Monash IVF Group Limited (MIS.F) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Monash IVF Group FY 2024 Full Year Results Announcement. [Operator Instructions] I would now like to hand the conference over to Mr. Michael Knaap, CEO and Managing Director. Please go ahead.

Thank you, Cole, and good morning, everyone, and thank you for joining us today for our results presentation for FY '24. As always, with me I have Malik Jainudeen, our CFO, who will be taking us through some of the detail of the financials. By way of introduction, Monash IVF is a market leader in providing reproductive care in our core assisted reproductive services, diagnostics, genetics and pathology services with a large network of 50 IVF and women's ultrasound clinics and service centers across Australia and Southeast Asia. Our experienced and capable team now includes 167 doctors and in excess of 900 scientific nursing counseling and support staff, and I would like to take this opportunity to thank everyone of our team for their unrelenting patient-first mindset. I'd now like to touch on the key financial highlights for the half on Slide 3. We reported a net loss after tax of $5.9 million following all parties agreeing to the settlement of a Ni-PGT A Class Action that resulted in an estimated $32.6 million loss after tax impact. When considering nonrecurring significant items, and the best representation of our financial result was the underlying performance, which confirms the positive momentum we continue to have in the business. Our underlying profits were in line with guidance provided in February, delivering an underlying NPAT of $29.9 million and a revenue increase of 19.4% versus the previous period. Our underlying EBITDA increased 17.5% to $62.8 million, and our EBITDA margin was steady at 25%. We had a strong operating cash flow conversion of 104%. And with an optimistic outlook, we were able to declare a fully franked final dividend of 2.5% -- sorry, that's $0.025. So to address the Class Action outcome on Slide 4, and following mediation has been taking place over the last couple of days. The parties have agreed to settle the Class Action subject to execution of a deed of settlement and court approval. The agreed settlement amount is $56 million pretax, inclusive of interest costs and/or plaintiff legal fees. Based on the settlement amount of $56 million, approximately $19.9 million is advised to be funded by our insurer. And the remaining sum of $36.1 million will be paid from our cash reserves and current debt facilities. The settlement was reached without any admission of liability from Monash IVF, and our financial exposure presented in our financial accounts is -- as outlined in the slide, with the key point being that $32.6 million post-tax loss reflects the outcome of the Class Action in our financials. We have commenced proceedings in the Federal Court of Australia against our insurer to seek a declaration on the construction of the terms of the policy to confirm the total insurance proceeds available under our insurance policy over and above the advised cover. We and the insurer are currently under mediation to resolve the matter. The final point I'd like to make is that this has been a very challenging and emotional period for all parties, with the mediation and resultant agreed settlement providing financial certainty and allowing all the parties to move towards closure. As we move towards Slide 5 to touch on our key operational highlights, all our businesses, including domestic ARS, Ultrasound and International; delivered robust growth during the financial year '24, with the second half '24 rebound in International providing a strong tailwind as we head into FY '25. Of critical importance, we have continued to drive better outcomes for our patients with clinical success rates improving another 1.5% over the last year. In Australia, we had a further growth in our ARS market share of 1.5% with an increase in stimulated cycles of 10%, well above the industry growth of 2.4%. Our Ultrasound business continued to gain momentum, delivering scan growth of 3.9% in the financial year '24, which replicates the growth that we saw in the prior year. Our patient pipeline is steady, with new patient registrations up 6.1% on the pcp for the full financial year. We continue to see the benefits of the strength of our doctor partnerships and being a destination of choice for specialists, welcoming another 12 fertility specialists through organic recruitment and a further rate upon the completion of the Fertility North acquisition. Our WA expansion is progressing well, with PIVET Medical Centre acquisition completing its first full year and Fertility North all performing to expectations. Our clinical infrastructure and expansion projects have continued to progress well, gaining strong presence in every mainland capital city, with day hospital expansion allowing greater diversity and strength of revenue. Internationally and specifically in Southeast Asia, our stimulated cycles increased 19.9% versus the previous period, with the International segment underlying EBIT increasing by 62.1%. There was strong momentum coming through in the second half of FY '24 and a continued strong patient pipeline indicating growth as we commenced FY '25. We have a current platform of 5 clinics in the region, and we continue to be focused on executing on the pipeline of opportunities in Southeast Asia as we also expand in Singapore to accommodate future growth. Moving on to Slide 6, I wanted to touch on the compelling underlying structural tailwinds in our industry to support volume growth into the future. The Australian IVF market grew in FY '24 at 2.4% versus the pcp, and the 5-year CAGR for industry growth is 4.4%, highlighting the strength and resilience of our industry throughout challenging economic times. Traditional drivers of demand include advanced maternal age, improving pregnancy rates, favorable government funding remaining strong. However, prolonged cost-of-living pressures could slow demand for elective egg freezing only, which is more discretionary in nature. New demand drivers with new services, growing patient segments and new channels indicate that over time, the industry growth trajectory could trend towards 3% to 5%, with new demand drivers supplementing traditional drivers. So in summary, whilst the attractive industry fundamentals continue to support growth, growing patient segments and new services are also expected to be key growth drivers into the future. If you take a look at Slide 7 to focus on the broader ARS Australian market, where demand for services in Australia continues at a historical high levels. The left-hand graph shows half yearly growth in stimulated cycles. FY '24 industry stimulated cycles achieved growth of 2.4%, following a solid industry growth in stimulated cycles of 5.1% in the first half FY '24. The market declined marginally in the second half, which was compared to a very strong pcp. Although there can be some short-term volatility evident in industry volumes, the industry is sustainable -- is sustainably well above pre-pandemic levels and our diversification of revenue across domestic ARS in all mainland capital cities, Ultrasound and Southeast Asia limits our impact from short-term volatility in particular markets. The right-hand graph is the number of Australian cycles per year, noting the step-change in volume in FY '21 and maintaining volumes in FY '22 and '23, with further growth in FY '24. Looking at Slide 7 (sic) [ Slide 8 ] on market shares, our stimulated cycle activity performed better than industry as we continue to grow market share in FY '24, which has now occurred over a sustained period of 4 years. Our market share in Australia grew by 1.5% to 21.7% during FY '24 as we accelerated the momentum gained from the previous years. We had market share gains in Victoria, Queensland and New South Wales and some slight decline in South Australia. However, pleasingly, the South Australian patient pipeline has improved and we started to see market share gains in the second half of FY '24, providing some good momentum into FY '25. We're also happy with our introduction into WA through the PIVET and Fertility North acquisitions, which are tracking well and providing us with a meaningful market share in what is a new market for us. Contribution from new fertility specialists attracted in previous and current years, effective marketing campaigns and, the acquisition of Fertility North will all contribute to anticipated market share growth into FY '25. As you can see from the graph on the bottom right, we have sustainably built market share by [ 3.8% ] over the last 4 years, with further market share gains expected for the reasons previously outlined. I would now like to welcome our CFO, Malik Jainudeen, to take us through the financial results for the year.

Good morning, everyone, and thank you for listening again. So Michael has spoken about the Class Action in length, and I'm sure we can take questions later. But I'll just focus on the underlying NPAT [indiscernible]. And I just want to note that it is the highest earnings Monash IVF has delivered since listing just over 10 years ago. So if we're looking at Slide 10, I'll take you through the buildup of our revenue for the year. Another great results in the context of our ability to build revenue year-on-year. If you dive into the detail, revenue grew by 20%, and [ 7% ] of it came from the Domestic IVF business excluding acquisitions, 5% [ price ] average increases and 2% from market share and industry growth. Acquisitions contributed a further 6%, which included a full-year impact from PIVET, which we had for 11 months compared to -- sorry, 12 months compared to 1 month last year and Fertility North of 4 months compared to obviously not having the Fertility North here prior. International business had a great second half after a fairly weak first half. Again, looking in the detail, revenue in the second half was [ 24% ] higher than the first half on the back of improvements in both Singapore in KL, noting Singapore increased cycles in the second half by [ 80% ] compared to the first half, and KL increased by 8% in the second half versus the first half. Ultrasound contributed circa 1.5% of revenue growth or $3 million as -- again, we noted at the half year, the Melbourne business fully recovered, the Sydney business has fully recovered, and we delivered really good outcomes in the office, in our business in FY '24 compared to FY '23. Further revenue growth of around $9 million from our new day hospitals, genetics business and some of the other revenue streams, just noting that the Gold Coast hospital that recently opened, we had for about 8 months during the year and then another day hospital in Melbourne for 5 months as well. So in summary, we generated 12% growth in the Domestic businesses being both IVF and Ultrasound excluding acquisitions, 2% from Asia and another 6% from acquisitions. Now over to the next slide, which is just a quick EBITDA bridge. Again, pleasing outcomes. We were able to grow underlying EBITDA by 18% to just under $63 million. Domestic IVF business, including acquisitions, generated additional EBITDA of $6.4 million or [ 13% ]. Just commenting on the cost base. It has stabilized during the year. There's probably the first half still had circa CPI-type increases of 7% or 8% across most lines, particularly property. Utilities were at much higher levels, but again, a small part of our cost base. Labor rate was around 4% to 6% during the year, and most of the other lines have really stabilized in the second half. Going into FY '25, again, we've increased prices on the 1st of July across all markets, anywhere between 4% and 6% with an average of 5%. And that's -- the principle of that is very much to just cover the cost base, which I think we can see some stability coming through, which is really important. International business EBITDA increased by [ 0.8% ], again, driven on the back of improvements in revenue in Singapore. And KL, KL had a fairly weak first half, but we did call out that the pipeline was really strong going into the second half. And I think that's -- the performance in the second half is very much a result of that strong pipeline, and early indications of FY '25 is positive. Ultrasound business, as I said, revenue was much improved. On the back of that, EBITDA for the Ultrasound business grew by $2 million. Just over to the next slide, which is the profit and loss, it is regurgitation of the previous 2 slides with a bit more detail. Revenue up 20% or just -- sorry, underlying EBITDA up 18%, NPAT up by close to 18% as well. Margins maintained at 25% compared to last year, and there were a couple of drags in that. Again, just the commencement of the day hospitals, as we've noted previously, as it ramps up, is having a negative impact on EBITDA margins. And I called out there was elevated levels of marketing as we invest into the future. And we've been pretty prudent to build out the cybersecurity measures, considering the current environment as well, which has come at a cost. But ultimately, if you look at the core business, stripping at out most of the things I said that were on the downside, really good results in the core business, continuing to invest into the future. Our new revenue streams have grown, which I called out earlier, and we're continuing to build on the service delivery model that we have, particularly in our [ OES ] business. Just calling out depreciation and amortization up by $3 million, that's got -- a big chunk of it is on the back of the day hospitals in Melbourne and the Gold Coast, as well as the full-year result pretax at a reported level had a $1.6 million negative impact to noncash from lease accounting. And if you have a look at the reconciliation on Page 28 from statutory, right, from reported to underlying earnings, you'll see that in there. Interest expense, up by $1.4 million. Average debt is higher, and I'll touch on that in a second. The BBSY was around 4% higher than it was last year. Now over to the next slide, just on cash flow. Really pleased again to report that conversion of EBITDA to pretax cash flows was at 104% compared to 100% on the prior year. So again, quality of earnings is solid. CapEx was $22 million, call out the completion of the day hospitals, which is the primary driver of those numbers. 3 new ultrasound clinics, which were replacement clinics for greater capacity and ongoing improvements, enhancements to our laboratories with equipment such as embryoscopes, which are largely rolled out to all our large sites, should drive efficiencies down the track. The infrastructure program, Michael has been talking about that for about 3 years. We're at the back end of it, we really just have Brisbane left to finish, which should be late FY '25, so you should see CapEx come down a little bit compared to what I've said earlier in FY '24. Also to call out that we're looking to build a new patient management system that's really to drive efficiencies and improve patient experience over the coming years, and we'll talk about that a little bit more maybe in 6 months' time as we progress that project. Just over to the next page, just the balance sheet, again, balance sheet remains strong. Net leverage ratio is at 0.9x. But on the back of the Class Action, if you were to simulate how that would roll into forecast cash flows, the leverage ratio will still be sitting well under 1.5x come the end of June. But obviously, I'll comment on that a little bit more in 6 months' time as it plays out. Debt facility was extended in February for a further 3 years to February 2027. Debt capacity went from $50 million to now $90 million. So it's, again, at reasonable levels. We've still got great ability to raise capital for growth initiatives into the future. Just about Fertility North acquisition, increased goodwill by $18 million. It also has $5.5 million of earn-out conditions attached to that transaction. Just to note that we bought 80% of that business. Both the vendors and the buyer being us put in call options to purchase the remaining 20% of the business, which will be no earlier than March 2027. But you will see a liability for those put in call options sitting in our books. All right, back to Michael.

Thanks, Malik. I'll move to Slide 16 and start to work through some of the Australian ARS operational performances, and I'll start with the essential pillar of our doctor partnerships. Our success in recruiting new doctors reflects the compelling doctor value proposition and the attraction of joining a group of highly engaged doctors across Fertility and Ultrasound. We continue to collaborate with existing and prospective clinicians to ensure the doctor value proposition is tailored to their individual needs and promote a long-term career progression. We continue to gather momentum in our doctor recruitment through acquisition and direct recruitment, having welcomed a total of 81 new clinicians over the last 6 years, with 45 being added in the most recent [ 2 ] years. These results can only be achieved when you have a highly engaged doctor group being advocates for Monash IVF as a result of the experience and service quality that they and their patients are recipients of. Our focus remains on attracting and onboarding new and experienced fertility specialists in areas where we are underrepresented or where opportunities exist to complement our diverse geographical footprint. The specialists we target must have a suitable cultural fit, outstanding clinical competencies and a strong industry reputation. Moving to the next slide on scientific leadership, Slide 17. We have a continued unrelenting focus on investing and building scientific capability to ensure we are giving our patients best possible outcomes and differentiating our value proposition to patients and to doctors. The chart at the bottom left of this slide represents the continuous improvement in our clinical pregnancy rates across our group, with clinical pregnancy rates in 2024 to date increasing by a very significant 7.9% as compared to the calendar year 2018, with strong incremental improvement in every single year. That's really powerful, is that it's 8 more babies per 100 treatments, and we are extremely proud of this progression. It is worthwhile calling out some of the initiatives that will drive further improvements to our success rates into the future. We will continue to [ partner ] innovating for organizations to advance new technologies. And a few examples of this are a wearable fertility tracker, a sperm selection device and rolling out single-step embryo culture across our group. Furthermore, our partnership with Monash University has resulted in the awarding of a $15 million mitochondrial donation grant to launch this technology in Australia with the [ cornerstone ] clinic trial being run through Monash IVF. Partnerships and technologies backed up by ongoing research focus [ through ] our various research bodies will ensure we continue to evolve and improve our success rates and the patient experience, as our history demonstrates. Taking a look at Slide 18, as we look at clinical infrastructure and our investment in various state-of-the-art facilities across fertility, day surgery and ultrasound. The completion of the new Brisbane flagship site in FY '25 will be the culmination of our major infrastructure transformation that has created 4 flagship sites, including day surgeries in major cities. We have continued to invest in our long-term future through new and upgraded clinic infrastructure as a commitment to driving improvement to our patient and doctor experience whilst also representing the confidence we have in the future growth. During FY '24, we have completed new clinics in Cremorne, Victoria, Gold Coast whilst expanding capacity in our Sydney CBD clinic and refreshing the PIVET site in Perth. Furthermore, we have completed 2 new women's ultrasound clinics in Sydney at St Leonards and Northern Beaches and refurbished one in Kogarah whilst adding additional capacity. As we enter the tail of our significant recent investment in infrastructure, we will drive market share gains and provide a premium best-in-class experience for our patients and clinicians. As we take a look of the genetics opportunity, which is on Slide 19, we are absolutely well positioned to capitalize on this growth opportunity. Industry growth in genetic carrier screening testing has been robust since the introduction of the Medicare rebate, which occurred in November 2023. It will certainly be a future, an important driver of market growth for the IVF sector. We expect in our genetic offering by partnering with a global leader in genetics through growth in our own internal carrier screen testing and the rapid uptake of the 3 gene carrier screen tests. Witnessed through the Medicare [ data since ] introduction, the timing is perfect to capitalize on this dynamic. Our own monthly genetic carrier screening volumes have increased more than 200% since introduction of Medicare rebate in November. With uptake gaining momentum faster than expected, there is also a higher-than-expected proportion of patients that are upgrading to expanded carrier screening. With high risk results tracking to expectation, we are extremely confident that the increased penetration of carrier screening will translate to incremental IVF growth. Albeit, there will be a time lag of approximately 1 to 2 years to convert to the actual IVF treatment. We continue to be uniquely placed to capitalize on this opportunity. And the Medicare data indicating patient and industry awareness and uptake has accelerated rapidly since Medicare funding, further confirming our strategic decision to invest in this service. Moving to Slide 20 to update you on our day surgery strategy. We now have 4 day surgeries in Australia, in Melbourne, Sydney, Adelaide and Gold Coast, with both Gold Coast and Melbourne being new additions in this financial year. A fifth day surgery in Brisbane will open by end of calendar year '25. The objectives are clear: Firstly, to provide a seamless, high-quality day surgery experience for patients and clinicians to support our premium IVF offering; and secondly, to attract new specialties to day surgeries to increase theater utilization that is supported by baseline IVF treatments. We see this as a positive revenue and earnings driver into the future as we improve capacity utilization over time. As we take a look at Slide 21, our substantial strategic marketing investment and campaigns are driving market share gains in both traditional and emerging patient segments, which continues to support significant market share growth. We have launched innovative specialized campaigns whilst also growing our community engagement through our Athletes' Alliance partnership. We now have 2 sport ambassadors officially helping normalize the fertility conversation in sport. Moving on to our people. Our organization and the leaders within have achieved an all-time high engagement level of 67%. And for the last 4 years, we have been recognized with the culture of success, with consecutive year-on-year improvement. Our commitment to diversity and development of our people through a long-term training strategy and many other people initiatives are reasons why we are considered an employer of choice in our industry. A quick look at Women's Imaging on Slide 22, which is continuing to trend on our positive trajectory into FY '25. The Ultrasound business experienced scan growth of 3.9% in the financial year, which demonstrates sustainable growth in recent years across Sydney and Melbourne regions. With supply issues resolved through recruitment, a strong culture and investment in capacity to support growing demand, we're looking forward to carrying that momentum into FY '25. Pleasingly, the commercial benefits have followed with EBITDA growth of $2 million and an EBITDA margin improvement. Looking at our ARS or IVF business internationally on Slide 22, the positive signs of momentum we were gaining that we sort of highlighted at the end of the first half '24, have continued, therefore, delivering an extremely strong result in FY '24, particularly in the second half of '24. Internationally and specifically in Southeast Asia, our stimulated cycles increased 19.9% versus the pcp, with 38.6% growth in the second half of FY '24. The growth load was shared by all clinics apart from the minority owned Jakarta clinic. Furthermore, the International segment EBIT increased by 62.1%, with $1.4 million of that growth coming in the second half. Our established clinic platform with scientific, clinical and nursing capabilities will enable us to leverage future growth in the region. In KL, our stimulated cycles grew by 3%, with 13.8% growth in the second half of FY '24. They have the strongest patient pipeline that we have seen since pre-COVID, whereby new patient consults grew 21% in the second half of FY '24 on the back of 15% in the first half of FY '24, indicating continuing growth momentum into FY '25. Johor Bahru continues to perform strongly, and the strategic link to Singapore is anticipated to continue to build as the ease of access and modes of transport between the cities are improving. In Singapore, our stimulated cycle volume improved by 100% in FY '24, with doctor recruitment and commitment contributing to the growth. The current monthly volume run rates are tracking above expectations, contributing to an expansion through a new clinic in Singapore to further build capacity and create a destination of choice for doctors and patients. Our Bali clinic is earning positive and is growing consistently on a low base. We are focused on driving volume and demand creation through business development and marketing, which is having a positive impact on the patient pipeline. We remain committed to the Southeast Asian region and to further build our clinic footprint through a pipeline of partnership opportunities whilst optimizing our existing clinics. Looking at Slide 25, our Vision 2026 strategic road map, obviously, we'll be looking to extend that in the very near future. But many of you will be familiar with our Vision 2026 road map as it continues to remain very consistent regarding our objectives and aspirations. We have made significant progress on all strategic pillars, and all our outcome metrics continued to trend favorably throughout FY '24, and this is off the back of compelling improvement in the previous 4 years. This is quite an achievement and demonstrates the significant progress and momentum we have to ensure we achieve our Vision 2026 objectives. However, there is still much more to achieve. Our Vision 2026 strategic road map will continue to enable everyone to understand the priorities, actions and decisions required to achieve success and deliver profitable growth well beyond 2026. Moving on to the all-important outlook slide on Slide 26. We are anticipating revenue and underlying NPAT growth in FY '25 compared to FY '24, notwithstanding new patient registrations, which excludes acquisitions in the second half of FY '24 versus the second half of FY '23. Both can be achieved noting the following key drivers: We will have a full-year contribution from Fertility North acquisition, which completed in March 2024. We will generate a contribution from new fertility specialists that joined Monash IVF during the previous 2 years, and we will continue to focus on attracting new fertility specialists to join the group in FY '25. We will have increased contribution from recently opened day surgeries as theater utilization will continue to ramp up. And we will gain contributions from recent investment in emerging growth drivers, including genetics and increased donor activity. We plan to continue growth in our Women's Imaging business through recent capacity expansion. And we will generate ongoing growth in our International business, including the particular momentum we have in Singapore and Kuala Lumpur at the moment. We also have an ongoing focus on margin improvement through an optimization and efficiency program as well as progressing enhancement to patient management systems. We plan to update you all on our first half in FY '25 financial performance at the Annual General Meeting in November 2024. So that's the formal part of the meeting over and happy to move to questions.

[Operator Instructions] And our first question today will come from Jonathon Higgins with Unified Capital Partners.

Couple of questions actually, and I appreciate the strong set of FY '24 results, plus obviously the difficulties with the Class Action. Firstly, just from me, just looking at the outlook statement, usually, you don't give guidance at this point. Usually, I know you do that at the AGM. But I mean, most of the [ guide ] points we're looking at there look sort of reasonably positive for sort of growth into FY '25. I was wondering if you could just bridge out just a few of those things, noting that when I look in the accounts, I think we can see Fertility North, looks like it's delivering above its pro forma when you bought the acquisition. Asian International EBIT turned around very strongly in the second half. Sort of things that are offsetting the NPR, plus I imagine you've had some price rises. If you could just explore a couple of those dynamics for us, please.

Jon, it's Malik. Yes, clearly, there will be contribution for the full year from Fertility North and a few other things that you called out. So there's a clear pathway to growth. We just didn't make a decision or the Board didn't make a decision to provide any more guidance at this stage, and I'm sure we'll provide some color at the AGM in November.

Okay. And maybe just a couple more for me. On the Class Action, I mean, good to probably have it behind us irrespective -- and probably, I think, it's probably a slightly larger number than potentially what we're expecting. But does having the Class Action behind you sort of provide any sort of clean air in terms of strategic in the line?

Yes. I think it does. It's been somewhat a burden on all of those that have been involved and all stakeholders and patients and everyone. Certainly, this gives us some clear air to really, really focus on accelerating our strategy and moving forward and putting this behind us and making sure that we're working towards Vision 2026 and beyond. It -- I can't say that it hasn't been a distraction because it has. But through that, we've been able to achieve outstanding outcomes and results. But also, it frees us up to accelerate our strategy into FY '25 and beyond. And probably just to touch on a couple of those other points on those earnings just to maybe give away a little bit more than Malik. There is about a 5% price rise that's gone through on the 1st of July, very, very much inflation linked; and that's been taken up reasonably well. There is a major improvement in our Asian business. I think you can see through our accounts and work out that there's probably about a $1.4 million improvement on the second half or maybe a little bit more than that. So obviously, we'll get the benefit of that in the first half, with the first half in FY '24 was a little bit average in International that was ramping up, and we can see that through our patient pipeline. And the other number, I'd be happy to sort of pull out and Malik may help me with this, the annualized result of the Fertility North acquisition, given its contribution for 4 months, is looking like adding another...

Yes, we did $1 million of old EBITDA for PIVET for 4 months to extrapolate that for the full year is the type of upside we'll see at least from that transaction with everything else that Michael said and what we have in our intentions to grow the business for the rest of the year.

And our next question will come from Shane Storey with Wilsons Advisory.

When I look at the second half result offshore, just looking at the improvement in EBITDA, I wonder that if in aggregate, you've reached a tipping point for leverage there across that portfolio. I mean if we were to see another double-digit sort of revenue growth again in that division, would it be reasonable to think that margins could be ramping up to emulate what we saw perhaps 2 or 3 years ago?

Yes. So I think there's upside in Singapore quite clearly from our perspective in terms of margin improvement. We've only seen, as you said, 6 months of improvement in it, but we did around 300 cycles in Singapore. And intentions are to obviously more than double something like that in the medium term. So [ it's ] going to drive leverage on the back of that. And if you look at the KL business and when we bought it in 2013, that was a business that was doing 350 cycles. Now, it's doing close to 1,000. And it was doing around $1 million of EBITDA 10 years ago. And at the height of it just prior to COVID, it got up to about $5 million, now it's back to around $4.5 million now. So I think we can definitely drive leverage in that market. And we want to get Singapore right first before any further expansion in the region. But I don't think that decision is far away in terms of whether we do that or not. I think we said that about 6 months ago that we want to approve a few things up in Singapore, has held that improvement for 6 months now. So we're going to the second half pretty positive about what we can do there.

And we still -- Shane. And our biggest clinic is Kuala Lumpur, and we've still got some significant capacity there to drive home some leverage, too.

Final one for me, again, probably for Malik. You mentioned the drag on margin from ramping up in some of the new day hospitals. I mean I don't expect you put a basis point number on that, but I wonder whether the price increases that you flagged is probably enough to offset the impact in '25?

Yes, definitely. So the strategy on pricing is initially to cover cost base increases as a principle. With the day hospitals, there is a large ramp-up period for those day hospitals, whether that's efficiency utilization or even private health contracts and your ability to charge patients for treatment. Around 40% of our patients in those day hospitals are uninsured. So you've got some flexibility in pricing for that patient group. But the other 60% are very reliant on private health contracts. And we're still in the process of locking those away and trying to improve those pricing outcomes for us.

Our next question will come from David Stanton with Jefferies.

One to start with for Malik, if that's okay. Compared to F '24, can you sort of give us some color on what you're expecting for depreciation in particular and interest expense? Given sort of that ticked up in '24, should we be expecting that into '25, please?

Yes, the pickup, obviously, real. But a good proxy is what the second half looks like on both of those lines. If I talk about D&A first, we pretty much had a full 6-month period of the day hospitals in there. That'll probably be stable in that context, so if you're modeling a role that depreciation and amortization figures from the second half. In terms of interest, yes, I think we're paying around 6.5-odd percent of interest with BBSY margin. The debt at the moment is at [ $60 million ]. On the back of the Class Action, there's obviously an uptick in that. But keeping all things equal, I think the marginal cost being that 6.5% should be pretty steady. For the rest of the year, the only real variable is going to be then what debt looks like for the rest of the year. And as we called out, as part of the settlement, we still have to -- this is new news over the last couple of days, but where we take debt on the back of that, I think, is going to be well longer than 1.5x, by the time we get to 30 June, so there's still plenty of capacity available in the facility.

Understood. And I guess back to Michael, I wouldn't want him to miss out. In terms of the market -- the Australian market growth rates, we did see a lowering of growth rates in the second half of F '24 across the market, as you point out. And we've also seen, I guess, particularly in some areas in Australia; a decline in discretionary spend. Are the two linked to each other? Does one follow the other, in your view?

I think having a family and having children is certainly not discretionary, David, and I'll try to emphasize that a longer journey. Probably the one segment that is a little bit more discretionary in our portfolio of services, and that's egg freezing. Because generally, there might have a little bit more time on their side, and they can be a little bit more [ considered ]. And generally, it's only one income funding it. So that's probably the discretionary element of our services. Anything else might be a very -- fluctuations might be -- occur within a very, very small time frame. As we all know, the longer you wait, the more difficult it is to have a healthy baby.

Understood. So to that end then, should we be thinking about an Australian market growth rate in ARS of about -- within that 2% to 3% band that you've called out previously?

Yes. Yes. I think for this year, that's probably a reasonable assumption. But I think longer term, as you start to get traction from the genetic carrier screening program, and the industry benefit through managing that disease risk through IVF, I think you'll see that start to accelerate more towards 5%.

Understood. And final question for me. How much is egg freezing of your revenue within Australia?

Yes. IVF is about 80% of our revenue. So around 20% of it is egg freezing related. You never dissect that between what is medical versus elective and what is driving the patient's decision making to seek egg freezing. So if it is purely elective, call it an insurance policy, probably not the right word, but picture it that way; it's probably around 4% of the 20% is our patient group. So we think the 4% -- as Michael said before that there is a group for an element of egg freezing that is discretionary. We think it's limited to that 4% of the 20% that I'm talking about.

Probably be around 18% or 17% of our overall IVF revenue.

And our next question will come from Tom Godfrey with Ord Minnett.

So I just wanted to follow on from Dr. Stanton's question just around market growth and sort of the moderation in the second half. Are you seeing variability across your various sort of patient age cohorts or geographic regions? Any sort of color around sort of where demand is sitting across the business?

Yes. Look, it's natural to see variations in geographical sort of response, and it can fluctuate month-to-month, and it's heavily dependent on the timing of Medicare and so forth. But I think Adelaide is probably a different market to the Asian Seaboard, and Queensland is probably a different market to Sydney and Melbourne, and they're never completely aligned in regards to market growth prospects. As far as age profile, I think it's pretty -- it's been pretty steady for the last few years at around that 37 years old for first-time treatment for females. So we've seen no obvious change in that traditional IVF.

And Tom, if you -- in the Medicare data, it's published by state. If you look at Q4 by state, Victoria was probably the weakest. I think it was down by about 10% in Q4, off the top of my head. So you're going to get variability by state, it's pretty normal, but the [ Vic ] business was the clear standout.

Got you. And just on the age cohorts, it's not a situation. I know you guys sort of over-indexed older patients anyway, but it's not a situation where the weakness is sort of more isolated to the younger cohorts that could defer treatments for a period of time.

We're not seeing that, Tom. And the average age is still at 37. Is the group on 32, for example, behaving differently? I wouldn't say that it is at the moment. We got a little bit more time we'll need to play out. But we've got visibility of the pipeline 9 months out, let's say, through new patient registrations, and it's not behaving materially different at this stage in terms of conversion.

Got it. No, that's clear. And I was just going to sneak in as well, just sort of what you're seeing in July and August? Like is there an improvement in the operational backdrop? Is it pretty consistent?

It's pretty consistent. You would have -- we haven't seen the Medicare numbers, but our [ crops ] in July and what's looking like being August, fairly comparable to how the fourth quarter played out.

Got it. I think Medicare dropped this morning, and it sounds like you guys are ahead of it, just at a high level. The only other one I had, Michael, maybe one for you; just around the genetic carrier screening volumes. It sort of feels like settled the last few months around 9,000 a month. That still feels like a pretty modest penetration rate versus [indiscernible] live each year. I suppose I just wanted to understand, like what do you think drives that penetration rate higher over time?

Yes. Look, the awareness is really, really important. And that comes from all elements that contribute to that particular volume in obstetricians and gynecologists, GPs, patient awareness. But it's building really quick. Like we're really buoyed by the initial take-up. And remembering that is only for 3 gene carrier screening. So there's more volume that's not transparent in the Medicare numbers for full panel of carrier screening, which, in our case, is over 400 diseases that are assessed. So about 50% or thereabouts of our total test volume is because we provide the test internally, is on the extended carrier screen test, which isn't visible. So if you take that into consideration on the baseline numbers, they're an exceptional start to early volumes and a good indicator for some further penetration into the future.

And our next question will come from Rachael Harwood with Macquarie.

Just a couple for me. I might just follow up on Tom's question just around average age. Significant growth in success rate, 40.5%, great results. Do you think this might support an older-age cohort going forward, maybe over 40 might have a go just with the significant increase in that success rate?

Sorry, it's a little bit rugged, Rachael, listening to that. But -- is your question, are we expecting much change in the age profile, given our current age profile average is 37 years old? Yes. Well, so to try and answer that question without capturing at all is that no, we don't see any sustainable movement in profile of our patients or any change of behavior for the older patients, if that's what the question is. So it's very consistent. And conversion rates, as Malik pointed out, are also very consistent.

That's great. Just second question, just around the International business. It rebounded really strongly, particularly in that second half. Just going forward, do you expect to kind of focus on recruitment of specialists? Or is it really just a focus on building that volume with existing specialists?

Right. It's probably multitude, absolutely optimizing and building the current fertility doctors that we have in that particular region, but also complementing then with new doctors and credible doctors to utilize in our clinics, not only our existing clinics, but also in other prospect clinics in other regions, where we are currently participating, but focused on Southeast Asia. So yes, both tiers, we're working on pretty tightly.

And our next question will come from Craig Wong-Pan with RBC.

Great. Just first one to clarify, the 5% price increase that was mentioned, is that just Australia? Or is that across Australia and International?

That's Australia specifically, average of 5%, Craig. KL did move on price essentially, but they've got higher activity coming through their higher-priced products. So you're sort of seeing an increase in average price. And it's material, if you look at tail in isolation, it's increasing the average price per treatment by close to 10%. Singapore, early days in terms of where that business is, as I said, in the last 6 months, has seen improvement in that business. So we [ aren't ] moving prices at this stage.

And then there was the comment made that cost inflation was stabilized. Could you give some numbers around what inflation you're seeing now?

If we talk wages first, as I said before, enterprise agreements are very much locked in and around 4% add [ super ] to that, let's say, and a little bit of benefit in terms of entitlements, you're sitting at 4.5% to 5%. Property with -- I think we're just about cycled for all the properties increasing in line with the CPI number of 7% to 8%. We're probably now looking at sort of 4% to 5% with CPI increases in property. Over the next 6 months is the assumption. On the other lines, yes, consumables not seeing any noise with just general suppliers across other lines, not too much noise. But as I said, labor is 45% to 50% of our cost base, Craig. So we think it's reasonably controlled for the year.

Okay. And then just on the day surgery, that kind of drag that you experienced in FY '24, can you quantify what that was? And there was a comment made about the -- there's a bit of a ramp-up phase. I mean, how long do you expect those to continue to be a drag? And when do they become profitable?

So if I refer to the Gold Coast, I think margins will improve in FY '25, no doubt about it. It will take about -- it has taken about, say, 6 months for that to occur. So I'd say, in FY '25, there's absolute benefit coming through the Gold Coast. Melbourne, we've only had one of the 2 theaters open. And that one theater is still reasonably utilized, but probably stick at breakeven, let's say, in Melbourne. But coming back to the Gold Coast, it is now profitable. We will see marginal benefits through the day hospital businesses as a collective in FY '25.

And then last question, just on CapEx. Just to clarify, was the comment there that FY '25 will come a bit down from the FY '24 levels, but then FY '26 is more the sort of business as usual?

Yes. At this stage, FY '25 is down on FY '24. And you have to determine FY '26, but I don't imagine it would come down from FY '25.

And this will conclude our question-and-answer session. I'd like to turn the conference back over to Mr. Knaap for any closing remarks.

Thank you, Cole. Look, thank you all for your interest in Monash IVF. We all really appreciate it, and we look forward to seeing many of you over the oncoming week. Thank you. Bye.

And that does conclude our conference for today. Thank you for participating, and you may now disconnect your lines at this time.