts through the last couple of years of low volumes. But as volumes recover, this may see a bit of a shift in preference to the radiologist and could see some competition creeping in. Is that a concern to you? Or do you think the radiologist that you have are pretty happy where they are and grateful to the last 18 months to you?

I think they are largely grateful for the support that they have received from us during the lower volume periods during COVID. There's no doubt about that, and we do see evidence of that. Going forward, there are more radiologists and more of the young radiologists, young, smart, hungry radiologists looking for variable pay arrangements where they can benefit from doing more work. And I think we are going to be seeing more of that over time. And yes, it does take away from some of the operating leverage we get on the upside as the revenues come back. But it's also very helpful to have radiologists looking to do that extra work, that extra higher revenue work that comes in. And I think over time, we'll see more and more of the mix towards a variable model. Although we're not looking to change those radiologists that are currently on a fixed salary to -- we're going to keep that. We're grandfathering in those contracts because we get leverage on the upside. And we've seen revenue increasing and continuing to increase into this half, and that's going to benefit us.

Sure. That's great. And just one quick last one. Just on New Zealand, you're talking about trying to get some price increases over there. But obviously, the ACCs looked at the -- kind of the higher tech modalities over there and some commentary around the higher price than rest of the world markets. And do you see risk of not another freeze but some cuts coming through, so the MRI and CT, through those channels?

The ACC is in a very similar position to workers' compensation in Australia and in other developed markets, and it's in the interest of workers' compensation. Workers have tough payments to be at a higher level than the general market than Medicare, for instance, so that they can get their patients seen on a priority basis and back to work sooner because the ACC, just like [ work cover ], is on the hook not just for the medical expenses but also, for the salaries of patients while they're not working. So I would expect that their levels of reimbursement for scans would continue to be higher than the average because they do want their patients to be seen quicker, a diagnosis to be made quick and to get back to work faster. So I would see that continuing to be the primary driver. And I would hope that, this year, we do see indexation coming back in the ACC payment. I think a bigger drive for the ACC was the fact that there was additional competition in the market this year with the new surgeon-owned practices. And I think that, that was part of the reason that we did not see the expected increase that we've received every year from the ACC.

Your next question comes from David Nayagam from E&P.

So look, you talked about driving organic growth through improved utilization, among other things. Just interested if you could please provide some indication on where utilization was during the past half with respect to comparable periods and where you think it could get to in the coming periods.

We definitely have had capacity over the previous COVID-impacted years. So our model is geared to the 6% -- 6.5% revenue growth that the diagnostic industry has experienced for years, and that's what our model and our purchases were geared towards. So we've got the capacity in our system now because we've not seen those kind of increases for the last 2 years that we can accommodate additional patients in the system without having to spend more on capacity expansion. We have growth projects that are underway, greenfields and brownfields. And brownfield growth for us is the most certain of the 3 growth projects being greenfield -- brownfield and acquisition. Brownfield is where we know the market. Well, we know they're first. Well, we know the demand for that particular modality. And when we put a brownfield in invariably, the brownfield hit its numbers quite quickly. So we would expect that, just in terms of capacity utilization, we've got a fair amount of capacity in most of our clinics across the group that we can accommodate the extra volumes as they come through without having to add capacity other than those brownfields which we've showcased.

Okay. And just my second question. Look, I know you had a lot of questions on EBITDA margins already. But could I just ask if you could maybe just give us some indication on the progression of margins from Q1 to Q2 and if you envisage a trend continuing into Q3 and Q4?

Yes, David. I think probably it follows revenue. I made the comment earlier, the second quarter revenue is stronger than first quarter. So therefore, you would say that the second quarter margin was stronger in the first quarter, and we would expect that to continue in the absence of -- yes, any extraordinary events.

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

I won't ask any more questions on the results because you've done a fantastic job of providing a lot of information, and everything I had to ask has been already asked on that basis. So I just had 2 sort of more general questions. One, I guess, is consolidation in the industry, which obviously has progressed at a reasonably rapid rate over the last decade or so. But in this environment where we've got, hopefully, short term lower-listed company valuations in the sector and probably, more importantly, higher interest rates taking place, are you getting a sense that the consolidation is going to slow down for a while? That's sort of my first question.

Well, we're not consolidating ourselves right now. We're not driving consolidation in the market like we have in the past. So to the extent that we have an influence over the market, we would see a slowdown from that perspective. But diagnostic imaging benefits from economies of scale. There is no doubt about that. And the presence that we have, the strong market positions we have in each geography we serve is -- looking across our group is a driver of the better margins in the group. So we're able to extract better margins, better pricing, better utilization, better capacity utilization and staff utilization in areas where we have clinics that are close enough to each other to share the load. And I think that, that kind of driver in the industry will continue. And for us right now, when we talk about integrating our acquisitions, integrating the acquisitions in such a way that we can load balance across clinics that we have based on the acquisitions we've made. So we've deepened our presence, we've broadened our presence on the Sunshine Coast. So we have a very similar presence there now to what we have on the Gold Coast, which has been our most successful business for a long time and, similarly, over in New Zealand, where we've deepened and broadened our specialty mix that we service to include many more GPs than we've serviced in the past in the greater Auckland region. And there, again, it's been part of a deliberate strategy to deepen and broaden our presence in these markets because that's where we do best, when we have this kind of concentrated presence. So we don't see businesses doing better out of just being larger overall. There are back-office shared services and economies of scale that do come into play there. But the real drivers for the economies of scale are when you can build that concentrated presence in a specific market. And health care is still very much a local market and almost always will be because GPs work in the local market. They refer to specialists that work in their local market, and I'm referred to diagnostic entities and hospitals within that local market as well. It's not like pathology where you can move specimens very easily across the state and even interstate internationally. Diagnostic imaging is very much a local market. It's a long-winded answer, I guess, the fact that consolidation in diagnostic imaging works, and there's good benefits from it.

Yes. Yes. So there's been drivers for it to continue. My second question, which you sort of did speak a little bit on, but obviously, Integral was very early at introducing artificial intelligence to some of your imaging. And I was just -- I think there's now 394 FDA-approved AI algorithm tools for diagnostic imaging. I was just curious where you are actually on that, if you have been continuing to roll out new, I'll call it, algorithms for want of a better word. And I guess within that, what is the biggest blockage to doing this on a larger scale?

Thank you. That's an interesting question and an exciting one for us because artificial intelligence is the next frontier for productivity for radiologists. And we're seeing, just based on the algorithms that we've already introduced, efficiency gains, productivity gains growing each month from increased use of these algorithms. And we think that this will continue. For us, as a company, we -- internally, we like to say that it's important for us to stay on the leading edge of things like AI but not necessarily the bleeding edge. In other words, we don't need to be the pilot company that pilots the newest FDA-approved AI application that comes into the market, but we use applications that have proven themselves in other DI markets and where we think that there will be clear patient benefits or productivity benefits or safety and efficiency benefits from the introduction of the new technologies. So we are optimistic in what diagnostic imaging -- in the benefits that diagnostic imaging will get from artificial intelligence going forward. But we're not baking that into our near-term forecast. We've seen -- based on the AI algorithms that we've had in the market for a long time, we've seen their continued adoption, their increase across our entire business, starting from individual business units and rolling out to every -- most radiologists in that business unit and then across the country. And these productivity improvements will continue to grow and [ outgrow ] for the benefit of patients and referrers. So what we're seeing more of now, which is quite interesting, is that instead of just the productivity improvements, which we looked at in the initial AI applications, we're looking now at applications that drive additional demand into the system. So they pick up anecdotal findings that would not ordinarily have been picked up by radiologists but do need to be followed up on. So they drive additional imaging that is good for the patient, that needs to be done and good for picking up diagnoses early but would not have been picked up previously. And so it's not just productivity improvements but also revenue improvement that will come about from AI, too. AI is going to make a big difference to patients and to our industry.

For sure, for sure. And in that sort of circumstance that you've just described, if your system does an automatic check that is beyond what was the initial referral, presumably, the result of that check then goes back to the GP or specialist who made the original referral for them to then come back to you to say, "Yes, please, could you explore that further?" Or do you have the ability to almost only refer to yourself?

Radiologists can refer for additional studies that they see if warranted. Generally, though, what we would do is call the referrer and say that there has been this anecdotal finding that has been picked up, we think that it needs to be followed up on. And we would like to do that and have a discussion with the referrer and an educational phone call, if you will, with the referrer to just explain how the anecdotal finding has come about and why we think the additional test is required. And referrers are generally very -- always very grateful for it, and it's for the benefit of their patients. And it's a good thing for everyone. It's a good thing for the patient, and it's good for the industry. And it's -- it just improves the quality of the service that we're delivering.

Your next question comes from [ Reece Forbes ] from [ APESC Funds ].

I just want to ask you a couple of questions just regarding -- just coming from the perspective of waiting times for people trying to book MRIs, in the past, you said it's sort of fleshed out up to 2 weeks. Has that improved for the half? And sort of where would it sit going into January and February?

We still do have waiting times across the group. And because demand recently has been quite high, the waiting list in some areas of the business have blown out some. And we know that our competitors are facing similar challenges as patients are coming back into the system and that latent demand that I spoke about previously is coming back in and there are patients looking for more scans. And it's putting pressures on delivery of these scans through our machines and compared to machines. But the waiting list can be managed and have been managed through the co-pays which we've put into place, which have managed the waiting list a little more and kept them a little better under control because once patients are paying for something -- are willing to pay if they can be serviced more quickly. But if they can't, then they'll go to the public system, where they can get the service for free. So there is that balance in the system. But definitely, I think that the kind of demand we saw in January across the -- just across the industry has caused waiting lists to blow out a little further than what you [indiscernible] at this time of year.

Okay, sure. So using 2 weeks as a base, would you -- how would you say back in October time that it's improved from there or worsened or stayed the same?

Yes, it's not worsened. For us, it's roughly the same as where it was in October, but we're getting paid slightly more per scan where we have the co-pays in place. So MRIs, which is something you're talking about specifically, which is where they are those [ members' ] waiting list, while we've implemented co-payments across Queensland of $150 per MRI, so even if the wait list is not as long as it was before, we're getting an extra $150 for each one of their scans.

Yes. Okay. And just on sort of radiologists and sonographer supply for you guys into the labor market, can you just -- just on the comment earlier that was made regarding you're seeing inflation sort of at industry levels but it doesn't make sense to me in terms of the skilled labor, especially that skilled labor has such limited supply on the back of COVID. Can you just help me work out how that's not significantly higher than general inflation that we're seeing in wages across all employment areas?

It is higher. I'm not -- [ Reece ], I'm not following the question because it is -- we are experiencing inflation in our wage cost. There's no doubt about it. And that's exacerbated by the labor shortages we have. So it is costing us. We're paying more for sonographers now than we have in the past.

Okay, sure. And just on sonographer supply, is that improving? I heard you mention radiologists to improve given borders were open. Does that apply also to the sonographer labor market as well?

Less so. We don't see sonographers crossing the border as often. Radiologists, mainly in places like Western Australia and Central Queensland, will rely a lot on the IMGs, the international medical graduates, sonographers to a much lesser degree. In New Zealand, we rely a lot on specialized tech, nuclear medicine technologies and MRI tech but less so sonographies. Where sonography shortages have been in Queensland, for instance, and over New Zealand, we've looked to alleviate them by putting sonographers, in some cases, on incentives for additional work that they do over and above their base pay mode. We've also looked at training schools. So the business we bought, Horizon, in New Zealand has a sonography training school, where we can train our own sonographers going forward. We've had a training school in Queensland for sonographers for some time, and we're going to increase our intake to that training school, so we can do our own training there. So I would see this sonographer shortage getting alleviated over time because you can train sonographers much more quickly than radiologists who go through the system. It's just a couple of years to train the sonographer, especially if they have a base degree and if they are already a technologist in the system. Or they have an undergraduate degree, then you can train them in 2 years.

Yes. Okay. And just on supply chains, I know things are sort of easing into 2023. But I just want to see if that's the case for MRI machines. I know they were sort of particularly worse before sort of all the COVID supply chain stuff kicked off. What's your waiting time for an MRI machine, if you order one today, roughly?

Yes, those waiting times have blown out. We do have some machines on order, and it's probably -- I'm estimating now it's probably about 4 or 5 months from order to the list. No, I can't advise you in the depth of COVID, but it's nowhere near as good as pre COVID.

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

Thank you very much, and thank you to all of you who are still on the call, and it's gratifying to see how many of you have remained on what has been a fairly marathon call for Craig and I. And we are very appreciative of your engagement and interest in the business, and look forward to meeting with many of you over the next week or 2. So thank you very much, and thanks, Tashi.

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