Good morning, everyone. I'd like to start by acknowledging the traditional custodians of the land on which we meet today. I'm based in Sydney, on the lands of the Wangal people, one of the 29 tribes of the Eora nation. Melinda and James are joining us from the lands of the Wurundjeri and Bunurong peoples of the Kulin nation. We acknowledge the traditional custodians of country throughout Australia, and the places from which our participants join us on this webinar, and their connections to land, sea, and community. We pay our respects to their elders, past and present, and extend that respect to Aboriginal and Torres Strait Islander peoples here today. Welcome to the investor webinar for Australian Clinical Labs full year financial results. My name is Eleanor Padman, and I am the Company Secretary at ACL.
I'm joined today on this webinar by our Group CEO and Executive Director, Melinda McGrath, our CFO, James Davison, and our National Marketing Director, Joe Gehran. Today's webinar will run for approximately an hour and will be recorded. A copy of the recording will be made available on ACL's website after the event. By choosing to attend, you are providing your consent to participating in the recording. If you'd like more information, a copy of our privacy policy can be found on our website. During the webinar, you'll hear presentations from Melinda and from James, then we'll have time for Q&A.
You may raise your hand if you'd like to ask your question live during the webinar, or if you would prefer to submit a written question, which I will then read out, you can type it into the Q&A function that you will see at the bottom of your screen. Once we move to Q&A, we will focus on the more frequently asked questions, and we'll try to get through as many as possible in the time available. I'd now like to hand over to our Group CEO, Melinda McGrath.
Thanks, Ellie. Good morning, and thank you for attending Australian Clinical Labs End of Financial Year 2023 results presentation. I'll provide an overview of the results, hand over to James to provide more detail on the financials, and then I'll provide an operational overview and an outlook for financial year 2024. Slide three. Thanks, Ellie. In financial year 2023, against the backdrop of a steep drop in COVID testing volumes and a slow return of base volumes, the Clinical Labs team has executed in a disciplined manner and delivered a continued strong financial performance. The EBIT of AUD 70.3 million is in line with guidance of AUD 68 million-AUD 74 million. Key highlights from financial year 2023 include revenue of AUD 697 million, EBITDA of AUD 193 million, which is a 28% margin.
EBIT of AUD 70.3 million, which is a 10% margin. NPAT of AUD 35.9 million. Non-COVID revenue growth of 11.3% on FY 2022. We outperformed the Medicare market growth by 100 basis points. We've got strong operating cash flow, pre-CapEx of AUD 59.2 million, with a 90% cash conversion. We continue to have low gearing with net debt of AUD 45.7 million, and a strong balance sheet with capacity for growth. The team did a great job forecasting and managing the complexity of the transition out of the COVID environment. We delivered a strong top line and cost management in an environment in which non-COVID revenue has not fully returned to trend. We estimate there's more than AUD 50 million of latent revenue opportunity as the market returns, including private hospitals, clinical trials, and GP referrals.
This is revenue that would have been there if the market had grown according to trend for us. Today, we've declared a final dividend of AUD 0.07 per share, which takes the full-year dividend to AUD 0.14 per share. The full-year dividend represents 67% of NPAT and a 4.4% dividend yield based on the share price on 18th of August at AUD 3.18 a share. Slide four. Thank you. Just some comments on market growth. Market non-COVID pathology episodes are around 10%-15% below trend, which is a more than AUD 50 million impact on our revenue. There are early signs of recovery towards trend as market drivers improve.
There's been a delay in the recovery of non-COVID pathology episodes to trend due to structural issues causing delays in the return in specific sub-sectors, including GP attendances, private hospital work, and clinical trials. This is having a significant adverse clinical impact. Our pathologists report they're seeing more late-stage cancers and more developed chronic disease. The recent deaths in Australia report highlighted that health outcomes have been worse in the period following COVID. There are various government actions to support the return of certain sub-sectors that are key referrers of pathology, such as the increase of the bulk billing incentive for GPs from November 2023. Recent data shows early positive movement back towards trend growth. Onto slide five. Thanks, Ellie. In financial year 2023, we removed COVID re-related costs in a timely and disciplined manner.
We completed the integration of Medlab ahead of plan, and we continued to focus on clinical innovation as a core strategy. Key operational highlights in financial year 2023 include a disciplined wind down of COVID-related costs and lower testing volumes. I would like to acknowledge the excellent work of the Clinical Labs teams at all levels of the organization. We forecast COVID drop-off and matched the revenue and cost very well, which is a difficult thing to do in an environment that also included fee decreases. We completed a significant upgrade of the base laboratory information system and a rollout of Clinical Labs patient-centered digitization program. We implemented key operational innovations, including Click to Collect of patient samples, which is an Uber-like sample pickup service for doctors and hospitals. We implemented operational improvement projects that will continue to benefit into financial year 2024.
Key strategic growth initiatives in financial year 2023 include, in 2018, Clinical Labs made a strategic investment in an innovative genomic testing business, Geneseq. During financial year 2023, Geneseq completed validation studies for both early and late-stage melanoma detection using genetic technology applied to tissue and blood plasma. Commercialization is expected to begin in financial year 2024 as final regulatory approvals are received. We have a 10-year exclusivity on the international patent-pending technology. We also bought a new, brought a new genetic test into Australia called EndoPredict for breast cancer, and our work facilitated part funding of the test of the MBS, and we're exclusive provider of this test in Australia.
We developed in-house and commenced sales of the Aspect Liquid Biopsy, which is a DNA blood test for lung cancer, colorectal cancer, and melanoma, and we're the sole provider of these tests in Australia. We completed the Medlab integration ahead of schedule. We enhanced the digitization of the front-end referral and patient, patient-facing processes, and we prepared for the introduction of carrier screening on the MBS in November 2023. This is testing for mutations causing common genetic conditions such as cystic fibrosis, spinal muscular atrophy, and fragile X syndrome. As we announced in July 2023, we continue to work constructively with the ACCC on a proposed Healius acquisition. The ACL board believes that this potential transaction justifies continued effort, given its highly accretive potential for shareholders. Slide six, please, Ellie.
The second year of execution of our ESG strategy continues to deliver strong performance across all areas of our ESG mission. I'll highlight a few. With regard to the environment, our carbon emissions reduced. We've implemented cold chain logistics in eight major labs to reduce styrofoam packaging, we have seen single-use plastic reduction as well. Electricity is by far our largest contributor to carbon emissions, we had 1,450 additional LED panels installed this year. We have 19% digital referrals, up from 11% in the first half of financial year 2022. Just highlighting some social outcomes, a 3.78 lost time injury frequency rate is an improvement year-on-year, including acquisitions.
Our patient feedback indicates 4.7 out of 5 positive experience, and the phase II of the Women in Leadership training program is being implemented with a targeted, personalized development program for key leaders in the organization. With governance, the board has a 33% female representation, which has been a focus for us, and we are about to announce a new highly talented board member to join our board. That announcement is imminent, and we'll continue to focus on this key goal. The Reconciliation Action Plan roadmap has been endorsed, and governance and goals established. Over to James on slide eight. Thanks, Ellie.
Thanks, Melinda. Good morning. This should be the last time that we need to explain the numbers around COVID and looking back three or four years to find the last comparable period, with the last half really being a return to much more normal trading conditions, following a couple of years of heavily COVID-influenced results. However, as Melinda noted, Medicare volumes remain well below trend, with a negative impact on our Medicare revenue of around AUD 50 million. As Melinda mentioned, we estimate that GP attendance is around 23% below trend, and pathology episodes, excluding COVID, around 13% down. Total revenue for the year of almost AUD 700 million, comprised of non-COVID revenue of AUD 620 million, which was up 11% on FY 2022, and COVID revenue of AUD 58 million.
The COVID revenue for the year was very much skewed towards the first half, with 78% or AUD 45 million recorded in the first half and over 70% of that in Q1, and only AUD 13 million or less than 4% of total revenue in the second half. Against prior year, COVID revenue was AUD 362 million or 86% lower. EBITDA, excluding Healius transaction costs of AUD 193 million, was down from AUD 373 million in FY 2022, but AUD 97 million or 101% up on pre-COVID pro forma FY 2019, and EBIT, excluding Healius transaction costs of AUD 70 million, was down from AUD 267 million in FY 2022, but 63% or over 800% up on pre-COVID pro forma FY 2019.
A few other key highlights for the year were the Medlab integration being completed ahead of schedule, with greater than planned synergies achieved. We were able to quickly reset the cost base following the drop in COVID revenues, and finish the year with over 180 fewer FTE than we started it. We continued to grow faster than market, with our Medicare pathology revenue, excluding Medlab COVID and all non-MBS commercial work, growing at 9% for the year versus comparable market of around 8%. We had a strong uplifting specialist revenue of over 11% in the second half, which was clear of any acquisition benefits. While still lagging, but what should provide a solid tailwind into FY 2024, due to our strong private hospital positioning, is growth in private inpatient and histology work.
In comparison to the second half, FY 2019, Medicare market non-histology inpatient volume is only up 3.3%, and histology volume, 4.4%. Driving our improved performance across our core comparable pathology business, being the Vic, New South Wales, SA, and WA businesses, from pre-COVID to FY 2023, we've been able to decrease labor as a percentage of revenue from 45% to 38%. Keep consumables flat at 17% of revenue, hold rent as a percentage of revenue, pre-AASB 16 flat, despite the below-trend revenue and cost escalations, decrease other costs from 10% of revenue to 9% of the revenue. Over the same period, labor efficiency, as measured by episodes per work hour, has improved by 11%.
The EBIT margin, excluding Healius transaction costs of just over 27% for the second half, is in line with our targeted sustainable level, despite the significant gap to trend in Medicare revenue. EBIT margin, in particular, the second half, is lower than our target levels, wholly attributable to the soft revenue conditions, and the business remains well-placed to maximize our operating leverage as the volumes return. Reported impact for the year was AUD 36 million. However, normalizing for the Healius transaction costs was in line with guidance of AUD 42 million. Next slide, please. We remain committed to earning, converting our earnings into cash flows.
For the year, we generated AUD 52 million of cash before financing and investing, which represents an 80% conversion, or excluding CapEx, a 90% conversion of cash EBITDA to operating cash flow, with over 110% achieved in the second half, as forecast in the half-year results. While the unfavorable working cap adjustment was impacted by a number of movements, including the normalization of debtor, creditor, and inventory balances post-COVID, increased leave utilization post the COVID period, and the impact of bond rate movements on leave provisions. The primary driver was that the business is not carrying any short-term incentive provisions due to the performance of the missing target. As discussed at the half, the non-cash items includes the AUD 5 million worth of Medlab deferred consideration.
CapEx for the year was AUD 7 million, or just below 1% of revenue, which included almost AUD 1 million of Medlab integration-related expenditure. Full-year CapEx was slightly down on our normal run rate of AUD 8 million-AUD 10 million, in part due to the high spend in FY 2022, and we continue to invest in the business as needed. Financing investing of AUD 59 million, comprised of dividend payments of AUD 97 million, the Medlab deferred consideration of AUD 5 million, partially offset by debt drawdowns of AUD 66 million. Interest paid of AUD 4 million, and tax payments of AUD 18 million, including AUD 7 million, which related to FY 2022. Next slide, please. ACL has a very clean and strong balance sheet.
The business is very conservatively leveraged, with net debt excluding lease liabilities of AUD 46 million being only 0.7x LTM AASB 117 EBITDA, and total net debt, including lease liabilities, being 1.6x LTM AASB 16 EBITDA. The main drivers of the balance sheet movements were a reduction in debtors, creditors, and inventory, again, normalizing for COVID, an increase in prepayments, reduction in plant and equipment due to CapEx being lower than annual depreciation, and some provision movements, as previously discussed. The final dividend will increase pro forma net debt to around AUD 60 million, which equates to net debt to EBITDA ratio of only 0.9x. Thank you.
Just onto slide 12. Thank you, James. We continue to enhance our suite of customer-friendly eHealth products, including eOrders, eDownloads, and eResults. We have a team of in-house developers who focus on enhancement of the laboratory information system and a separate team... Hello, can you hear me? Sorry, I, I've just been told I've been signed out, so apologies for that.
No, we, we can still hear you and see you, Melinda.
Oh, sorry, I've just had a big screen thing saying I've been signed out. Yes, we have a separate team that focuses on user and front-facing applications. SMS eRequests are available to patients, allowing them to receive electronic copies of the referral directly from the doctor's practice management system. The paperless pathology project is underway, aimed at increasing accuracy of pathology referrals and decreasing wastage in paper. We've continued to roll out our eResults, which I mentioned earlier. Onto slide 13. Clinical Labs made a strategic investment in a company called Geneseq in 2018, to develop a multi-tissue and blood plasma genomic test for melanoma. This is a really exciting development to aid in the diagnosis and appropriate treatment of a key cause of cancer.
Melaseq is a liquid and solid tissue microRNA genetic test for melanoma, that was developed by founder Ryan Van Laar at Geneseq. Since investing, we've provided both strategic, clinical, and financial support to Geneseq. The relationship leverages dermatological samples from Clinical Labs and SunDoctors, and Clinical Labs pathologists and search scientists provide expertise to support efficacy analysis. Clinical Labs has convertible notes that it provides with an effective that provides it with an effective 20% equity ownership of Geneseq, and a 10-year exclusive Australian license for the distribution of Melaseq test. International patents are pending across several jurisdictions on the test. The test has achieved very high validation scores. In July 2023, Geneseq published groundbreaking research in the British Journal of Dermatology, showing 93% sensitivity and 98% specificity for invasive melanoma detection.
A highly sensitive test means that the test is able to correctly identify patients with a disease, and there are few false negative results, and therefore fewer cases of disease are missed. Specificity is the ability of a test to correctly identify people without disease. The test opens up the potential for earlier, less invasive, and more accurate screening and diagnosis of individuals at risk of melanoma. The test detects the cancer at all stages. Melanoma is a leading cause of cancer deaths in Australia, with 8,000 new, new cases per annum. In Australia, there are 2 million biopsies of melanoma per annum and 2 million patients that are considered high risk for melanoma.
Screening or testing just 5% of these biopsies or at-risk patients per annum, has the potential to generate revenue in the region of $100 million per annum, and materially reduce the costs associated with melanoma, which are medical and economic costs. We estimate the U.S. market is $2 billion and the EU market is $1 billion. Final approval for the skin biopsy application of the test is expected in the next few months, quickly followed by plasma approval. The test approach is applicable to other common cancers, and Geneseq is currently working on the development of a non-invasive ovarian cancer test. The plan is to commercialize the test for the melanoma applications within the 2024 financial year. Slide 14, please. As part of our growth plan, we've continued our commitment to bringing new genetic tests to Australia.
As science develops, these will form part of a suite of personalized medicine options that our doctors and patients can turn to, to improve their outcomes. We're the only provider in Australia offering EndoPredict, and we've been instrumental in working with Medicare to partially fund the cost of this test from November in here. This is an in vitro multigene prognostic test that provides information for different stages of treatment planning for patients with estrogen receptor-positive, HER2-negative primary breast cancer. It's the only prognostic test that can answer whether a patient can safely avoid chemotherapy, how beneficial chemotherapy would be, and whether a patient can avoid extended endocrine therapy. Aspect Liquid Biopsy is a test developed in-house, and is a non-invasive, safe, and ultra-sensitive cancer screening and diagnostic option, which identifies genomic alterations from a blood test using circulating tumor DNA.
We offer this test for lung cancer, colorectal cancer, and melanoma, and we're the only lab in Australia offering this liquid biopsy test. Next slide, please, Ellie. Our strong financial performance is underpinned by what we believe is our superior operating model. We believe these are our competitive advantages: A single unified laboratory information system that connects all of the Clinical Labs to ensure best diagnostic practice, dynamic cost control, and economies of scale of a larger pathology operator. We're the only national provider with one laboratory information system across the country, which provides us with a structural and competitive advantage. We've got robust internal processes that drive continuous improvement and best demonstrated performance. We have a disciplined approach to capital management, strategic investment, and returning cash flow to shareholders.
We have a strong clinical management culture, which is performance driven and focused on including clinical, operational, and shareholder outcomes. We have a highly experienced and stable clinical and management team and board with a pedigree in the pathology industry. Next slide, please, Ellie. Slide 16. Our mission is to empower decision-making that saves and improves patients' lives, and this drives our shared vision and values. We've got a well-defined growth strategy, and we've executed on it consistently, both before and after listing. The business is in a market that, in normal times, has predictable and consistent drivers of growth. As we mentioned earlier, since pre-COVID to 2023, there's about AUD 450 million missing from the market growth trend. About AUD 50 million of that would be additional revenue for ACL.
We have embedded revenue opportunities, including new general practice- practitioner referrals, major private hospital groups, and key contracts that have been affected by structural issues due to COVID that are being addressed. We expect an uplift from Medlab Collection Centers revenue due to our business development activities. We expect an uplift from SunDoctors, which has been affected by the structural issues affecting GPs, and we expect improved clinical trials revenue, which has also been affected by COVID. We expect to benefit from new genetic tests, such as carrier screening, which comes onto the Medicare schedule in November. We've continuously executed on our continuous improvement program and expect to get additional benefits from the single LIS, and we expect an uplift from Medlab synergies. We also expect to grow our footprint in New South Wales and have targeted revenue opportunities in Queensland.
We'll continue to progress the takeover bid for Healius. We'll explore acquisitions and specialists in general this financial year. On to slide 18, please, Ellie. In financial year 2024, Australian Clinical Labs will continue to focus on capturing above-market revenue growth, delivering operating efficiencies, and our ESG performance. We'll continue to focus on capturing above-market growth in revenue through a disciplined opening of ACC, new test initiatives, and return of volume in our key referral channels, particularly in private hospitals. Continuing to drive excellence in patient care and new test development, we're focusing on commercializing Geneseq products this year and implementing the MBS funded carrier screening.
We have a number of cost reductions and operational improvement efficiencies to offset inflation, we intend to maintain our values and outcomes-focused approach to investing in our ESG targets, including our Reconciliation Action Plan. We'll continue to work with the ACCC in relation to our off-market takeover bid for all of the ordinary shares of Healius Limited. While the underlying core business continues to grow back to trend, negligible COVID revenue is expected in FY 2024, which will create a drag on total revenue growth. As a result, we believe we'll achieve a similar EBIT result in FY 2024 of between AUD 65 million and AUD 70 million. However, the business is expected to end FY 2024 run rating above the FY 2024 result, demonstrating the underlying trajectory of the ACL core business. I'll pause now to take questions. Thanks, Ellie.
Thank you, Melinda. Thank you, James. I think, Lyanne Harrison, you had your hand up first, so I'm just going to take you off mute. Go ahead, Lyanne.
Good morning, all. Can you hear me okay?
Yep.
A little, a little faint, but-
Okay. Fantastic. Sorry, I'll, I'll try and speak up. Excuse me. Can we start with base volumes growth? Obviously, in terms of the base, well, base revenue, that's grown 11%. Can you talk about, you know, what the organic rate of growth has been for the business, and if you could talk about what that might mean for first half, second half as well? Is there any increasing momentum there?
Yeah, sure. No worries. Obviously, the second half was free of acquisition benefits or anything like that.
Mm-hmm.
reported total revenue growth was a bit over 5%. That was impacted by some non-core pathology reimbursements received in the second half of FY 2022. On a like-
Mm-hmm
for like basis, revenue growth was probably sort of 7%-7.5% in total, and Medicare only would have been probably 1% higher than that for second half last year. For this year, what we're expecting is probably first half to be a similar sort of rate in, you know, 5%-7%, and then a bit stronger again in the second half.
Okay, thank you. So that's organic growth, 7.5% for second half 2023. Did I hear that right?
Yeah. Yeah, give or take 7%, 7.5%.
Okay. Then just in terms of obviously some of the structural issues there that, that Melinda mentioned, you know, in terms of GP volumes being a little bit lower and, and, you know, hoping that that will return to trend, and revenues recover. You know, how does ACL think about that recovery timeframe there? Because, you know, in my view, there's fewer GPs in the market. There's obviously increased gap payments. The bulk billing incentive doesn't come in until November 2023. What's ACL thoughts on recovery towards trend? Obviously, GP's got that 23% shortfall that you're showing in, in one of your graphs.
Yeah. Yeah, again, not dissimilar. I expect at the moment for the first half of 2024 to be not dissimilar to the second half of 2023. You know, we'd expect revenue growth, excluding COVID, of sort of around 6% or 7%, and then for it to pick up a bit and be sort of high single digits in the second half. Certainly not expecting it all to return back through FY 2024. You know, I thought it was gonna return faster through 2023, but it hasn't yet. Like, I think-
Yeah.
I think the signs are there, and I think that there's enough things happening in the market to well. Likewise, like, carrier screening is coming onto the schedule this year, that like you said, the incentives for the bulk billing should all be, be sort of drivers. Also, as I said-
Yeah
... you know, like, inpatient volumes and histology volumes remain well below trend, which should sort of start to normalize as well.
Yeah. Okay, just one final question for me before I go back in the queue, is around the EBIT guidance, so AUD 65 million-75 million. If I apply that EBIT guidance number to, you know, what consensus is expecting for 2024 revenue, I get an EBIT margin of about 9.6%. How should we be thinking about that? That would imply a lower margin than what you reported for 2023. You know, is it that, is it that margins is gonna erode further into first half 2024 before it recovers, or is it that consensus revenues are perhaps a little bit too high?
Yeah. No, I think, I think, half 1 revenue, once again, we're sort of just basing it on what we know at the moment.
Yeah.
I think that the margin in the first half is certainly gonna be a bit softer. Clearly.
Yeah
... the expectation for the second half will be that we're well back into double digits. We'll exit the year a lot stronger than what we started. You know, we.
Okay.
... are largely, you know, there's so much of our cost, which is fixed, and so as the volume-
Yeah
... starts to come back, it has a disproportionate impact on the profitability. You know, 1%...
Mm-hmm
... volume growth is probably worth AUD 4 million-AUD 5 million worth of EBIT. It's, it's-
Yeah
... not much of a shift that has a material impact on the business. I think that, yes, first half, certainly gonna be a bit softer in terms of margin, but we should end up the year close to, close to 10%, but run rate now, quite a bit higher than that.
Okay, great. Thank you very much.
Thanks, Lyanne. We're now going to go to Dan Hurren. Go ahead, Dan.
Oh, hello. Just to make sure you can hear me?
Yes, I can hear you.
Thanks very much. look, I think at the first half result, you commented that Medlab's EBIT run rate was to exceed about AUD 20 million per annum. Can I just ask for an update on the performance of that, of Medlab?
Yeah. Obviously, the revenue side of it's been impacted like the rest of the wider business, but the synergies have certainly been overachieved and delivering what we thought it was going to. You know, there was a number of synergies achieved in 2022, and then the balance through 2023.
Right, on track.
Yeah.
Perhaps, perhaps just a quite a mundane question, just costs associated with the Healius transaction, into the future. I know how long is a piece of string with the process, but, what are your thoughts there, and how should we think about it?
I think that obviously we continue to actively work with the ACCC. Their decision's due mid-October. Obviously, there's still some forwards and backwards going on. You know, there might be another AUD 500,000-AUD 1 million worth of costs associated with getting us through to the decision in October.
Okay, thanks so much. I'll jump back in the line. Thank you.
Thank you. I think next in the queue was Mathieu Chevrier. Go ahead, Mathieu.
Yes, good morning. Thanks for taking my question. Just one on the, the EBIT, that you reported. I mean, it seems like it includes the insurance claim proceeds and, and the reassessment of Medlab. Am I correct?
Yes, like we've sort of always said, Mathieu, like, there's also integration costs for Medlab and stuff, so these things go both ways. You know, from, from day one, we've always just reported a number. The only thing that we've pulled out, which we flagged at the half, was the Healius costs, and likewise, the bulk of, the bulk of those one-offs were also in the first half that we covered then.
Yep. Okay, understood. Looking at, you know, the inflation that you've been seeing, what kind of labor cost inflation have you been seeing and, and on the consumable side?
Yeah, consumables, we've done well on. You know, the vast, probably 70% of our consumables are fixed price, no FX. In addition, we renegotiated a few of the contracts with some of our major suppliers, which have actually resulted in reductions. We're not, we're not seeing any upward pressure on COVID on consumables as a % of revenue. Labor, obviously the 5.75% for the modern award on the back of 4.6% the year before, plus the extra 1% in payroll tax in Victoria, is all, you know, a bit higher than what we'd initially thought. Fortunately, we have EBAs in Vic and WA in particular, that, which are, you know, cent and quite a bit lower.
There has been some additional cost due to some of the, the, the lower level positions falling below the modern award. Other than that, you know, it, it sort of offsets some of that uplift and, you know, we think labor costs won't be materially different, you know, than what we'd initially thought moving forward.
Got it. Then maybe just one final one on your private hospital business. You've mentioned that, you know, it's probably been lagging a bit and it's been a bit sluggish. I was just trying to understand what's, what's been happening, what's holding it back, given that we're hearing that, you know, surgeries are back, and volumes are certainly back in, in the private hospital market?
Do you want me to do that, James?
Yep.
Yeah, Mathieu, the hospitals have been really affected by a few different things, but mainly, the availability of nurses, particularly at the first half of this financial year. It started to get better around April, 2023, but the end of 2022 was quite difficult. Anesthetists as well, caused bottlenecks in the theater. If we don't have enough anesthetists, so it doesn't matter how many surgeons you've got, you can't do your operation. There have been some people, personnel-related issues that have caused problems for hospitals and key bottlenecks for getting work through hospitals. We have seen a big increase since around April.
I'm not sure if there's also a bit of cherry-picking going on around what surgeries are being prioritized at the moment, too, you know. Like, the, the Medicare stats are pretty clear, like, the, the inpatient PEIs, like I said, are only up 3.3% for the second half on what they were in second half FY 2019.
Great. Thanks very much.
Thank you. Next in line is Rita Fung. Please go ahead, Rita. You'll need to take yourself off mute. Rita, we can't hear you. I'll try and unmute you from this end. Go ahead. All right, Rita, I'll come back to you in a second. We might go to some written questions that have come through in the meantime. The first one from David Bach: Can we get a breakdown of the AUD 8.3 million Healius transaction costs for the year? What are the expectations for additional costs in the first half of 2024? I think you've answered the second part of that, James, but maybe the first part.
Yeah, sure. It's primarily, economists, legal, and, and accounting work to support the, the synergies. There's, there's legal and economists for the ACCC, and then accounting work for, for the synergy work.
Thank you. And then another question from Claude Walker: Given the low probability of a transaction with Healius, how do shareholders benefit from the millions spent on the Healius transaction?
I'll answer that one, James. Yeah, we wouldn't have commenced, and we wouldn't be continuing with the transaction if we thought that we had a low probability of success, and the board believes there's significant potential benefits for shareholders. The low probability is probably we don't agree with that. I just refer people who are interested in the rationale for the bid to the publicly, publicly available documents on our website, on the ASX website, that explain the rationale and the significant benefits for shareholders.
Thanks, Melinda. Rita, we might try again. Do you want to try asking your question and see if we can hear you now? Okay, Lyanne, you've got your hand up again, so...
Yeah. Thank you. Sorry. I just wanted to understand what trends you're seeing in the mix of testing. Obviously a bit of focus going forward on some of the genetic testing. What are you seeing in terms of mix? Is it sort of a higher value testing, and how do you expect that trend to continue into 2024?
I'll start, and then James might want to add something after. Yes, Lyanne, we have got some top large pockets of referrers of our referral base who were affected by COVID. By far, the biggest one is the private hospital referrers, the private hospital inpatient and histology, and those are all high-value tests. We anticipate, as I said, that start come back in April, but we anticipate that to be growing disproportionately for us because of our large hospital contracts that we, we have. The clinical trials, hospitals, have been affected by the inability to get people to participate in their trials, due, again, due to COVID and lack of tourism, which is, which is coming back again now.
We think that pocket of high-value average fee, testing will come back again this year. To add to high-value areas, specialist testing is a bit, a bit laggy as well, which is high value. There is a general skew towards high-value, value test year-on-year. There's a trend in the average fee, that goes up year-on-year in any case, but we think we'll be disproportionately benefiting from some of those laggard, areas, pockets of, referrals. Did you have anything else to add, James?
No, no, I think you covered it well.
Yeah, thank you for that. Just one more on Medlab. You mentioned in some of the prepared remarks that you're seeing further revenue upside for Medlab in 2024, including, you know, growing your footprint. You know, can you talk about how many collection centers you're thinking about opening in New South Wales and Queensland? What sort of the revenue opportunities you're targeting, and also what response has there been to date from some of the peers in that New South Wales and Queensland market?
Just speaking generally about the Medlab business that we acquired, Leanne. We obviously had synergies, cost synergies attached to that acquisition. We would include any revenue synergies with that acquisition. One of the things that I notice, particularly with some of these acquisitions we've made, is that they, they have collection centers, but they don't put a lot of effort into the relationship with the doctors and educating the doctors, and providing them with value-add services. Which is where when I was referring to Medlab revenue uplift, that's one of the areas where I think our applying our business development activities to those collection centers. The doctors will benefit from our, our approach to providing services to their patients. That's one thing.
The other thing is as James mentioned, you know, we bought Medlab. It was making, you know, AUD 4 million or AUD 5 million profit at the time, and it's been affected as well by the drop in revenue. Across all of those collection centers we acquired, there's been a drop in revenue that's been similar to the drop in the market revenue. We anticipate that, that, market revenue will come back up to where it was when we acquired it as well. It's been affected generally, generally as well. Each of the teams across the country has got, targeted pipelines of new collection centers, which I won't, I won't go into.
The teams, the teams do a good job of targeting collection centers, and they are very disciplined in making sure that they, you know, they pay market rate for, for those, collection centers, and that they look at profitable acquisitions of collection centers.
Okay, thank you very much.
Thanks. Rita has put a question into the chat for us, so I'll read it out. You mentioned you'll be implementing a number of cost reduction and operational efficiencies in FY 2024. Will they require any cost to implement those programs? Will the FY 2024 results have much of the benefit of those programs, or will the benefit mostly throw, flow through into FY 2025?
So yes, there will be some cost to implement some of the initiatives we identified, but as always, that will just be recorded in our result, and is included in our guidance at the moment. We will definitely get some benefit in the second half and exit with a full run rate in FY 2025. There's, you know, there's some that are starting now, there's some that come in through sort of Q2, Q3, and then Q4 should have the bulk of them fully implemented.
Thanks, James. Mathieu, you've got your hand raised again. Please go ahead. You're on mute. There you go.
Oh, hi. Sorry, I, I, I didn't plan to have my hand raised, sorry, but if you insist. On, just on CapEx, it was a bit on the lighter side this year. Do, do you think that will just kind of go back above trend this year? Do you think there's some, you know, catch-up CapEx there to be done? Would you expect, you know, CapEx to be in the next two to three years?
Yeah. So no, it's certainly not a matter of things being deferred. We've, we've invested and replaced what needed to be done, and the expectation is that, that, you know, it'll go back to AUD 8 million-AUD 10 million. It's, it's not that we, we underspent or we didn't do things that needed to be done. We replaced what needed to be replaced and expect normal CapEx spend going forward.
Great. Thank you.
Thanks, Mathieu. Another question on the chat line. Melinda, can you please outline... Sorry, this is from David Bach again. Melinda, can you please outline why you think the Healius transaction is not low probability?
Well, as we said earlier, we're working constructively with ACCC, and we have been working with them to, you know, further explain our economic analysis and our rationale and our, our position. We've got a really good legal argument and a really good economic argument that we're working with them on. I probably can't go into anything further than that. As James said there, they'll their decision is due, I think, in October.
Thank you. I think that's all the questions. If there are any questions anyone would still like to raise, please, can you email them to us at acl.investors@clinicallabs.com.au, and you'll find that email address on our ASX releases. Thank you, Melinda, and thank you, James, for your presentations. Thank you to our participants for attending and for showing such an interest in ACL. We hope to see you all at our next investor webinar. Thank you again, and goodbye.