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

Good morning, everyone, and welcome to Ramsey Healthcare's Full Year Results Presentation for the 12 months ending 30th of June '26. The I'm Natalie Davis, the Managing Director and Group CEO, and I'm joined today by our Group CFO, Anthony Nielsen. Today, we will share our financial results and the significant progress we have made over the past year in transforming the business. I'm pleased that we are maintaining high patient NPS scores and clinical excellence in every region, building transformation momentum in the Australian business and improving performance and capital returns across the group. I'd like to thank our incredible people and our clinicians who dedicate themselves to our patients and are the foundation of our success. Turning to Slide 4. We've made good progress delivering against our 3 key priorities: First, the multiyear transformation of our market-leading Australian hospital business, second, strengthening capital discipline and improving returns across the portfolio; and third, involving our culture to innovate and accelerate delivery. Our strength in group executive team and the capability they are building in key commercial and operational areas has enabled us to accelerate the pace of our transformation. In Australia, a high acuity growth focus improve set utilization, revenue indexation and cost management has delivered underlying EBIT growth of 11.2% and a plus 30 basis points uplift in EBIT margin. Importantly, we're also well progressed with our proposed separation of Ramsey Sante, which is on track for completion in late 2026, subject to a shareholder vote in November. Turning to Slide 5 and looking at the headline numbers in constant currency movements for the full year. Revenue was $18.6 billion, reflecting 4.2% growth compared to FY '25, and driven by 8% revenue growth in Australia. Underlying EBIT increased 11.8% and underlying NPAT increased 22.9%, reflecting focus on improving performance through transformation programs in each region. Reported NPAT was $329 million. We've strengthened capital discipline, focusing growth and development CapEx on Australia and procedural capacity. Reflected in group ROE increasing by 30 basis points and funding group ROIC plus 60 basis points to 6.3%. Our focus on performance improvement and cash conversion has seen Australia and both U.K. businesses net cash flow positive for the period and improved our funded group leverage to less than 2x. The Board has determined a final fully franked dividend of $0.485 per share, which is up 21.3% and taking the full year dividend to $0.91 per share up 13.8% on the prior period and representing a payout ratio of [ 60.3% ] of underlying earnings. These results highlight the momentum building across our business and the positive impact of our strategic initiatives. Slide 6 provides more detail on our underlying results and the split between the funding group contribution and Ramsey Sante. All regions improved performance. Australia, reporting 11.2% growth in underlying EBIT on 8% growth in revenue. Both U.K. businesses reporting growth in earnings through operational initiatives, mitigating the impact of lower funding by the NHS. Brand is Sante's improved EBIT was driven by a Swedish business and performance improvement initiatives more than offsetting the difficult funding environment in France. Moving to focus on each region. Starting with Australia on Slide 8. Our transformation continues to build momentum, driven by our big 5 hospital operations improvement initiatives. Our strategic focus on growing in high acuity and priority therapeutic areas, improving theater utilization and focus on procurement initiatives has driven admissions and revenue growth and margin expansion. Pleasingly, we achieved this alongside improved patient, doctor and team NPS scores. With the new executive team in place, we have started to accelerate the execution of our 2030 strategy. We're looking forward to National Capital Private Hospital joining our Ramsey Network next week and serving the local community. During the year, we also signed a new partnership agreement with 1 of our major insurers which will enable us to focus on collaborating to strengthen the private health proposition. We've grown our Ramsey Research and development network to 22 sites and continue to grow clinical trials activity with a 28% increase. Turning to the Australian results in more detail on Slide 9. The business delivered 11.2% growth in underlying EBIT, driven by higher activity and acuity levels and improved utilization of treatment capacity, improved private health insurance indexation and effective cost management. We reported a 30 basis point improvement in underlying EBIT margin to 9.4%. The impact of the new funding mechanism at Jungjula was partially mitigated to approximately negative $26 million by actions, including a focus on timely discharge of patients, agency reduction, increased winter activity, as our clinicians continue to provide excellent care to the local community. Underlying labor costs were flat as a percentage of revenue and lower excluding the impact of Jundee funding reflecting a focus on reduced agency use over the period. We were also able to lower supply costs as a percentage of labor through procurement savings. Our portfolio optimization efforts have continued with Foresight closed and excess land holdings put up for sale. Before moving to the key drivers of our results, Slide 10 details some of the underlying trends in the Australian private health care market. The market is showing improving fundamentals with hospital coverage continuing to grow as Australians prioritize their health care growing by 2.5% per annum in the last 3 years and payout ratios gradually improving, however, with some way to go. Acute private hospitals remain the predominant setting for private health care and are evolving their services to include day procedures. Down sharing from Gold policies to Silver hospital coverage continues impacting private mental health and maternity in particular. Now delving deeper into Ramsey Australia's activity trends on Slide 9 -- sorry, Slide 11. Excluding the impact of Peel and Border Cancer Hospital, which have both returned to public operation, you can see we observed strong growth in our core surgical and activity, coupled with higher inpatient acuity. Surgical admissions, which account for more than half of our total admissions grew 4.1%, increasing 40 basis points as a percentage of our total admissions, reflecting our focus on growth in key therapeutic areas. Medical admissions were up 3.2% and rehabilitation admissions increased by 3.8%. And Mental Health Divisions declined by 3.9% and but this was mainly due to declining day admissions with overnight mental health emissions, which contribute the majority of our revenue in Mental Health, increasing by 0.9%. Looking at funding types. Private admissions grew 2.8%. Public admissions increased by 9.5%, reflecting strong activity at Jendela and a 7.7% increase in public and private activity. Dayani admissions increased by 3.8%, boosted by new surgical centers at Charleston and Poland, while overnight IFDS increased by 3%, reflecting a higher overnight acuity mix. Moving to Slide 12 and our strategic use of data insights and uplift in our sales force are supporting growth in a number of visiting medical offices or doctor partners. Our share of complex therapeutic activity and improved theater utilization. We achieved 3.3% growth in meeting VMOs, enabled by improved catchment-based data insights. Our theater utilization improved to 70% in FY '26 from 69% in FY '25 as we opened an additional 22 new eaters during the 12-month period indicating our success in increasing utilization of theaters at our key sites. And we increased robotics usage supported by improved robotics utilization tracking. Slide 13. Total CapEx was $365 million, which was flat from the prior period and below the original forecast of $410 million to $440 million, reflecting lower than forecast development spend as we focus on improving utilization of existing facilities and the timing of reimbursements from landlords of $30.8 million, primarily associated with the development of key lease sites in Insular and Belur. Our development investment in Australia remains focused on increasing procedural capacity in major hospitals within growth corridors. In total, we opened 22 theater and procedure rooms during the period. The increase in routine and maintenance CapEx reflects an investment in existing facilities to ensure strategically located sites fit for purpose in the future and continue to meet high clinical safety and amenity standards. In financial year '27, we're planning to open 11 new theaters cast labs at sites, including our largest hospital, Hollywood and Perth, and St. George in Sydney. We're in the final phase of our ring private expansion, including our recently opened emergency department. In financial year '27, we'll continue with our key programs to drive the transformation of the business with our initiatives underpinned and enabled by our investment in data, technology and AI. We have defined our technology road map with priorities, including the upgrade of our patient administration system, which will be part of our broader revenue cycle management transformation to speed up cash collection, improve accuracy to reduce rework and streamline administrative manual processes. And a smart rostering system and team up to enable flexible working, reduce administrative burden for our hospital teams and improve effectiveness of our rosters. Moving to Slide 15 and the outlook. As we continue to focus on delivery of our multiyear transformation, Australia is targeting incremental year-on-year EBIT growth, both including and excluding the Nat Cat acquisition and margin expansion driven by activity growth, improved capacity utilization, revenue indexation in line with cost indexation, operational improvement initiatives and including a $10 million to $15 million increase in investment in IT, technology and transformation. National Capital is expected to be underlying EPS accretive in the first 12 months of ownership. Transmission operating costs are expected to be in the range of $9 million to $11 million in financial year '27. Total CapEx for Australia is expected to be $380 million to $410 million, inclusive of Nat cat. Moving to the U.K. region on Slide 16, where both our U.K. hospitals and Alesia businesses are focused on performance improvement plans to mitigate weakness in NHS funding. Pleasingly, both businesses delivered an increase in underlying EBIT and were net cash flow positive. U.K. hospitals focused on acuity, private activity growth and cost management to mitigate NHS funding headwinds from Q2. The Elysium turnaround is beginning to gain traction under the leadership of new CEO, Joe O'connor in weak market conditions through a focus on rightsizing our services to local demand and cost reduction. Moving to each business in turn, beginning on Slide 17. Our U.K. hospitals delivered underlying EBIT growth of 10.3% in constant currency successfully mitigating an 8% decline in NHS activity and tariff indexation below cost growth. The result was achieved through a focus on higher complexity NHS work and private activity growth of 2.9% and which drove a 6.7% increase in average revenue per admission. The business focused on disciplined cost management program, resulting in labor costs as a percent of revenue declining by 30 basis points and the EBIT margin improving 80 basis points. Turning to Slide 18. We expect Ramsey U.K. to deliver EBIT growth in financial year '27 with a focus on driving higher acuity and growth in private medical insurance and self-pay activity, ongoing delivery of efficiency transformation programs across finance and operations, including rostering initiatives and creation of finance shared services hubs, and continuing to work closely with local and national NHS stakeholders to attract NHS work and target acuity. NHS tariff guidance for the year beginning first of April '26, has been recently lifted to 1.24%. The backdated amount related to first of April '26 to 30th of June '26 will be included in the financial year '27 results. Turning to Slide 19. Elysium's turnaround plan gained traction in the second half of financial year '26, delivering a 43% growth in underlying EBIT for the year. This was achieved through site and ward closures to match local demand, reduce central and agency costs, including a reduction in FTE at an average fee uplift of 4.4%, reflecting complexity of patient services. There was also a strong focus on working capital and a reduction in debtors, which combined with reduced CapEx through positive cash flow. Elysium reported results include a net $13.2 million of costs associated with i3structure, including site impairments of net $9.9 million. Our ongoing focus for Elysium on Slide 20 is to continue delivering on the turnaround plan, which includes increasing conversion rates of new patient opportunities, including a focus on complex recovery services, further improvements to labor mix, including reducing agency costs further, negotiating with payers for appropriate up reflecting service complexity. We're targeting EBIT growth in financial year '27 as the business turnaround continues to progress. Turning now to Europe. And on Slide 21, we're on track with our separation plans for Ram Nuance to support long-term value creation for Ramsey's shareholders as we move towards a Ramsey shareholder vote in late November. The business has continued to focus on performance improvement in both France and the Nordics. Moving to Slide 22. And despite funding headwinds in France, Ramsey Sante reported a reduced underlying loss in Europe. The Nordics region delivered a strong result driven by Sweden's performance improvement, which included the impact of the new Sankaran 8-year contract and improved performance in its other services, including Proximity Care. France has multiple work streams on force focused on operational efficiency, which partially mitigated the funding shortfall. On Slide 23, Ramsey Sante's focus in financial year '27 will include cost control, efficiency and cash generation, growing profitable activity, including growth in Sweden and the full year impact of the new St. Gara contract and sustained advocacy for fair tariff outcomes in France. Turning to Slide 24. The proposed separation of RanteSonte is well on track with the demerger meeting for the shareholder vote progressing towards 24th of November 2026. The benefits of the demerger proposal include: it simplifies Rade's portfolio, enabling us to focus on transformation and growth potential of our core Australian hospitals business. It also simplifies our reported financial profile through deconsolidation of Rami santo from Ramsey's financial statements. Demerger should improve RAMSESontase focus and already established independently managed and publicly listed business to continue to pursue its European focus strategy and transformation. There is limited separation complexity given Ramsay Sante already operates independently of Ramsey, inkling separate financing and balance sheet arrangements. And it gives our shareholders the opportunity to retain ownership interest in Ramsey Sante. Assuming shareholders vote in favor of the separation, Game Sante will be treated as a discontinued business line item in our financial year '27 half and full year results. Costs associated with the demerger will be detailed in the skin booklet. Moving to sustainability on Slide 25. And Ramsey remains on track with both our 2030 Scope 1 and 2 greenhouse gas emissions targets and our 2028 supplier engagement target. We're committed to working with our partners to understand and address emissions across our supply chain. However, our progress in this area is limited to how quickly our suppliers are able to reduce a magnetron Scope 1 and 2 emissions. As a result, we've revised our long-term net 0 greenhouse gas emission targets, taking into account the current and anticipated commercial and operating environment. We will now target net 0 Scope 1 and 2 emissions by equity share by 2050 instead of 2040 and Ramsey U.K. and Elysium Healthcare will target net 0 Scope 3 emissions by 2050. Our net 0 Scope 3 group target will be considered following engagement with our suppliers in line with our near-term target. I'll now hand over to Anthony to provide a more detailed look at our financial performance.

Thank you, Natalie. Good morning, everyone. Moving to our group financial performance on Slide 27. It's important to note that all regions reported EBIT growth in local currency reflecting positive transformation momentum in Australia and our focus on operational improvement programs across all regions. This drove a 30 basis point improvement in EBIT margins to 6.2%, with cost discipline, resulting in a 20 basis point improvement in employee costs as a percentage of revenue and a 10 basis point improvement in medical supplies and consumables as a percentage of revenue. Underlying EPS grew 27% in constant currency. The underlying effective tax rate was approximately 35%, consistent with our guidance. Reported tax was slightly higher at approximately 37%. These rates are high relative to corporate tax rates in the jurisdictions Ramsey operates, reflecting the impact of French CVAE, which is a corporate value-add tax and Ramsey Sante's loss before tax result in the FY '26 period. The final dividend of $0.485 per share brings the full year dividend to $0.91 per share up 13.8% from FY '25 with a payout ratio of 60.3% underlying earnings. Turning to Slide 28. We continue to maintain a strong focus on cash generation. Operating cash flow reflects a 46% improvement in the funding group coming from Australia and both U.K. businesses, offset by a negative working capital variance in Ramsey Sante primarily reflecting the timing of payments from the French government versus the prior period. The decline in CapEx spend reflects capital discipline in development expenditures in Australia and the U.K. operations. This resulted in free cash flow of $697 million, which was relatively flat compared to the prior year. Net cash inflow from divestments mainly relates to sale and leaseback of 4 sites in France, and the sale of Hot Dock investment in Australia. Dividends paid increased reflecting the suspension of the dividend reinvestment plan for the final dividend in FY '25. Moving to Slide 29. Our consolidated balance sheet remains stable with key changes relating to the net impact of currency translation on the balance sheet was approximately $300 million reduction in net assets. An underlying increase in property, plant and equipment includes the completion of developments in Australia, partially offset by the restructure of portfolios in all regions. Working capital movements mainly relate to movements in Ramsey Sante associated with the timing of government receivables and the Elysium portfolio restructure resulted in a $300 million reduction to the right-of-use assets. ROCE increased 110 basis points to 11% for the group. Turning to Slide 30 and the funding group, which excludes Ramsey Sante delivered underlying NPAT growth of 17.9% to $398.4 million with a 5.2% increase in revenue in constant currency. The result was driven by underlying EBIT growth across all businesses, with an improved performance in Australia of plus 11.2% in underlying EBIT, a plus 10.3% underlying EBIT contribution from our U.K. acute business, and a plus 43.5% increase in underlying EBIT for Elysium. The result include a 7.3% increase in depreciation, reflecting the completion of major projects in Australia over the period. higher financing costs, reflecting the increase in base rates over the period and reduced hedging compared to the prior period and an underlying tax rate of approximately 29%. ROCE for the funding group increased 124 basis points to 14.8%. Moving to Slide 31. The funding group's leverage has decreased to 1.83x and remains well below our target range of 2.5x. Interest cover is also strong at 8.94x. All businesses in the funding group were net cash flow positive for the year showing a strong focus on improving cash flow, working capital management, capital allocation and returns across the funding group. We maintained liquidity of $1.066 billion, some of which will be utilized for the $251 million acquisition of Nat Cap next week. Leverage is expected to continue to be below our target range post this acquisition. The weighted average cost of debt in FY '27 is currently expected to be approximately 5.5%, and approximately 60% of our funding group debt is hedged for FY '27. In FY '27, total net interest costs, inclusive of AASB 16 lease costs for the funding group are forecast to be $280 million to $300 million. On Slide 32, Ramsey Sante remains well supported by its own funding arrangements. In July 2026, they announced the completion of a refinancing of EUR 1.75 billion of senior debt extending their tenure by 2 years to 2033 and including a change of control provision, which is consistent with our proposed separation. Its bank leverage ratio was 4.7x at 30 June, and liquidity stood at EUR 487 million, comprising+ g EUR 185 million in undrawn bank facilities and EUR 302 million in cash. Turning to Slide 33. And as I have shown above in the results, our focus on improving capital management and cash flows, delivering improved returns and lowered leverage for the funding group over the period. Disciplined cost management across the funding group resulted in underlying EBITDA margins of plus 60 basis points and underlying employee benefits as a percentage of revenue declining 20 basis points. Activities over the period included a focus on revenue cycle management and improved working capital across all businesses with cash conversion in Australia, improving by 4 days over the period and further work to do. Focus on utilization of facilities and portfolio optimization resulted in a decrease in CapEx and improved capital allocation across the business. Cash generation from portfolio optimization will continue in Australia and Elysium. These activities and focus on improved results drove an improvement in the funding group ROCE to 14.8%. Turning to Slide 34 and group CapEx was $734.2 million, a decrease of 6.1% in constant currency reflecting disciplined development spend in Australia focused on expanding procedural capacity, lower CapEx in the U.K. and flat in Europe, reflecting our capital discipline in the current funding environment mainly due to lower development and growth expenditures. And routine and compliance spend was increased in Australia to ensure our hospitals are future fit. Our high clinical quality and safety standards and the amenity of our hospitals is maintained. Our forecast range of funding group CapEx in FY '27 is $480 million to $520 million consistent with the FY '26 spend of $488 million in constant currency. Overall, we made good progress from a financial perspective in FY '26 with the company in a strong financial position to continue to deliver in FY '27. With that, I'll now hand back to Nathalie for the outlook and closing remarks.

Thanks, Anthony. And turning to Slide 36. In closing, I want to reiterate our commitment to continuing delivery of our strategic priorities. In FY '27, we expect to continue the positive momentum with EBIT growth expected in Australia and the U.K. businesses. We're looking forward to completing the National Capital acquisition, caring for the local community and welcoming the team to Ramsey next week. We're preparing for the proposed separation of Ramsey Sante in December, subject to Ramsey's shareholder vote on the 24th of November. The group executive will host an Investor Day on the 30th of November, to share our progress and plans as we continue to evolve Ramsey for the future. I'm proud of the progress we've made as a team and our unwavering commitment to providing excellent care for our patients. Thank you for joining us, and we'll now open the floor for questions.

Thank you. [Operator Instructions] Your first question today will come from David Low of UBS.

Just starting with Slide 12 and the utilization trends. I can see that you've got much higher utilization in the top 5 sites. I mean where do you think you can take the utilization to -- I mean what's maximum and is it possible to get the lesser sites up to levels that you're seeing in the top 5 hospitals?

Yes, if you look at our distribution or utilization across all of our sites. What you see is we have 5 sites, and they tend to be very large hospitals that have utilization in that range of about 80% to 85%. And that's broadly in line with what you would see as best practice around the world in the sector. So our focus has really been particularly in our large hospitals that are often adjacent to a public hospital and attract that complexity of work that we're known for. Our focus has really been particularly at those sites trying to attract more doctors, serve more patients and increase utilization of those hospitals. And that's in areas like cardiology and cancer care and orthopedics. So that 80% to 85% would be our kind of aspiration for a really good level of utilization in 1 of our major hospitals. And when we get close to that, that's when we consider increasing our procedural capacity.

Okay. Great. So it would seem that at the top 5 sites, you're quite close to needing additional capacity.

Well, some of those sites, we're already in the process of adding capacity. So you would have seen in the presentation later on, we talk about where we're adding sites. We're adding theaters over the next or caps over the next 12 months. And they include a focus on some of our major sites like West Med, St. George and Hollywood, we're adding 2 theaters and 2 cap labs. So we've already been effectively prioritizing our capital investment based on levels of utilization.

Okay. And just the other topic I wanted to touch on was the OpEx, the IT OpEx that you've laid out for $10 million to $15 million. Can you talk a little bit more about what you're spending on what -- will that be a headwind to margins effectively? Or do you expect that, that investment will pay back quickly enough that it would be offset?

Yes. So what we're -- what we've done with our technology road map is very clearly to find a sequenced approach. So we're thoughtfully investing in technology. We know we need to investor technology to enable our questions in our hospitals to reduce their administrative further to improve our processes. And we're particularly prioritizing 2 things at the moment: one, effectively is an upgrade of our patient administration system, which is the backbone to revenue cycle management. So that starts with patient admission itself and then goes all the way through to coding and sending the bill out. So that needs to be upgraded and that will really help us in terms of the speed at which that process works. And also make it much less manual than it is today and free up time for our clinicians. So we will get started on that. And that is quite a big system upgrade, and we'll do that progressively hospital by hospital. So it will take a while for that to translate into benefits but those benefits are significant. At the same time, we are focusing on effectively, a new smart rostering system for our team. We have a workforce of 35,000. We have effectively legacy systems that our numbers are using to roster team members at the moment. It's probably the thing that takes up a lot of their time that when I first joined and heard very clearly from the numbs that they would really appreciate a better way of doing that. So that's the other 1 which we will start implementing over the course of the next 12 months. And again, these things will take time to fully implement because it's not just about the system, it's about the change management and the processes around that. But we have thought very carefully around which investments to prioritize and we are working towards a plan where we can still invest in these investments, but also simultaneously continue to focus on delivering year-on-year margin growth.

The next question will come from Pataki of Evanson Partners.

I was hoping for a bit more color on the Australian EBIT growth outlook, you're talking about incremental growth, excluding Nat Cap, I'm just wondering how that compares to your language in FY '26 of EBIT momentum. It sounds like weaker growth, but I'm just wondering whether I'm reading that wrong. So maybe you could clarify.

I think we're not giving guidance to the level that you're asking for. So what we're saying is we've been focusing over the last 18 months really on building our transformation momentum, and we will continue to focus on those same initiatives that we've outlined today. So really focusing on growth and targeting growth of both market growth and in particular, in the high acuity areas that we're known for. We'll continue to target revenue indexation in line with our cost indexation. And we'll continue working on our own operational improvements, including procurement and increasingly, as we implement our new system revenue cycle management process. And so we are working towards margin growth year-on-year in the Australian business, but we will be investing in a stronger business as well as we do that. And we've called out the $10 million to $15 million increase in OpEx that we're planning to make for IT and technology spend over the next 12 months as part of that.

Yes. Okay. And just wondering if you could talk a little bit about the admissions trends in the second half. That surgical number of 4.1% looks a bit softer than the 5.4% in the first half, but I think maybe you've made a couple of restatements there. So if you could just talk about some of the trends in admissions in the second half and whether you're still seeing strong growth as you saw in the first half.

Yes. So thank you very much for that question. So we'll see in the footnote to that page that we have called out that we did reclassify some admissions that were made in the first half from surgical to medical. And those were part of the work that we do at Jindal Public Campus, which is 1 of our biggest campuses. So what you're seeing there for the year is more broadly reflective of what we also saw in the first half.. Does that help?

Your next question today will come from David Stanton of Jefferies.

Perhaps we could focus on revenue growth for 2017. Australia, you saw very impressive revenue growth. Do you think you can match that in percentage terms, that kind of growth level in '27? And then perhaps I could follow up by asking the same questions for the U.K., both the U.K. hospitals and Elysium.

So revenue growth in the U.K. as well, specifically.

Yes, sure. So whether you were -- basically in the U.K., whether you think you're going to see positive revenue growth in constant currency in '27 for both the U.K. and for Elysium, please?

Okay. So if I start with Australia, so what you're seeing in the revenue growth number there is broadly 8% revenue growth. and admissions growth on a like-for-like basis of around the 3% mark. So we've excluded the impact of Peel but also the impact of water cancer hospital, which we added back to the public earlier this year. And so the rest of the 8% growth, therefore, is accounted for through both revenue indexation, which we're targeting effectively revenue indexation in line with our cost indexation as well as a focus on acuity of work and the focus on the work that we do very well, and we have high market share in and that's what we do in our big major hospitals, cardiology and orthopedics and cancer care in particular. So that focus will continue. Those components effectively, we will continue to target into the next financial year as we already are. So we'll continue to really focus on growth and specifically in the areas that I just mentioned. And we are increasing our focus on our business development managers who go out and talk to specialists about why they should choose Ramsey to perform their surgery. There's a number of enhancements we continue to do in terms of the data we're providing our hospital teams around catchments and GP referral patterns. And so we continue to set an ambition for ourselves of growing above the market, particularly in the areas that we're focusing on. We will continue to aim for revenue indexation broadly in line with our cost -- our growth. And we also continue to target that acuity mix, which supports that revenue line. If I turn to the U.K., I know I speak to both businesses separately because it is quite different. In U.K. hospitals this year, we had a very strong start to the year, and then we had the pullback of NHS funding from about November, December. And the team managed that very well in terms of flexing the cost base towards a lower level of activity but also focusing on private work. as well as making sure that the work we're doing for the NHS is high acuity. So again, those components support that the revenue number you've seen today. When we look at the U.K., we -- at the moment, in terms of kind of the indicative activity plan that we've been given by the NHS for our hospitals. We are seeing growth there in those indicative activity plans. But we will continue to focus on acuity and we will continue to focus on private work. We think that that's a significant opportunity for us, particularly in some of our hospitals there in those commuter belts around the London area. So that we'll continue to do. And if there is any uncertainty on funding, we'll continue to really make sure that we're flexing our cost base and focusing on efficiency, so that we can deliver the EBIT growth that we've got in our outlook statement. With MSC, we've experienced weak demand. And what we have done over the past 12 months is really rightsized our available beds by geography effectively and by service line. So we closed about 239 beds over the last 12 months. Broadly speaking, we're not planning on any more significant closures. We think we're probably right on the most significant degree of rightsizing that we need to. So the focus now will be continuing to make sure that we're converting as many referrals as we're getting and really developing differentiated services, and we've started to do effectively personalized services very complex patients. That's our complex recovery services that we've called out. And we will continue with our turnaround plan and operational efficiency focus there as well.

Understood. So I guess put it in a nutshell, but potentially maybe Australia, that level of revenue growth is potentially a stretch target for '27, what you did in '26? And it sounds like you are targeting sort of positive revenue growth for Elysium in the U.K. in '27.

I'll leave you to draw your conclusions for what I've said, but I think I've given you a good idea of what we're trying to balance and how we're going to achieve the profit growth in those businesses.

Your next question will come from Davin Blanton of Goldman Sachs.

I just want to start on the Australian business and the EBIT margin improvement that you've guided to. Thinking about the building blocks there. From my perspective, it looks like the timing of capacity coming on, you did sort of more openings in FY '26 and then there's less going to '27. So I would think that should help your margins, just given it does take some time to ramp into those capacity. And then you've got procurement savings that happened into FY '26. I assume that should continue into '27. And then you've got the Jendela headwind that reduced in the second half, which I assume is going to help again into '27. So I would think those 3 blocks are going to help your margins, but could you just comment on that? And then secondly, any other key drivers we should be thinking about?

Okay. That's a very thoughtful question. So if I start on capacity utilization, yes, you're right. We did add 22 theaters over the last year. Some of them, we've only just recently opened. So Strathfield, for example, in Sydney, we've just recently opened and the capacity we've added to hospitals like Dundee Private, for example, means that we are still very much focused on driving increases in utilization around that hospital catchment. So it is, as you say, the more that we can fill the existing capacity, the more that supports marginal contribution into the Australian result. On procurement, I would say in the second half, we started to get some traction in terms of what we're trying to do and there is overall a very significant opportunity there, as I've discussed before, because even though we're the largest private hospital operator in Australia, we traditionally have really been moving most procurement decisions to individual hospitals. And so on both the clinical and the nonclinical side, we have been focusing on how do we actually create national tenders and national approaches. And more transparency to our hospital teams so they can also make better decisions. We did have success in the second half and you would have seen that, that supported a decrease in our cost of supplies as a percent of revenue for the year. And procurement is something that we will continue to target over the next 12 months. And we've just, over the last couple of weeks, rolled out what the teams called a Switch and Save dashboard for hospitals. And this really gets down to a very practical level of medical consumables that hospitals are purchasing and provides the hospital teams the data on exactly the same type of consumable, which is very complex to do, as you can imagine, and the prioritizes effectively for each hospital, the opportunities they have, if they switch to a different supplier in the amount that they can save. So that they can then effectively have conversations with clinicians in the hospital around switching over to better products. So that's something that we've just started to roll out to our 20 major hospitals that will support procurement benefits over the next months. And then in terms of the June tile impact in '26, it was relatively equally placed the impact of that funding agreement and our mitigation over the 2 halves. And so looking forward, we had a very significant impact from the change in the funding agreement because we shifted to the state price and historically, that state price hadn't been increased enough to cover cost inflation. So there was a step down effectively in what we were paid. This year, the state price in WA has gone up by, I think, almost 3.9%. So it's much closer to our labor costs. and cost increases in that hospital. And so that won't be a significant drag in terms of our F '27 performance. And we're very much focusing in June on partnering very closely with the local health district and continuing to serve that community. There is a growing need for health care there. It's a growing catchment. The government has funded the new public capacity there. So there's 2 wards to open there in the last few months on a [indiscernible]. So that's been funded for the new year. We've also been progressively opening and getting funding for the mental health capacity that was built there. So we've received funding this year for the remainder of that capacity as well. So we will continue to work with the LHD there to continue to meet the needs of that community.

And then if I think about -- so those are all great levers into '27. But if I think about some of your EBAs and the wage indexations that to come through, there is a step-up in, say, periods like FY '28. So how do you manage, I guess, the business to ensure you've got that recurring EBIT growth into '28? Like what are the some of the drivers you think that will start to help beyond a 12-month window?

Yes. So just if I step back and talk a bit about where we're up to on our EBAs. Just recently, we've had our Queensland EBA proposal endorsed by the team there. It follows relatively closely the public EBA. So it still needs to be endorsed by the Fair Work Commission. But the team has endorsed effectively a 14% increase over 4 years, so just to give you a sense of the Queensland uplift. And we will be beginning very soon the negotiation of our New South Wales EPA. So the current EBA ended on the 30th of June. We enter into that negotiation in terms of our current wage rates in New South Wales being a parity, largely speaking, with the public sector. And the public agreement there, which was recently agreed, it gives about a 3% yearly uplift for the next couple of years. I think the uplift that you're referring to is probably the Victorian EBA. So we did, in the last 12 months, also finalized our Victoria EPA as you will be aware, that public EBA there had a very significant uplift in wages around November, December of 2027 calendar year. And our EBA has been agreed and approved by the team. It's actually a 4-year EBA. And it will have a step-up around that period to the overall increase, it's around about 24% over the 4 years. So that gives you a sense of the different EBAs in the state at the current state. Our labor costs in general at the moment are running fairly closely in line with our revenue indexation. And broadly speaking, again, if you do broad math, and you have a look at the employee cost growth that we've disclosed for '26 at 7.9%. Broadly speaking, our labor costs are growing at about 5%. And we expect that level to continue over the next few years. And that's before we probably foresee some impacts from the Fairwork fair value case as well flowing through. So our corporate plan effectively forecast out our wage growth, and we use that to inform our private health insurer negotiations. And if there's any differences, then we will go back and renegotiate with our private health insurer partners. We've also, as I've spoken to previously, been in a process of trying through those negotiations to negotiate effectively year-on-year revenue indexation, which is linked to sector-wide metrics. And we're making good progress on that. You'll see in the results. We have 4 agreements that effectively have a level of mapping towards or formula links to sector metrics year-on-year. And just to give you a sense of the size of that roughly when we look at our private revenues, so PHI related revenues, that roughly covers about 48% of our revenue at the moment those types of contracts.

Your next question will come from Andrew Goodsall of MST Market.

Just looking at the Australian business. Just trying to understand where you are in your digital and data. I know you've spoken to this bid and you've given us your CapEx spend. Could you give us a sense of what your OpEx was for digital and data in '26 versus '25? And then just that OpEx go forward?

So we really have stopped providing specifically what we're spending in that digital data transformation space. What we did say last year as we were entering this year is we were actually going to reduce some of the investment, if you recall, in the previous transformation effort we had significant resources around things like project management and change management. We're really focused on slimming down the team and then resetting the technology road map going forward. And so now as I've kind of described, we've got, I think, a very well sequenced plan that is going to help us and help support effectively those what we call the big 5 hospital operations initiatives. So those initiatives will help to deliver value. And at the moment, that I would say, the value from our investments so far has really come through on the data side in terms of the data that we're providing through our hospitals, particularly to support their discussions around growth, both in terms of attachment and referral patterns, but also in terms of utilization of existing theater and cast lab capacity. And also we've added data there on robotics utilization as well over the last 6 months. So very much -- and that data has been very heavily used by the hospital teams because it lets them make very practical decisions around where they have opportunities to better utilize the existing capacity, where they're backfilling that capacity when we have cancel issues or holidays and also how we are continuing to grow and attract new doctors to the Ramsey network. So that's been a fantastic foundation. And just recently, as I mentioned, the procurement data insights that were provided are very similar in terms of very actionable by our hospital teams to make better decisions. We've also rolled out, over the last 12 months, a rebate fetal monitoring system, which is supporting our clinicians. So we're also in parallel to some of those business technology initiatives continue to look at technology initiatives to enable our clinicians. And we're in the process of rolling out a system to support some of our oncology infusion services as well. So we'll continue to very thoughtfully sequence what we're investing and try and manage overall at a business level to make sure that we're growing our margins for the overall business as we continue to make those much needed investments.

Would the net of all of those initiatives be below where you were in '25. And would you expect that to sort of stay at these levels?

I think to your first part of that question, yes, there were savings relative to FY '25, as I described, but we are now at the point where we're starting to increase that investment in the targeted areas in a thoughtful way.

As we said, Andrew, we'll look at -- I look at guidance next year from the savings we've achieved this year, an extra $10 million to $15 million coming into FY '27.

On the debt OpEx?

Yes.

And then just quickly on U.K., you've given us a lot of color on turnaround. It's been a good turnaround, particularly lithium. But just trying to understand the environment there or just your understanding of last year, we had that sort of November overspend, I guess, on shutdown. But is that plausible this year or things in place to make that a bit more clear?

So I think Elysium, many U.K. hospitals have different dynamics. So let me just separate those. So with U.K. hospitals that really saw that pullback in activity funding around November, December of last year that we then had to -- team did a great job effectively tailoring and flexing the business based on that pull back. I think what we're seeing this year so far is the indicative activity plans that we're getting at a hospital level are supporting activity growth. And we're also, I guess, spreading out that activity growth more evenly or planning to spread it out more evenly throughout the year. We've also seen just last week, the NHS lift the tariff to 1.24% as well, which will support revenue growth in the U.K. hospitals business. So I guess at this point, we're planning for activity growth, but we're also very conscious that things can change. And we know we need to develop our private work, and that's both self-pay and private health insurers work in the U.K. business to really diversify our revenue streams. And the team again made very good progress in the second half around self-pay, in particular. So as that pullback happened, there were obviously patients on the NHS waiting list who needed their surgery done. And so our self-pay growth was higher in that second half. And then we do have a very attractive proposition for private health insurer partners in the U.K. as well because we drive very high-quality hospitals, and we're a very efficient operator. So we'll continue to really grow that part of the business and from level of diversification. Elysium was more of a -- I guess it was less of that kind of pull back in November, December. It was more a shift in NHS policy towards more community-based care. And so we found we were experiencing fewer referrals into inpatient facilities and also faster discharges into the community. So that's really been a shift, I guess, in the approach by the NHS. As I said, the team feels like we've done a substantive realignment of our supply of beds to the demand at a local geography and a local service level. And so the focus now really is on filing the capacity that we have by continuing to make sure we work on our cost.

Your next question will come from Craig WongPan of RBC.

There was mention of a new partnership agreement with a major insurer. Just wanted to see if you could elaborate more on this and the benefits you could expect?

Look, we don't tend to get into specific details of specific commercial arrangements. But what I would say is it's been very pleasing to over the last 12 months really discussed with private health insurer partners, the opportunities we have to really modernize the care that we're delivering and to modernize the funding, therefore, of that care. And 1 of the things we've worked on with a few of our private health insurer partners is really changing the way, for example, that mental health is funded. So we've had a traditional, I guess, inpatient care model and an inpatient funding model. And we're, normally, in legacy contracts paid in line with length of stay, 1 of our mental health clinics, it might be 21 days in terms of mental health day. But we know the community is changing. We know that there's a preference now towards community-based care. And we know that a lot of our workforce also in psychiatrists are also treating people in different settings and using telehealth more. And that follow-up from an inpatient stage is very important. And so we've been working with a number of our private health insurance partners to effectively change the way that we're funded. So we're not just funded for that inpatient stay, but that we're funded and incentivized to support people post that stay into the community. And that means that we actually can deliver better patient outcomes because we provide continuity of care. And we are reducing that risk of that same patient being readmitted into a mental health clinic. And so that's a good example of, I think, the shift you'll see us continuing to make together with private health insurers around modern care delivery model. and the funding then to support that.

Okay. That's helpful. just wanted to touch on the admissions growth. Like within rehab, there was quite strong growth in the second half. I just wanted to understand if something had changed to drive that higher growth in the second half?

Not specifically, but we have continued in rehab. If you look at our last 2 years of results, we have continued to see strong growth in rehab. And this really is an aging population and a population with more chronic diseases and comorbidities. And so if you do, unfortunately, have a fall and you live at home by yourself, it really does make a difference to be able to access that rehab treatment post surgery, and our teams do an amazing job actually getting everyone literally back on their feet, exercising in the gyms, and really able to go home and live an independent life. And so we continue to see the strong demand for rehab facilities, and there's still an opportunity for us to do a better job of connecting our own rehab facilities with hospital care. So really providing, again, that continuity of care from hospital into rehab and really to help Australians with more independent lives for longer. So I think broadly speaking, that's what we've seen in that number.

Okay. And then on the U.K. businesses, both lithium and U.K. hospitals, there's a good improvement in margins in the second half. There were a few different factors that impacted in the period. I was just trying to understand if that second half margin a good level to indicate for FY '27 or is there puts and takes there around the initiatives you've experienced, the funding changes. Just trying to get a sense of if that second half margins are good indicator for '27?

So just 1 general comment on the U.K. and actually, the European business is the second half always looks stronger than the first half because of seasonality impact. So that impact is obviously there in the results. With Elysium, we did to see an improvement in the margin in the second half, and that really was the impact of the rightsizing of our facilities, which led to significant cost reduction as well as our ongoing focus on central costs coming through and the fee uplift being supported. So I think we are seeing more momentum. But what we're effectively saying is to take the overall EBIT for Elysium and assume we have growth in that overall EBIT for the year, just knowing that we do have that seasonality impact in the overseas businesses.

Okay. And then just my last question. The net interest expense, the guidance there for a $20 million to $40 million increase. Just wanted to understand that what's driving that? I see base rates assume to be a bit higher, but is that also being driven by National Capital? Or what's driving that increase?

Yes, both, yes. So yes, base rates are higher. And yes, we will draw down and increase leverage a small amount due to the Nat Cap acquisition.

Your next question will come from Laura Sale of Citi.

Just going back to EBIT margin expansion in Australia. Across the call, you've mentioned quite a long list of drivers. But what are the 1 or 2 that are really going to move the needle at this stage in the transformation process or perhaps another way to put it is, which 1 or 2 do you absolutely have to deliver on for the plan to work?

Yes. I think it's hard to just call out 1 or 2 things that we need to land next year. We've set out effectively focus areas for the Australian business, and they are at different stages. But we do need to continue the momentum. So we do continue to focus on growth in high-acuity areas. We do need to maintain our revenue indexation in line with our cost indexation. And then we do need to work on our efficiencies and procurement is the 1 that we've probably started to get some traction on, that we're well positioned in terms of the initiatives that we're launching at the moment into the business to create impact in this current financial year. Revenue cycle management, I think, is more kind of in the earlier phases where we're really building the foundation to then begin to deliver impact. So I think the visibility of the benefits in the P&L will probably be largely F '28 and beyond. And then there are some benefits of agency reduction that we expect to come through in the next 12 months as well, and that continues to be a focus. But really managing our workforce and optimizing rostering we'll only be able to do fully in terms of realized full potential of that once the smart rostering system is implemented, and that's still a while away. So hopefully, you can get a sense of we're working on a number of things, and there's very clear focus areas in the business to make sure that we're sequencing our efforts and seeing those benefits come through year-on-year margin improvement.