Ramsay Health Care Limited (RHC) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Ramsay Health Care FY '21 Interim Results Conference Call. [Operator Instructions] I will now hand the call over to our presenters for today. Please go ahead, presenters.

Thank you. Good morning, everyone, and welcome to the Ramsay Health Care FY '21 Interim Results Presentation. My name is Craig McNally, and I'm the Managing Director and CEO of Ramsay Health Care. And I'm joined by Martyn Roberts, Group Chief Financial Officer. Today, we'll provide an overview of our group performance for the 6-month period; a breakdown of our performance by region; an update on group financials, including cash flow and liquidity; and an overview of our strategy before covering off on the outlook for the group. While the first half result was impacted by further outbreaks of COVID across all our regions, I also believe it demonstrates our operational and financial resilience, and in particular, the commitment of our frontline staff and doctors who have borne the brunt of the pandemic. Our strong balance sheet and cash flow have allowed us to continue to invest in the business during the first half of the year despite the disruption to our day-to-day activities. We opened 2 new facilities in the U.K., acquired 2 facilities and disposed of 2 facilities in France and exited the German market, selling 9 hospitals. We also made significant investment in brownfield developments in the expansion of our existing portfolio. Our long-term strategic focus will continue to be on leveraging our existing business platform to create a broader integrated health care services provider. We think Ramsay is well placed to achieve this goal through both new investment and organic growth. Looking to the more immediate outlook. While we're always cautious about making predictions in the current environment, there's a sense across the business that the operational and financial outlook is slowly improving. While the profits of the recovery in each region will be different and likely bumpy, I believe Ramsay is well placed to take advantage of the demand from surgical backlogs and latent demand for nonsurgical services. Before we go through the results in detail, I'd like to highlight our ongoing response to the pandemic, and in particular, the people leading our response. Our extensive facilities, dedicated employees and doctors and clinical expertise and experience have been utilized to assist with the public sector response to the further outbreaks of the virus. Ramsay's overwhelming primary focus during the pandemic has been to protect the safety and well-being of our patients, staff and doctors. Fatigue and mental health have become significant issues faced by our employees and clinicians, in particular, in our Northern Hemisphere facilities. And retention and recruitment of frontline staff is a challenge across the sector. In Australia, we moved to surgical restrictions in Victoria in July, and our teams moved quickly to assist with providing care in both the public hospital and aged care systems. The restrictions started to unwind from late September with full operational capacity returned in late November. In the U.K., we signed a revised agreement with the NHS England in October, covering the period from 1 July through December 31, 2020, that allowed for Ramsay U.K. to receive net cost recovery for its services to NHS England and allowed for the return of some capacity for private patient activity and routine NHS elective surgery activity. During the pandemic, Ramsay U.K. has looked after over 500,000 NHS patients, treating the highest volume of NHS patients in the independent sector with over 20 NHS services hosted in Ramsay facilities and 210 Ramsay team members supporting NHS teams in local trusts. In Europe, the business has continued to operate under government arrangements that provide for payments for the use of Ramsay's facilities and capabilities to assist with the outbreaks of the pandemic. Since October, our teams in France and across our business in the Nordics have been assisting governments with the impact of the second wave of the pandemic as well as urgent non-COVID health issues. At the peak of the second wave, 45 of Ramsay's hospitals and clinics in France were treating over 900 COVID patients with more than 300 patients in critical care. July through December, Ramsay Santé in France alone treated more than 5,000 COVID patients, including more than 2,000 in critical care. Our U.K., European and Asian facilities continue to assist the public sector with the health response to further COVID outbreaks. Improvements and updates we've made to policies and procedures after the first stage of the pandemic means we've been better prepared operationally in these subsequent outbreaks, including in managing additional costs. And we're well equipped to handle future challenges that may arise with this or other viruses. I would like to thank all our staff across the regions for stepping into the breach again and ensuring that Ramsay has led the private sector, treating more patients than other providers. The Board and senior management team understand the toll this has taken on our employees' lives, and we thank you for your commitment. Moving to our results. Today, Ramsay reported a statutory net profit of $226 million, down 12.5% on the prior period. The result reflects the restrictions on our patient capacity caused by further COVID outbreaks across our regions and the additional costs associated with operating in a COVID environment. In addition, we experienced a negative impact from case mix as the demand for nonsurgical services declined, reflecting a reluctance to visit hospital settings and social distancing restrictions associated with operating in a COVID-safe way. The result includes government-funded payments for the use of Ramsay services and facilities during recent outbreaks. This has included both revenue support and cost recovery payments that are recognized in total revenue. The Board was pleased that the company is in the position to resume the payment of dividends, declaring a fully franked interim dividend of $0.485 per share, representing a payout ratio of 50% of statutory net profit. While the dividend is below the prior period, it reflects the strong cash flow generation and solid balance sheet position of the company despite the ongoing impact the pandemic has had on our earning capacity. Based on feedback we've received from the market, we decided from FY '21 not to report a core-noncore earnings split. To ensure a like-for-like comparison is available, we have revised the regional core earnings split in the prior period to include noncore items. There are a number of what we would previously have classified as noncore items in this result, which we will highlight for you as we go through the pack. The largest item was a net gain on disposal of assets and investments of $44 million compared to the prior period. This item reflects gains on the disposal of 2 facilities in France, medical suites in Australia and the reversal of a provision taken against the hospitals in Germany at the time of the Capio acquisition. So moving to the regional results. The Australian result reflects the restrictions on capacity in Victoria for the majority of the 6-month period, combined with increased costs associated with the COVID operating environment, the impact of case mix changes flowing from the decline in demand for nonsurgical services and the transfer of the operation of Mildura hospital back to the Victorian state government in September. Revenue from patients was up 0.5%. However, excluding Victoria, revenue was up 4.9%, reflecting strong surgical volumes, partially offset by lower demand for nonsurgical services. Excluding Victoria, demand for some nonsurgical services started to pick up in the second quarter. However, medical, mental health, maternity and rehabilitation services remain subdued. We believe demand has been impacted by physical distancing and inpatient visitor restrictions, combined with the reticence in some parts of the community to enter the health care system during the pandemic. The result includes a $10.5 million benefit from the sale of assets compared to the prior period. The costs associated with operating in the COVID-safe environment on average for the 6-month period were $8.2 million per month, excluding Victoria. Turning to the outlook. As you can see in this chart, trends in Ramsay's admissions per workday versus the prior period in both surgical and nonsurgical services, both including and excluding Victoria, have been stronger through December and January. In particular, demand for nonsurgical services has picked up, although demand for day patient rehab and site services has continued to lag. Based on forward bookings, we are seeing stronger demand from maternity services in the period February through April. We expect surgical growth to remain strong. But the rate of growth is expected to slow with reduced inpatient growth against the day patient growth. We have had some disruption to the admission pipeline recently due to localized COVID outbreaks, resulting in snap lockdowns in Western Australia, Queensland and Victoria. Moving to our investment in the business. Total capital expenditure for the Australian business was $121 million over the 6-month period. This was below the prior period given the number of projects that completed ahead of schedule at the end of FY '20. Key projects completed during the 6-month period included a day oncology unit at St. George and the redevelopment of Nowra and Dudley hospitals. Total capital expenditure for the full year is expected to be in the range of $250 million to $300 million. So moving on to the European business. The result reflects an incredibly busy period for Ramsay Santé as they managed to handle the demand for both urgent and elective surgery, combined with assisting governments across its jurisdictions with further outbreaks of the pandemic. The absence of the normal first half seasonality due to the smoothing impact of the calculation of the revenue guarantee boosted earnings. The result includes a $33.8 million positive contribution from the disposal of assets in France and Germany compared to the prior period, reflecting the ongoing restructure of the European portfolio of facilities. The stronger Nordic region result reflects the different structure of the payment system in some parts of the region, combined with the generally lower impact of the pandemic. Turning to the outlook for the business. And there remains a high degree of certainty around the operating environment in the short term given COVID cases continue to surge and the vaccine rollout, while commenced in France, is taking longer than other countries to pick up momentum. The French government has committed to issuing a new decree providing revenue and cost support from the 1st of January 2021 for a period to be determined. However, it is likely we'll see that -- and the indication is we'll see that run through until June. The business will continue to assist governments in addressing the backlog of cases and the rollout of the vaccine in France with a number of vaccination centers created within our hospital facilities. Moving to the U.K. While activity levels were slow to pick up, private patient and NHS routine elective surgery volumes returned in September. Private patient volume was particularly strong, and the result benefited from a favorable mix of private patient volume over the period. Ramsay U.K. continued to support the NHS as further outbreaks of the virus started to overwhelm the public system. Turning to the outlook. Ramsay U.K. is operating under a new volume-based agreement with the NHS England, and that's from 1 January through 31 March 2021. The NHS may trigger a peak surge period on 7 days' notice should Ramsay's capacity be required to enable the NHS to respond to COVID cases. Importantly, Ramsay is able to continue providing private patient services under the new agreement. In the short term, Ramsay U.K. will be impacted by the headwinds associated with the uncertain COVID environment and potentially may be impacted by Brexit and the flow-on of impact to supplies of materials. In the medium term, the business expects to benefit from volume associated with the NHS waiting list and growth in private demand. Finally, moving to Asia, and our joint venture, Ramsay Sime Darby. There were no restrictions on elective surgery in Malaysia or Indonesia over the 6-month period. However, movement controls impacted patient volumes. In November, there was a government directive in Hong Kong postponing all elective surgery. The joint venture has benefited from running PCR testing, and our facilities in both Malaysia and Indonesia have been treating patients flowing from overwhelmed public systems. Our hospitals in Indonesia have been treating government-insured and self-funded COVID patients. In terms of the outlook for the region, a return to normalcy in elective surgery and medical admissions will be dictated by the ability of countries in the region to reduce the spread and impact of COVID. A vaccine program has started in Indonesia, and the joint venture has been appointed to assist in rolling out the program. Vaccinations have commenced in Malaysia in recent days. We will continue to assist with PCR testing and supporting the public system with overflow. I'll now hand to Martyn to go through some of the financials in more detail.

Thanks, Craig, and good morning, everyone. As Craig has highlighted, the operating environment, including the government agreements we operated under during the period, has made interpreting our results for the half extremely challenging. The results from our Northern Hemisphere region will continue to be impacted by some of these forces into the second half of the fiscal year, with France expected to operate under a new government decree and the U.K. back to operating under a volume-based agreement for the third quarter. However, the NHS can and has called upon capacity when required. In Australia, while operating with no capacity restrictions at the current time, the business disruption caused by the snap lockdowns that we have experienced in the last few months has had an impact on operating results as the pipeline of admissions is disrupted and costs associated with operating in a COVID environment spike again. It is worth noting that our effective tax rate for the period was lower than in the prior period at approximately 33% due to adjustments in Ramsay Santé in the prior period. At the current time, we expect the effective rate for the full year to be broadly in line with the half year. Moving to cash flow. You can see the working capital boost to cash flow over the period, reflecting that advances received under revenue guarantee arrangements in France were in excess of revenue guarantee accruals. The positive impact on working capital is expected to reverse in the second half following the harmonization of payments received over the 9-month period from March to December with actual revenue. This true-up is expected to be completed in the next few weeks. In addition, it is looking like the new revenue guarantee scheme that Craig referred to earlier may well be a payment-in-arrear setup as opposed to payment-in-advance. So that will also have a negative impact on the cash flow in the second half. Outside of that, free cash flow was strong, reflecting lower finance and tax charges and lower capital expenditure, the result of the pull forward of expenditures into last year as projects in Australia were completed ahead of schedule. Moving to the balance sheet, which remains in a strong position. The 2 significant movements were a material reduction in net debt flowing from the capital raising in April and May last year and the movement in working capital. In response to feedback on Ramsay's FY '19 remuneration report, the Board has introduced a number of changes to its executive remuneration structure from FY '21 to better align it with outcomes on return on capital employed. At the AGM in November, we committed to provide the threshold and stretch performance levels for our FY '21 LTI grant at this result. This detail is in the operating and financial review we released this morning. However, in summary, for the EPS part of our LTI, we have included a gateway, which would trigger if ROIC is above WACC. The 3-year EPS CAGR target range for the EPS part of our LTI will be between 3% and 9%. As you can see on this next slide, we have significant financial flexibility to fund development and expansion opportunities that may arise with $2.3 billion of liquidity available in our wholly owned funding group. We are currently working on refinancing the bank debt, which is due in October 2022. And with that, I'll now hand back to Craig to touch on our strategy and outlook.

Thanks, Martyn. Turning to the group's strategic direction. We continue to evolve our business platform consistent with becoming a broader integrated health care services provider. We will look to deliver shareholder value through both organic growth and the development of new growth platforms for acquisitions and expansion into new areas. Efficiency programs and building the sustainability of our platform will continue to be key measures to improving shareholder returns. We continue to develop our global sustainability strategy and integrate it into our business practices. As part of this push, the Board has recently committed to commence to align our reporting with the recommendations of the Task Force on Climate-related Disclosures, and that will be in our FY '21 corporate reporting. So turning to the outlook for the group. Ramsay's result for the second half of FY '21 will be dictated by the shape of the pandemic curve in each of our regions, and thus, the extent to which we can operate on an unrestricted capacity basis. While early data from offshore markets suggests vaccine rollouts are reducing the number and severity of cases, significant uncertainties remain with the rates of vaccination and the medium-term clinical outcomes of the various vaccines. The costs associated with operating in a COVID environment are expected to continue for the foreseeable future but are gradually reducing through better management and where there is a lower prevalence of the virus. Ramsay will continue to invest in the business and optimize our facilities and footprint to strengthen our competitive advantage and leverage our scale. Our strong balance sheet and cash flow provides us with the flexibility to pursue our long-term strategy to create a leading ecosystem for patient-centric integrated care. In the short to medium term, surgical backlogs and latent demand for nonsurgical services are expected to drive volumes as the general public's comfort with the hospital environment improves. We expect to assist with relieving pressure on public waiting lists across our regions. While we have every confidence in the outlook for the business, given the ongoing uncertainties in the environment we are operating in, we are unable to provide guidance for FY '21 full year results. Martyn and I are now happy to take questions.

Operator, we'll hand over to you for questions.

[Operator Instructions] The first question is from Chris Cooper from Goldman Sachs.

Just looking at Slide 8, I mean, it's good to see the momentum continuing into the second half, but it does seem that Victoria is still dilutive in December and Jan despite being unrestricted through that period. Can you just talk to that dynamic at all, please?

Yes. I mean when you come out of the lockdowns, you're not necessarily immediately straight back into it, particularly on the nonsurgical services. But I've got confidence that Victoria will continue to return to normal activity as the other states have done. So I don't think there's anything unusual about that.

I mean is it possible it's a function of timing of Christmas and New Year? I mean I'm just looking at that chart and seeing a very strong catch-up in that first month in the other states, and it didn't seem to play out in Victoria in quite the same way. I'm just wondering whether there's any sort of reason why there's perhaps a bit more of attrition down there.

Yes. Well, there'll be -- I think that's absolutely true, Chris. And so we had lots of people take the opportunity to take leave, particularly doctors, over the January period. And it also excludes Mildura. So Mildura has come out of our numbers since September.

Understood. Just on PPE and COVID costs. You've talked to the fact that these are now going to continue, but you expect them to come down. Can I ask how much of that expectation is driven by price per unit? And how much of that is volume of these PPE costs? And I know it's impossible to predict, but can I just ask how you're thinking about it at this stage, I guess? And would you expect to enter first half '22 at better or worse than half the run rate that we saw in the first half of '21?

Chris, it's Martyn. So obviously, there was -- only a small part of that $8.2 million a month was PPE. But the way we're looking at PPE is we purchased a huge amount of PPE during the middle of the crisis, which is probably, unfortunately, peak prices as well. So while some of the prices have come down, actually some of the PPE items' prices still continue to rise. But I'd say on average, they've come down, but we won't see the benefit of that for quite some time because we had between 6-month and 2-year stock on hand of certain items. So it's going to take quite a while for that to flow through. With regard to usage, that will come a little -- down a little bit, but certainly not anything material.

Okay. And just sort of illustratively, I mean, would you expect to exit this year at sort of half the run rate that you had at the start of the first half period? Would that be a reasonable assumption at this stage? Or are we...

Not with regards to PPE, no. So if you think of that $8.2 million, a fair amount of that or, let's say, 1/4 of it was roughly the procurement benefits that we missed out on during calendar '20. So we would expect that to start to reverse in calendar '21, depending on volumes that we get during this calendar year. I mean if it fairly keeps trading the way it is, that should be okay. PPE costs, as I said, will take a while to come down. The other element of that was the cost of screening at the entrance of our hospitals where as restrictions came off in parts of Australia, we could actually automate that using apps, et cetera. But then when we enter snap lockdowns, we have to put screeners back on the front of the hospitals. So that will be spiky over time, but that should come down over time as well.

Got it. And just lastly, just very quickly, any update on the potential waitlist tender out of the U.K. with NHS, please?

No real update, to be honest. The second wave has sort of thrown things into the melting pot a little bit. There's absolutely still a commitment for it. The impact of -- the numbers are starting -- COVID numbers are starting to look better in the U.K., but there's -- jury is still out on what the impact of the vaccination has been, the length of time that will take to get back to sort of normal period. So look, you would hope that the volumes would start to flow sooner rather than later, but it's really difficult to predict at this point.

Our next question comes from the line of Lyanne Harrison from Bank of America.

Similar to Chris, I found Slide 8 quite useful. If you had a slide similar to that for Europe, could you give us some indication what we would see trend-wise on a month-on-month basis?

I don't have that much detail on that for you.

Or anything similar.

But for France, which has a similar sort of portfolio of assets and case mix, it's not vastly different. I mean the return of -- one, France didn't build up the same backlog necessarily. But you won't get a dissimilar profile. You'll have surgical services up. You'll have the nonsurgical services down, and that's sort of medicine, mental health. Obstetric continues to be down across the private sector anyway irrespective of COVID. So look, without going into sort of absolute profile on a month-by-month basis, it's not going to be vastly dissimilar for France, albeit the additional lockdowns we'll see and the environment they're in at the moment, we'll see that dampen. So we'll probably see that sort of slower to recover over the next period than we would see Australia.

Okay. Right. And in terms of the quantum, so with the Australian scale, it's from, I guess, up to -- for January might be up about between 5% and 10%. Would France be similar to that? Or would it be different? Slightly lower?

We sort of -- and I don't want to certainly underplay the situation in Europe because it is difficult. I think we find it difficult from Australia to put it into perspective, but they're in a position that they were back in the start of last year in terms of the impact of the virus on what's happening around not just health care in France but generally around the community. So it's not going to be the same as Australia.

Okay. And if we could turn then to Australia. And obviously, given the COVID case load has been lighter, and we're fortunate for that, but to what extent do you think that the surgical backlog in Australia has been worked through? And any color you can provide on types of admissions would be helpful.

Look, I think we've still got some way to go on that. I've always said that I thought it would be longer and lower in terms of the backlog and still what -- we can't get the data points on the rate of entry into the system. So what is the makeup of the premium volumes that we're servicing at the moment? How much of that is backlog as opposed to how much is really coming in at the front end? So I think it is slower and longer.

Okay. And are you seeing any public volumes come through yet in this area?

Yes. It's a state-by-state and local area by local area issue. But we've got a couple of states where we've seen increased volumes of public patient surgical services primarily and some states where we haven't seen that come through yet.

Our next question comes from the line of David Low from JPMorgan.

My question is really around the Australian margin. So down 460-odd basis points. Just wondering sort of what the key contributors to that weakness are. I mean I think the obvious buckets of Victoria, COVID costs and mix. Any help you could give us on how to attribute that? Because particularly as Victoria comes out, just trying to get some sense as to where margins might go.

Yes. David, it's Martyn here. So it's hard to really think of the Australian business or any of our businesses currently from a margin percentage perspective because of the impact of the various different government arrangements that we've got. So you quite likely pointed out that we've called out that the impact of the Victorian restrictions in the half was $70 million. Add to that the $8.2 million a month in additional COVID costs, so $49 million. That's pretty much most of the variance between this half and last half with a couple of ups and downs with the profit on the sale of the medical suites and a couple of other provisions, et cetera. The actual balance then in terms of mix, et cetera, as Craig was talking about before, and we put in the materials, positive increase in surgical, offset by a negative increase in nonsurgical where -- with surgical being bigger but nonsurgical being much higher margin. So the 2 of those kind of net each other out. So you really have a very minimal kind of underlying ex-Victoria trading mix benefit from what we've done. So if that's helpful.

Yes, yes, it is. You've touched on mix there. So the nonsurgical part, so mental health, rehab and medical patients all got mentioned in the commentary. Any sort of sense as to what the trends are in those segments and whether we should be expecting improvement over the next 6 months or so?

Yes. I mean the January number is on Slide 8, I think.

Yes, in Slide 8.

It's too short a period to draw a trend off, David. But we're expecting an improvement in all of those therapeutic areas. I mean this week, our mental health facilities, both inpatient capacity and day patient programs, have been full for the first time since COVID. Too short of a period for this week to draw a little bit of trend off that, but that's encouraging. And we'll see -- well, the rest -- I mean in medicine, a big piece of it is respiratory. So that will depend on what happens with flu season again. And -- but we expect as the environment opens up and people are engaging again, we expect respiratory conditions to increase and thus medical volumes to increase. There's a number of other things in medical as well, obviously. So...

I guess importantly...

We expect it to improve.

Nothing holding back mental health, it would seem. And rehab presumably is linked reasonably closely to levels of surgery. So both of those, it seems like the early signs are quite positive?

Yes. Look, I think in all of those -- one of the key things that we probably underestimated in the first half of last year that became evident to us as the year went on was the impact of visits and particularly for those longer length of stay procedures, not so much for surgery but for rehab, mental health. People were concerned about not having visitor contact over an extended period of time. So that's an issue that's sort of improving as time goes on.

All right. Look, last one for me. The U.K., quite a strong result. I mean can that continue at that level? I mean I know COVID is very hard to predict. And I know that the start of the period is not great, but the contribution there looks pretty impressive given those circumstances. Do you think that it's reasonable to assume it can be matched again in this half? Or should we think differently?

Yes. I wouldn't be trying to extrapolate any results from the first half into the second half. It's one of the many reasons why we've not been able to give guidance. What I would say is we've tried to help in the OFR by splitting out the new interest costs from AASB 16 from our financing costs. So -- because in the U.K., we're basically getting all our costs covered, including rent. And as you know now, rent, a large part of it is sitting in the interest line. So we try to help use it there. And if you look at that, the EBIT less financing costs associated with leases was AUD 7.9 million in the period. So it's not a huge number. That number is essentially from the increase we had in private patient activity during the half. And we actually made a loss in the prior period. So yes, it's quite a large percentage increase, but in terms of dollars, it's not a huge amount. And it's hard to say what it's going to look like in the second half because we're under a completely different arrangement now. And we're volume based, and it depends on what the volumes come through and what the mix of that looks like. So pretty hard to predict.

And our next question comes from [ Bassel ] Janu from Crédit Suisse.

It's Gretel here. So just firstly in Australia, the surgical volumes that have returned, how have you seen surgical case mix relative to pre-COVID levels? Is it relatively the same? Or has there been a high level of acuity? Just some comments on that would be great.

Yes. Look, it's an interesting one. A lot of the sort of catch-up work for the backlog is lower acuity because the high-acuity work was done. The higher-acuity work generally wasn't deferred. So in terms of surgical case mix, we're seeing a bigger proportion of lower-acuity work in the title at the moment.

Okay. And then just moving on to labor. You talked about some of the difficulties in the Northern Hemisphere at the moment with labor. So are you anticipating a shortage? Are you giving greater incentives to the staff? And I guess is this going to be one of the biggest headwinds post-COVID as you look forward to a recovery in the Northern Hemisphere businesses?

It's a significant issue for us. In France, you will have seen that the staff got a significant -- nursing staff got a significant pay increase right across the system, public and private. But they're just fatigued. There's a lot of energy going into treating COVID patients. The absent season has increased, which is no surprise because there's your staff and their families and friends who are COVID positive. So look, all I'll say is it's challenging, and it's top of mind for us in how we support the staff and make sure that we provide the safest environment we can as a priority but then to make sure that we can take as much pressure off them as possible. And we'll continue to do that. And hopefully, we put ourselves in a position where we are seen as a good employer, and that holds us in good stead into the future.

So I guess it's probably a little bit too soon to see if there's going to be an impact to the recovery, I guess, from this angle, is that right?

I think so, yes. I think it's right.

Our next question comes from Andrew Goodsall from MST Marquee.

I know you've talked to the duration of the recovery and I guess in terms of years. Is one of the factors in terms of how much you can capture each year just your own capacity or medical capacity? And what sort of cap would you see that sort of putting on sort of the opportunity to participate in this growth recovery?

Yes. In theory, that's right. But we certainly haven't been restricted to date. And I don't think we're going to be, to be honest. There's 3 types of constraints on capacity. I think I've spoken about this before. You've got the physical constraint about how much physical capacity you have in terms of operating [ physical beds ], et cetera. You've got your staffing capacity and you've got doctors and their appetite. And I think the trends we're seeing, I think we can manage whatever that premium is going to be for quite some time. So I don't see that our own constraints are going to limit us in -- generally across markets. I think in the U.K., we're probably more constrained from a physical capacity point of view. So we've got some facilities where they're pretty full anyway. So we've got to look at ways that we can create that capacity. But there's smaller units in the U.K. and generally easier to create capacity in a short timeframe.

And if we just take sort of that Slide 8 that gives us sort of a picture of where you were in January, I mean, is that being done with relative ease and reasonably sort of sustainable at those sort of levels?

Yes. No great pressure on that.

Yes. Got it. And then just the -- in terms of that recovery that you've seen in January, if you were to look at items that you might regard as lead indicators, things like colonoscopies and other diagnostics and so on that you might be performing, how would you sort of see those sort of relative to that chart? Or where would they [ flatten and ] give you...

Yes. They're certainly increasing, and that's referring to the lower-acuity surgical services. You've got the endoscopy work that's certainly included in that, and we're seeing significant increases in that.

Would those increases be the sort of -- where would they be relative to the green line? Would they be the surgical? Would they be sort of above or sort of similar?

I won't answer that, Andrew. We don't have that, no, sorry.

No worries. And I guess just sort of thinking about the duration of the backlog. I know you've sort of responded to this a bit, but I mean if we sort of think that's in most jurisdictions, sort of what we've seen in this country, Australia -- would Australia be sort of on the more positive edge of the sort of backlog relative to the U.K.? I mean we do get opportunity to see the U.K. There's a lot of unmet demand, I suspect, too, but we just can't quantify. But just how are you sort of seeing it on the scale of sort of which countries have the deeper backlog?

U.K., certainly. The U.K. had a starting position that was worse than anybody in the -- all COVID. So as we've talked about previously, the government has made the commitment to put the additional funding in to address the sizable backlog in the U.K., but that's certainly the market that's in the worst position.

Our next question is from Saul Hadassin from UBS.

Can I ask about that Slide 8, which everyone seems to be referring to, just the surgical admissions, that gray line. I'm just wondering, is the revenue growth materially different from that circa 5.7% in January?

I'm just going to have a quick look. I don't think it's wildly different. I think it's in line, yes.

Okay. So that would suggest that the mix within that surgical work versus the previous comparative period would not be that different in terms of overnight versus day stay? I guess the question is, are you seeing a lot of growth in day cases versus overnight and that's blending that revenue growth down? But from your answer, it sounds like it's not.

Yes. Look, I think we're just seeing the same trend, Saul. Growth in day cases does outstrip growth in inpatient cases anyway. We're not seeing -- so it's being totally disproportionate in -- at the moment. We're still out of our -- in Australia, out of our surgical procedures, 65% of them are day procedures anyway. So the day component is significant in what we do regardless.

Yes. That's fine. And then just a quick one on France, maybe for Martyn. I guess just trying to contextualize the $180 million of government grants. If you look at the sort of the change in revenues for the base business, they declined about $100 million or just over $100 million. Is that $180 million then just a reflection of that smoothing of that seasonality? Or is there going to be some true-up, as you mentioned, of that grant that was provided in the half?

Yes. So there's a seasonality aspect to it. We also recorded some COVID-related payments, which covered costs for the March to June period as well. So we didn't accrue those in March to June because the details of those kind of grants weren't compiled when we issued our results, but those are in there as well. So there's a bit of a kind of catch-up from the prior period and that seasonality where you normally see August and September, for example, being very low months. But it's flat line with the government guarantee scheme.

Got it. And just on that update to what the agreement might look like. Do you know when you might find out as to what's going to happen in the current half?

Well, the -- what we've heard is that the plan for the French government is to issue the decree in inverted commas at the end of February, but we'll wait and see. It does seem to change on a daily basis in terms of what we're hearing. So from the government side, they're obviously still formulating it at the moment.

Our next question is from Sean [ Larini ] from Morgan Stanley.

Fantastic operational job in the current circumstances. Maybe, Craig, to start just to help us further characterize the catch-up opportunity. We noticed on the back of the Medibank and NIB results sort of change their provisioning. They're now expecting down from 100% of surgeries to be caught up down to 85%. And NIB have gone from 80% to 60%. Still very high numbers. But I'm wondering if you could have any -- or provide any commentary around that kind of thinking would be the first one.

I think we always -- I mean it's really hard to quantify. And we always thought it was in that area of sort of 85%-ish that would have to come back into the system. I've got no data to suggest it's any different from that, Sean.

Great. And maybe -- I mean, of course, the pandemic is still popping and bubbling away in the background here, but interior Australia is the most, I guess, sort of post-pandemic-like market, if I could describe it that way. But having those kinds of observations, is there anything you could share with respect to permanent adoption of certain practices that have been implemented as a result of COVID?

In terms of changes in practice?

Correct. So it might be less rehab. Obvious one is the increased PPE, those kinds of things.

Yes. Look, the -- certainly, telehealth, I think we'll see a permanent increase in the use of telehealth, certainly in primary care and in other consultations, mental health. But it will settle back from the peak it was during COVID. There's lots of clinicians who relied on the telehealth ability through COVID who aren't convinced that's the way they want practice fully into the future. But it will certainly be at a level above where it was. The impact on us in that circumstance isn't that great. It's really about the referral path. It certainly helps us enhance the way we provide services, but it doesn't change necessarily the referral path. Rehab, I think we've called out a few times, particularly day rehab and day mental health, they were impacted by social distancing restrictions as much anything else, and I think when we get to see what policy changes will happen with government support for home-based services will increase. But what we've seen in rehab is rehab is always a topical one. Rehab volumes did drop and have been slow to recover. And the shift -- because I'm about to say rehab. It's not just off rehab. There's different categories within rehab. So we've seen a significant shift over a 5-year period to new rehab, for example. And so when people need rehab, they need inpatient rehab, they tend to be at the more acute end of the spectrum and so the home-based services. We're supportive of the home-based services, and we will be providing those as we are now, and we'll increase the provision that we have through our Ramsay home care service. But a lot of it is new work rather than hospital substitution. So I still believe as we shift to more acute rehab, that rehab volumes will continue to increase. And to be honest, when you do the analysis on what long-term volume growth looks like in different specialties, rehab regardless of provider is right at the top of the list and really related to the aging of the population.