Ramsay Health Care Limited (RHCPA.AX) Earnings Call Transcript & Summary

Good morning, and welcome to Ramsay Healthcare's financial results for the 12 months to the 30th of June 2025. My name is Natalie Davis, and I'm joined today by our acting CFO, Mike Hirner. Having committed at the half year results to take decisive action to improve performance, accelerate transformation and boost returns, I'm pleased to report that we're making good progress in our multiyear transformation. At our half year results in February, I outlined my priorities for the business, and our progress against these priorities is shown on Slide 5. In our market-leading Australian hospital business, we've been focused on driving top line growth and operational efficiency. We have completed all major private health insurer negotiations and agreed improved revenue indexation for FY '25 and '26. Our performance acceleration team has delivered enhanced data insights to help us make better data-driven decisions faster to grow admissions and improve theater utilization. In Q4 FY '25, this supported a 3 percentage point improvement in theater utilization nationwide with notable improvement in New South Wales and Queensland. Having reset and streamlined our transformation and digital spend to accelerate the delivery of benefits, we've introduced what we are calling our Big 5 hospital operational initiatives to drive improved performance. I'll talk more about these and other key initiatives in more detail in a few moments. We're strengthening our capital discipline to improve returns across the portfolio. In Australia, we're focusing on expanding procedural capacity, while in our U.K. hospitals business, our improved performance has continued as we focus on customer and quality, growth, operational excellence and financials. In Elysium, we've completed a rapid performance diagnostic and are taking cost out of the business with 75 corporate roles having been removed during Q1 FY '26. We seek new expansionary CapEx at the beginning of this year. Ramsay Santé showed good capital discipline, reducing its overall CapEx spend by 14% in local currency and focused on improving the management of its working capital. We are progressing the evaluation of strategic options in relation to our shareholding in Ramsay Santé with advisors, Goldman Sachs. Ramsay remains committed to optimizing shareholder returns and is reviewing a range of options. We're evolving our culture of people caring for people to innovate and drive performance. I'm very proud of our team as we maintain high patient NPS scores and clinical excellence right across the group. And lastly, to support the delivery of our refreshed Australia 2030 strategy and ongoing transformation, on the 1st of July '25, we've implemented a new streamlined group operating model that brings all of our group capabilities closer to our Australia business, including a new leadership structure as shown on Slide 6. Our new leadership structure includes key executive appointments in Stuart Winters, who is joining us in September as Chief Operating Officer, Australia; and Andrew Coombs, who is joining in November as Chief Commercial Officer, Australia. Stuart has spent 20 years at Sodexo Healthcare where he led health care support services and operations across the U.S., U.K. and Asia Pacific. He will be responsible for driving operational excellence and performance across our hospitals. Andrew joins us from HCA hospitals in the U.K., where he led their commercial team. Previous to that, he had senior global roles at AXA, including leading their global health business. He'll be responsible for partnering with our payors, evolving health care delivery and funding as well as our health services businesses, including pharmacy, mental health and home health services. These structural changes and key appointments will add significant execution capability to our business, and we welcome both Stuart and Andrew to the Ramsay leadership team. Turning to our Ramsay Australia 2030 strategy on Slide 7. Our vision is to innovate to be Australia's most trusted leading health care provider and to deliver long-term value for our shareholders through the five pillars of our strategy. At the heart of Ramsay is our focus on our patients, our people and our partnerships with our doctors and our purpose, people caring for people. This is our enduring strength. Our strategy will innovate Ramsay to lead in local catchments, particularly growing our services, patient care and relationships with specialists and GPs in communities around our strategically located hospitals; differentiate ourselves in priority therapeutic areas, including cardiology, orthopedics and cancer care; create One Ramsay advantages powered by digital and AI to capture the synergies enabled by our market-leading scale; connect patient and doctor journeys, in particular, from hospital care to community-based care; and finally, work with our communities and partners to shape Australia's leading health care system for the future. On Slide 8, we segment our multiyear Australia transformation into horizons with an initial focus on strengthening our core hospital business. This includes delivering: Catchment growth; centers of excellence nationally in cardiac, orthopedics, cancer and mental health; clinical leadership, including research and trials; centralized and standardized procurement and hospital admin functions, creating One Ramsay scale advantages; dynamic revenue indexation reflecting sector-wide cost pressures; and strategic proof of concept with private health insurer partners to connect hospital and community care. Once this stage is complete, it sets the platform for us to connect our health care services for our patients, creating digitally connected patient and doctor journeys and enabling our long-term goal to become Australia's most trusted, leading health care provider. Our success over each of these horizons will be measured by clear financial and nonfinancial metrics that will enable us to measure our progress and hold ourselves to account. Our initial indicators of progress will be our patient, doctor and people NPS metrics as well as growth in admissions and theater utilization, cost efficiencies through One Ramsay advantages and revenue indexation reflecting cost indexation. Turning to the financial performance for the full year on Slide 10. For the 12-month period, we reported a net profit after tax and noncontrolling interest of $24 million. NPAT from continuing operations, excluding nonrecurring items, was up 1.7% to $305.3 million, driven by continued momentum in the U.K. hospitals business and a solid result from Australia, partially offset by weaker results from Ramsay Santé and Elysium, higher funding costs in Ramsay Santé at a higher effective tax rate. The Funding Group's balance sheet is strong with a leverage ratio of 2.18x, within our target range of less than 2.5x and below our debt covenants. The Board determined a fully franked final dividend of $0.40 per share, taking the full year dividend to $0.80 per share, flat on the prior period, representing a full year payout ratio of 63.7% of NPAT from continuing operations, excluding nonrecurring items. The table on Slide 11 shows that the underlying trading result was driven by the Australian and U.K. hospital businesses, which I'll go into more detail in the coming slides. The performance of the U.K. and European regions was boosted by the movement in the exchange rate against the pound and euro. Turning to Slide 12 and the Funding Group, which is essentially our Australian and U.K. businesses, reported 6.7% increase in revenue driven by activity increases in both regions, combined with improved indexation from PHI negotiations and higher U.K. tariffs. Underlying EBIT reflects increased contributions from the core Australian and U.K. hospitals businesses, offset by a decline in the contribution from Elysium. Underlying NPAT from continuing operations increased 5.7% and benefited from an 8.8% reduction in total financing costs, reflecting lower net debt levels following the sale of Ramsay Sime Darby last year. ROCE declined 90 basis points in constant currency terms, and ROIC declined 10 basis points, impacted by the increase in average capital employed primarily reflecting investment in the Australian business on flat earnings. Slide 14. The Australian region reported a solid performance from our core private hospital portfolio with good revenue growth for the 12-month period, reflecting improved indexation from all major payors negotiated through the year. The return of the management of the Peel Hospital Campus in Western Australia in August impacted overall admissions growth. However, total admissions in our private hospitals increased 2.7%. And combined with revenue indexation, drove a 7.9% increase in revenue from our private hospital portfolio. Australia reported growth in underlying EBIT of 1.1%, impacted by lower growth from our public hospital portfolio due to higher costs at Joondalup Health public campus and the return of the Peel Hospital Campus contract to the government in August as well as an increase in digital and transformation spend. Other factors impacting EBIT include Cyclone Alfred in March, which impacted activity and costs at hospitals in Southeast Queensland; operating losses associated with Ramsay Psychology clinics; and start-up costs associated with the Northern Hospital in Victoria. On Slide 15, you can see the key activity trends across the Australian business with the largest part of the business, surgical and day admissions, growing above 3%. Public admissions, ex Peel, while representing a small part of the business, turned around in the second half of the year as a result of increases in public work in our private hospitals in Queensland and New South Wales. Day admissions continue to grow at a stronger rate than overnight admissions and now represent 68.7% of total admissions. Moving to Slide 16. Importantly, we have maintained our high NPS and patient satisfaction scores with NPS improving slightly relative to last year with New South Wales and Queensland leading the way. We also continue to have a very strong NPS score in our health services business, including pharmacy and home health. We completed PHI negotiations with all payors, except for one regional player, to drive improved indexation in FY '25 and '26. These negotiations were informed by our expected in-year wage inflation in FY '26. We'll continue to monitor wage increases as we work through EBAs in Queensland and Victoria in this financial year. We've reset the digital and data program to focus on enabling our Big 5 hospital operations initiatives so we accelerate benefits delivery. We're focused on optimizing the existing digital and data spend to enable these initiatives as well as thoughtfully addressing tech debt. Digital and data OpEx in FY '26 is expected to be in line with or slightly lower than FY '25. Slide 17 looks at the initial benefits flowing from one of the business improvement initiatives we're focusing on, theater utilization. Utilization has strengthened over the last 6 years as we expanded theater capacity across the portfolio by 15%, including a 3 percentage point increase in theater utilization in the last quarter financial year '25 compared to prior year. There continues to be significant scope for us to lift theater utilization across our top 20 sites with our top 5 sites running at 80% plus utilization in the final quarter of financial year '25, and 80% to 85% would be considered industry best practice. This result is a clear demonstration of how actionable, data-driven insights have enabled our teams to make better decisions to optimize theater usage. I'm excited to see how we can continue to build on this over the next 12 months. Slide 18. In Australia, our CapEx program is focused on expanding procedural capacity in major hospitals in growth catchments. Over 50% of the spend in financial year '25 was allocated to two projects, the Joondalup Private Hospital build, which is expected to open in Q3 of this financial year; and the expansion of Warringal Private Hospital, including the construction of an emergency department. Warringal is expected to complete in the first half financial year '27, although the three new operating theaters that were part of Stage 1 of the development opened in the second half of financial year '25 and are now ramping up. Slide 19, turning to the key focus areas and outlook for Australia. Overall, we expect EBIT growth in Australia in financial year '26 driven by ongoing momentum in the private hospital portfolio as part of our multiyear performance acceleration journey. We're focused on implementing the strategic priorities that I've outlined today to accelerate performance while progressing our strategy to strengthen our position for the future. We expect positive activity growth driven by new theater capacity and improved utilization as we focus on growth. FY '26 revenue indexation will benefit from agreements reached this year with insurers. Joondalup public campus performance is expected to be lower as we have transitioned to a new agreement from the 1st of July 2025 that was agreed in March 2024 with a new funding mechanism linked to the state price that has not kept up with the cumulative impact of inflation. The negative annual impact to EBIT of the new funding arrangement before any operational mitigation strategies is estimated to be $37 million. We remain committed to our long-standing public-private partnership with Joondalup and to serving the needs of the growing North Perth community. Capital expenditure is expected to be in the range of $410 million to $440 million, with $200 million to $250 million invested in current development projects, with a further 21 new theaters expected to open in financial year '26. Moving to the U.K. region and Slide 20, where positive momentum in our core U.K. acute hospital business continued, driven by 7.6% growth in NHS admissions, flat insured activity while self-pay declined, reflecting broader market trends. The NHS tariff for the year commencing 1st of April '24 was 3.9%, and the financial year '25 result has the benefit of some backpay of this tariff. EBIT margins expanded 70 basis points, reflecting consistently higher volumes during the year as well as a focus on operational excellence and higher acuity cases. And this has driven a 150 basis points improvement in returns measured in constant currency. Slide 21. The U.K. business remains the largest private provider of services to the NHS and is well placed to assist in reducing NHS waitlist, which still remain high. Following a recent small increase, the tariff for the '25, '26 year is now 2.83%. This increase will not fully offset salary increases in FY '26 and the impact of the rise in National Insurance Contributions. We will continue to focus on operational excellence initiatives across our U.K. hospital portfolio. Slide 22. While Elysium reported an increase in revenue, a lower-than-forecast ramp-up in occupancy at sites opened over the course of the year and lower occupancy at some existing sites, combined with the impact of significant cost pressures, resulted in a disappointing decline in underlying EBIT. As we announced in February, we have booked a $305 million pretax impairment charge against the U.K. region related to the underperformance of the Elysium business relative to the acquisition business case. In particular, the charge reflects the cumulative impact of living wage increases that have not been fully reflected in fee indexation combined with lower-than-expected occupancy levels. All capital expenditure related to further site expansion has ceased, while we concentrate on improving the current performance of the business. Throughout the year, we also closed operations in a number of wards given low occupancy, reducing available beds by 94 beds. The net change in available beds throughout the year was plus 27. On Slide 23, as I've highlighted, we've completed a rapid strategic and performance diagnostic that has identified six key initiatives to improve the performance of the business over the next 12 to 18 months. Work on this is underway led by Nick Costa, our Managing Director of Ramsay U.K. hospitals, who has also stepped in as Interim Managing Director of Elysium. Initial focus has been on central cost reduction, agency reduction and the optimization of neuro services. During the course of the first quarter financial year '26, we have reduced 75 corporate and management roles, and we've also restructured the operations team down from seven regions and services to three. We're in the process of updating staffing ladders, which will provide each site with clinically appropriate staffing levels given their patient profile. Slide 24. Elysium remains a trusted provider to the NHS and local authorities, in particular, for high acuity and complex patients. We will remain focused on delivering quality services while we continue to negotiate with the NHS and local authorities for fee uplifts and implement our performance improvement plan to strengthen our operational management and profitability. On Slide 25, Ramsay Santé reported activity growth in both France and the Nordics. However, earnings continue to be impacted by tariffs, not reflecting the full impact of inflation over a number of years. Earnings were also impacted by the French government withholding the annual prudential coefficent, which was EUR 15 million payment in the prior period, a reduction in inflation-related grants compared to the prior period of EUR 17 million and the phaseout of the revenue guarantee support with EUR 21 million decline compared to the prior period. In the Nordics, Sweden performed well, partially offset by weaker performances in Norway and Denmark. Slide 26. Ongoing political and economic events in France, in particular, fiscal pressures on the budget, create an uncertain outlook for the remainder of this calendar year. The base indexation for the tariff year commencing 1st of March '25 is 0.5%. Ramsay Santé will continue to advocate alongside the private sector for fair tariffs. While general inflationary pressures have declined, the potential remains for further wage inflation pressure from unions in France. The focus of the business remains on the delivery of quality care, cost control, driving operational efficiencies, revenue cycle management, cash generation and capital discipline. In the Nordics, in Sweden, we have extended our contract to operate St. Goran, a major hospital in Stockholm from the 1st of January '26 on improved terms. We will continue to focus on the growth and digitization of our Capio primary care business while we focus on turnaround of Denmark and Norway. With that, I'll hand over to Mike to talk about the financials in more detail.

Thanks, Natalie, and good morning, everyone. The reported NPAT result of $24 million was impacted by a negative contribution from nonrecurring items of $281.3 million. The largest components are $291 million after-tax impairment taken against the U.K. region and the release of a tax provision of $33.5 million after minority interests in the European region. Excluding nonrecurring items, NPAT after minority interests from continuing operations increased 1.7%. The underlying result includes higher funding costs, reflecting higher funding costs in Ramsay Santé and a higher effective tax rate. Turning to Slide 29, which shows the regional EBIT split by halves. Ramsay Santé strongest second half reflects the seasonality of its earnings. The phasing out of various government support payments, including the decision not to pay the prudential coefficient in December 2024, had a more significant impact on the first half. While Australian earnings are seasonally stronger in the first half, the result in the second half also reflects the full 6-month impact of the return of the Peel Health Campus to the government and the disruption caused by Cyclone Alfred in Queensland, which impacted the operations of some of our major hospitals, including John Flynn, Pindara and Greenslopes. Turning to the balance sheet, which has been strengthened by the sale of Ramsay Sime Darby in December 2023. Movements in the Australian dollar against the pound and euro has resulted in some movement in the balance sheet in the order of $380 million. The primary underlying movements in the balance sheet relate to the impairments taken in the U.K. and the tax provision release in the European segment, combined with development investment in the Australian business. Operating cash flow improved 14.5% over the prior period, primarily reflecting improved cash collections in France. Free cash flow increased 3% reflecting 14.3% decline in CapEx spend in local currency by Ramsay Santé, offset by an increase in CapEx spend in Australia, primarily reflecting spend on two large development projects at the current time. The Funding Group's leverage finished the period at 2.18x, which is within our target range of lower than 2.5x. The Funding Group's unsecured debt facilities are underpinned by the strong cash flows generated by the Funding Group, the ownership of the majority of the Australian hospital portfolio and the value of the Australian property portfolio. We have again provided you with a rolling 12-month EBITDAR reported by the hospitals in Australia located on sites that are owned. I would emphasize that this EBITDAR contribution is prior to any overhead cost allocation. For FY '26, approximately 69% of the Funding Group debt is hedged at an average base rate, excluding lending margin, of 3.5%. Ramsay Santé continues to be supported by its own funding arrangements, underpinned by secured loan facilities, and this has been evidenced by the repricing and extension of its debt facilities during the year, which received support from existing and new lenders. Following the repricing, the consolidated group's weighted average cost of debt, excluding CARES, was approximately 5.4% at the 30th of June 2025. For the FY '26 period, approximately 72% of the group's floating rate debt is hedged at an average base rate, excluding a lending margin, of 3.1%. We expect the consolidated group FY '26 interest costs, including AASB 16 costs, to be in the range of $600 million to $620 million. Group capital expenditure came in at the bottom end of the forecast range, reflecting lower than forecast spend in both Australia and Ramsay Santé. FY '26 group capital expenditure is forecast to be in a range of $755 million to $835 million, reflecting the completion of a number of large development projects in Australia. And with that, I will now hand you back to Natalie to conclude the presentation.

Thanks, Mike. So as you've just heard, in financial year '25, we outlined clear priorities for Ramsay Group that we've made good progress on, but there is a lot more to do. To recap our strategic priorities remain: Transforming our market-leading Australian hospital business; strengthening our capital discipline and improving capital returns across the portfolio; and evolving our culture of people caring for people to innovate and drive performance. We expect our financial year '26 results to reflect activity growth across all regions on a like-for-like basis. In Australia, overall, we expect growth in EBIT in financial year '26 driven by continued momentum in our private hospital portfolio to be supported by improved revenue indexation and operational improvement initiatives. This will be partially offset by the performance of Joondalup public campus which will be impacted by the new agreement from the 1st of July '25 with funding mechanism linked to the WA state price, which has not kept up with cumulative cost inflation. The negative annual impact to EBIT at Joondalup prior to any operational mitigation is currently estimated to be $37 million. We expect our dividend payment for the year to be maintained in the range of 60% to 70% of NPAT after minorities, excluding nonrecurring items. I will now open for questions.

[Operator Instructions] Our first question today comes from David Low at JPMorgan.

Natalie, just starting with the Joondalup contract and the guidance that Australian EBIT will grow. The $37 million headwind looks quite significant. I'm just trying to understand why you're confident that the EBIT contribution from Australia will grow given that headwind.

Thank you. So what we've talked about today is, in particular, our private hospital portfolio in Australia, and how we're beginning to gain momentum in that part of the business. And that's through a number of levers, improving our revenue indexation relative to our cost indexation, and then continuing to focus on operational effectiveness and efficiencies. And so some of the focus areas for us over the next 12 months includes leveraging what we're calling our One Ramsay advantages. So really thinking about procurement in both clinical and nonclinical areas across all our hospitals and moving from what's been largely a decentralized model of operations to standardizing and centralizing procurement and administrative functions. So we're going to be working very hard to continue that momentum and to accelerate delivery, while we also thoughtfully address our tech debt across our portfolio. And at the same time, we're very committed to our contract at Joondalup and to that campus. So it's a very significant, one of Australia's longer-standing public-private partnerships. And of course, our private hospital is effectively just next door, down a corridor to the public campus there, and we're investing in growing and expanding the capacity of the private hospital there, including, in particular, adding theaters. And that development is on track to open around February next calendar year. So we'll be working very hard on that momentum in our private hospital portfolio as well as doing what we can to mitigate some of the impacts of that new funding mechanism in that contract.

Okay. Great. And I guess the other topic that we get most questions on is the wages pressure in Australia and particularly the potential challenge from the fair work case. We've had some commentary about an agreement coming before that. I could just expect you to talk a bit about what you're expecting in terms of key workforce nursing wages outcomes that may impact on this financial year and next, please?

Yes. So thanks, David. So there's two enterprise agreements that we'll be negotiating this year, our nurses agreement in Victoria, and we're in the very preliminary stages of that. That agreement expires -- the current agreement expires in September. And then we'll also be negotiating our Queensland agreement as well. In terms of the Fair Work Commission, we are currently engaging in the conciliation process for the nurse work value case. And we're working together with the unions, with other sector participants and the Fair Work Commission to consider, in particular, the time period that, that would be phased in over. And the discussions at the moment are heading towards a phase-in period -- a longer phase-in period that would minimize any significant impact for us over this coming financial year.

And our next question today comes from Lyanne Harrison with BofA.

I might start with Elysium because obviously, that was the biggest drag on earnings for '26. You mentioned the new site occupancy issue in the first half. Can you comment on how that played out in the second half? And then also something that was brought up in this result was the lower occupancy in acute services. Can you also talk to that as well?

Yes. So at the half, we called out in particular, lower-than-expected occupancy in the new sites we've opened, and weakness, if you looked across the whole Elysium portfolio, particularly in neuro and in rehab services sites, that weakness has really continued. We are, at the moment, as part of our performance improvement levers, looking at our neuro business and really thinking about how do we reposition that. We've been serving very high acuity patients for neuro services, and there's actually a bigger market for lower acuity patients and more demand in that part of the market, which means that we need to also adjust effectively our staffing model and our site services to meet that lower acuity part of the market. So that's why you see neuro as a focus as one of our performance improvement levers in Elysium. We also really, in the last months of the year and this continues into this financial year, have seen a drop in demand from local authorities and the NHS around acute services. And that's -- we believe that to be market-wide. The NHS has invested in some capacity that is actually treating acute patients who come into the NHS emergency departments and keeping them within the NHS and serving them there. And so that's led to also some weakness in the acute part of the market. So we are working very hard to become more nimble in terms of how we adjust our services and also really looking at making sure that we're not operating wars that are really uneconomic for us. So when you look at Elysium, the economic model really work ward by ward. And so you'll see, we pointed out today that we've closed a number of wards and a number of available beds throughout the year where we don't think we can run an economic service.

Okay. And you mentioned that in addition to closing some of the wards, you've got some other priority areas where you're trying to cost out. Is the expectation that all those initiatives will be implemented in fiscal '26? And if so, could you give us an indication of first and second half? And also, could you give us an indication of what you estimate cost savings might be from those initiatives?

Thank you. So under Nick Costa's leadership and Nick is a very experienced operator. He's been working with the leadership team to begin to implement these initiatives. So we have started. They're underway. The focus in the short term has been addressing a number of things. One is corporate center costs. And I referred today to the reduction we've done in this quarter around corporate and management costs and a reduction of 75 roles there. We've also started to focus more on agency and controlling agency costs. There's more work to do there. We've also started to reposition the neuro business. So they've been the first three things that we've got underway. We're -- at the moment, we've done a very big piece of work. The team has done that to really look at what we're calling our staffing ladders, and that helps our teams at every site level to make sure that we've got the most appropriate staff levels in place given the actual patient profile at that site. So the team is underway. I've called out today a 12- to 18-month time frame. So I'd be looking very much at Elysium and how it's performing in terms of really the exit rate from the year. But we are underway, and the team has started to make -- to implement.

And our next question today comes from Steve Wheen with Jarden.

Just wanted to focus on your Australian business. In particular, the gap between indexation you're getting from the insurers versus your cost inflation that you're seeing. I take the point that this gap cumulatively is pretty wide, but I'm perhaps more interested in just what '26 expectations around inflation might look like relative to the indexation that you're getting across your platform of insurers or payers?

Thanks for the question. So we have been very focused this year on renegotiating effectively our agreements with all our payors for both F '25 and F '26. And when we've done that, we've very much done that with an expectation around EBA negotiations and wage inflation. So that's informed those negotiations. And as I said today, we have improved outcomes in both FY '25 and FY '26 in terms of both what we've historically achieved for indexation, but also relative to wage and cost inflation in the business.

So I guess, I mean, it's informed -- it's an informed setting of that indexation, but does it cover the wage inflation that you see today in FY '26 such that we can get some margin improvement or at least hold margins because it does look like margins went backwards in FY '25?

Yes. So yes, you could assume that for FY '26, the revenue indexation is reflective of the cost inflation that we expect at this point in time. If there are any changes to that as we go through our enterprise agreements, we will then go back to our payors to have those costs reflected in the revenue indexation. I think in terms of margin for Australia, the way to think about the impact of margin this year is really, we had our private hospital portfolio, then there were the two impacts on that really had a negative impact on margin. One is the public hospital portfolio. So that was the hand back of the Peel campus in WA, and that happened in around August, mid-August. And also Joondalup, we called out operational challenges at the half and those challenges continued. So in Joondalup, we have high labor costs related to security guards and carers because we have very complex patients that come through that public emergency department. And we also have quite long length of stay. We're finding that we have people coming in through the emergency department. We treat them in the hospital for their medical issues, but then it's very hard at the moment then to have them transferred into -- it might be aged care or it might be NDIS settings in the community. And so that's resulting in what's called bed block, effectively a longer length of stay in the hospital. So the margin in Australia was pulled down by the public hospitals as well as the increase in investment in digital and data. So we've given a very transparent view of the growth investment in digital and data, which increased $24 million over the year. Now we've done a lot of work over the last few months to really look at that and make sure that we're optimizing the way we're spending it. That resulted in a reduction in roles, about 50 roles in that team. And we're really focused on how do we point that spend towards the initiatives that we know will create value in the business in the future. And we've committed to, for the coming financial year, not to increase that spend, and we'll instead optimize what we're already spending to get better value.

Okay. I just -- can I just round out this line of question? You're obviously working very hard to try and get that pricing from insurers up to cover cost inflation. Why would you then go into a contract with Joondalup where the pricing doesn't match the level of inflation in that hospital?

Yes. Thank you. So I think stepping back on Joondalup, Joondalup is a long-standing partnership we have with the WA government. It's very important for the community in the north of Perth, which is a growing community. And it's very significant for us, the Joondalup campus, not just the public part of the campus, but the private part of the campus. And as I've said today, we have a significant opportunity there to actually grow our private work, which is really constrained at the moment with the theater space we have in the private part of the hospital. And so we need to think about that opportunity as both the public and the private. So the team, we're very keen to continue that partnership with the government. The funding mechanism changed and part of it is linked to the state price. That's one of the ways the funding changes each year. And then the other way the funding changes for the public contract is around an activity notice we receive every year also from the local health district. So those -- the state price changes every year and then the activity notice we also receive every year. So the impact that we've disclosed today, we really only could calculate recently when we received the annual state price increase as well as the activity notice.

And our next question today comes from Andrew Goodsall with MST Marquee.

Just on France, if you could at all give us some more color on the strategic options that you're looking at. I presume those options extend beyond just a straight-up sale. So just any other sort of options you think might be viable?

Yes. Look, what we publicly stated is we're looking at all options that will increase shareholder value and create shareholder value. I'm not going to go into the details of what we're evaluating, but effectively, all options are being considered.

Okay. And next one, just probably tortured this one a bit, but obviously, with the Fair Work Commission decision looming and the work you're doing, what's -- if I could just ask you to touch on your confidence in being able to pass on those wage increases to the insurers, both -- anything coming out of the Fair Work Commission and anything in addition to that, that you do through EBAs?

Yes. So as we've said very consistently, as we experience sector-wide cost pressures, we will go back to our payors if we need to and argue very strongly and negotiate for that to be passed through into revenue indexation. And so for the moment, we've said for F '26, we're comfortable with where we're sitting relative to the current year inflation. Now we haven't yet made up for the cumulative impact of the revenue indexation not being in line with the cost indexation since COVID so there is still that gap. But we have received improved outcomes this year. And so we will go back just if we have to. Just on the Fair Work Commission, just to repeat again, on the nurse work value case, we're currently paying our nurses significantly above the minimum award rate. And so that combined with the fact that we're talking about a longer phase-in period, will, at the moment, to our best knowledge, will limit the impact on our cost base for the coming financial year.

Would you want to continue to pay some level of premium though to get the -- to continue the attractiveness of working for Ramsay even when -- with the reset from the Fair Work Commission?

Yes. So we are very proud actually of the work we do to create a really attractive workplace for our nurses, and that goes above and beyond just wages. We also focus a lot on career development and nurse training programs and learning opportunities. We've implemented over the last 12 months really a whole leadership academy with training programs, including for our nurse unit managers who are incredibly wonderful people, and that has been very well received by the team. And so yes, we will always look to have competitive wages, but also think about our employee proposition more broadly to make sure that we are an attractive employer. And that's been really reflected in a reduction in turnover rates that we continue to experience.

And our next question today comes from David Stanton at Jefferies.

Just a broad brush to boil it down for me. Should we expect for 2026 a percentage margin decline in the U.K., both in the private hospital side and also in the Elysium side and in France, but offset by increased percentage margin in Australia and the Nordics? Is that sort of broad brush the conclusion?

So we're not giving specific guidance on margin for every region in the portfolio. But if I could just comment broadly, in the U.K., the hospital business is very well positioned to continue to grow, given our partnership with the NHS, 70% of the work we do there is for the NHS, and there continues to be very high waitlist. So the team is very much focused on operational execution, theater utilization and growing that activity. In Elysium, as I've said, we're focused on implementing a performance improvement program. And I would expect that to -- it's underway. And I would expect that to begin to show in the results in 12 to 18 months' time. And Santé, I think, is very complex for all the reasons we've described, and really the huge uncertainty around the French government funding, in particular, and the French political outlook, as I'm sure everyone has read in the newspapers. And in Australia, what we're saying is we're expecting EBIT growth for the year as we balance the tension that I've described today, so the momentum that we're continuing to try and accelerate in our private hospital portfolio, but that impact that we'll try to partially mitigate of the Joondalup new agreement.

Understood. And maybe one for Michael. We saw the F '25 tax rate tick up a touch. Any color around what you expect for '26, please?

Yes. Thanks, David. For FY '26, we currently expect that the effective tax rate will be more or less the same as FY '25. So roughly 32.5% for the group.

And our next question today comes from Craig Wong-Pan with RBC.

Just wanted to understand if you could quantify the EBIT impact from the Queensland cyclone in the second half?

The Queensland cyclone in the second half had a significant impact on three of our major hospitals. We have quite a big presence in that region. Those hospitals are Greenslopes, Pindara and John Flynn. And so as you'll remember from the cyclone, everyone was advised to stay at home, and the schools were closed. And so we did cancel for a number of days our elective surgeries, but we did continue to operate essential services. And the team actually did an amazing job of looking after everyone, making sure things like our maternity service and our emergency departments were still running.

Are you able to put like an EBIT number that, that had in the second half?