Thank you very much. My name is Ian Kadish. I'm the Managing Director and the Chief Executive Officer of Integral Diagnostics Ltd. I'm joined here this morning by Craig White. Craig is our Chief Financial Officer. We're pleased to be talking to you today about Integral's results in financial year 2025. 2025 was a transformational year for us. We undertook the biggest merger in the radiology industry and created Australia's second largest radiology provider with 145 clinics in every state of Australia and in the greater Auckland region of New Zealand. We grew our revenue by 33.7% to $628 million, including a contribution from Capital Health for six months. On a standalone basis, IDX revenue grew by 6.7% year on year. We improved our operating EBITDA margin by 20.1%, up 0.6% versus 2024. We delivered exceptionally strong growth in diluted EPS of 32.9%. We increased our dividend by 21.2%, respectively.
The Capital Health merger synergies are materially above expectation. We're now expecting $14 million to be delivered on an annualized basis. This is compared to the at least $10 million that we had estimated. We have delivered and realized $7 million of that synergy in the first six months. We have a strong balance sheet with a reduced leverage at 2.6 times at the 30th of June 2025 and 2.4 times if you include our pro forma annualized synergies of $14 million. We're already realizing strategic benefits from the merger across teleradiology, across procurement and employee engagement, and there are further benefits still to come. We're very well positioned at this point to capitalize on industry tailwinds and to drive further margin expansion with revenue growth.
The tailwinds include MRI deregulation, a National Lung Cancer Screening Program where we're already seeing the benefits from those two, and the GP bulk billing practice incentive program, which will be expanded later this calendar year. We're delivering better outcomes for our patients. Our NPS 82, and we have strong referral and strong radiologist engagement. Turning to three major progress updates that I'd like to talk to. The first is the Capital Health merger, where we are proceeding on plan and synergies exceeding our initial expectations and strategic benefits are already realized. We have our new organizational structure in place. The annualized ongoing synergies are expected to be $14 million, and $7 million has been realized already. Our procurement function has been established, and we're driving savings over and above the initial synergy projections. Our increased teleradiology scale with contribution from the Capital Health radiologists has been particularly helpful.
We have generated strong employee engagement scores across both entities. In terms of like-for-like organic growth, we're going to continue our focus on driving organic growth and operational efficiencies, including radiologist recruitment and productivity and efficiency to support our growing demand for services. An increased focus on teleradiologist recruitment to grow our leading teleradiology platform. We now have 114 teleradiologists at RDXT. This is up from 80 that we had at the same time last year. We're going to continue driving additional operating expense and CapEx savings. We're also keeping one eye on growth with greenfields. We opened five greenfields in the last financial year: three brand new greenfields in Spotswood in Victoria, Glenorchy in Tasmania, and Noosa on the Sunshine Coast in Queensland. We also relocated facilities to new comprehensive state-of-the-art facilities in Ocean Grove and Smith Street on the Gold Coast.
Ocean Grove in Victoria and Smith Street, Nuclear Medicine and Women's Imaging Center at the entrance to the Gold Coast. We're continuing to evaluate M&A opportunities as they arise because industry consolidation will continue, and the Capital Health merger has been an example for us of the benefits that scale does provide. Moving to the next slide where we will look at the scale and the operating platform that has been strengthened considerably since the merger with Capital Health. We have 145 clinics across Australia and New Zealand with 460 reporting radiologists and about 3,000 staff. We're continuing to develop subspecialty reporting using AI-assisted screening and detection modalities. We're continuing to invest in high-end modalities, including MRI and PET/CT. We will continue to focus on radiologist recruitment, productivity, and efficiency.
We'll continue to use RDXT, our teleradiology arm, more comprehensively across the business and to use AI as the benefits of AI become more compelling, not only in terms of clinical delivery, but also in terms of efficiency. We will continue to leverage the scale that we now have in procurement, in IT, in recruitment, and in property to generate efficiencies. We'll continue delivering on our values as we did in FY 2025, the excellent average patient NPS of 82. We serve 1.8 million patients in the year, perform more than 4.1 million exams, and we invested about $55.3 million in CapEx, including $27.3 million in growth CapEx. We have 460 reporting radiologists, and a significant number of these radiologists are also shareholders in our business. We're growing RDXT and broadening our footprint across the group of subspecialty areas, assisted by our AI-assisted screening and detection capabilities.
We now have a little over 3,000 employees across the business, and we see strong engagement scores across the business annually. Our annualized merger synergies are in excess of what we had projected, more than the at least $10 million that we had indicated. Revenue and EBITDA have improved nicely. Increased operating NPAT by 74.4% to $31.6 million in the year. We've declared our $0.04 dividend, fully franked final dividend. We will continue to deliver on our ESG strategy and will continue to embrace change. In fact, the most notable example of our embrace change value that we have is the one team that has been created across the ex-Capital Health personnel and IDX. The merger has been almost textbook-like in its planning and its implementation with regard to integration as well. We really have the one team now focused on what unites us in providing better care together.
I'll hand over to Craig now to take us through some detail on the financial performance.
Thanks, Ian, and good morning, everybody. Thank you for taking the interest to join the call. I'll take you to slide seven of the investor presentation. Ian's already referenced some of the highlights, but just to reiterate, we saw on a consolidated basis strong revenue growth, 33.7%, with an expanded margin from 19.5% to 20.1%. Reflecting the combination of the two groups, RDX and Capital Health, and the $7 million of synergies, that drove the stronger growth relative to revenue of 38.3%. Just coming a little bit further down the P&L, you can see that at the operating EBITDA line, we also saw margin expand further to 11.1%, up from 9.8%, being a function of depreciation. We can talk to that perhaps in the Q&A. As Ian said, the operating diluted EPS was up strongly by 32.9% and the dividend at 21.2%.
The dividend growth is slightly lower than the operating diluted EPS, which is just a function of the weighted average calculation of shares on issue in the EPS calculation. Importantly, we've really focused on driving free cash flow in the group. With operating EBITDA of 38.3%, operating free cash flow is up even more strong at 42.9% at $80 million. That, on a combined basis, taking EBITDA and the net debt position, has driven a reduction in our leverage from 2.8 x at 31 December down to 2.6x on a reported basis at 30 June 2025. If you pro forma that number for the additional $7 million of synergies that we expect to generate in the first half of FY 2026, the pro forma number for leverage comes down to 2.4, consistent with what we've said before that we expect leverage to decrease gradually over time.
Just taking you to slide eight. Slide eight presents a full year pro forma profit and loss. I think the key messages here are that obviously we've reported in our results an EBITDA margin of 21.1%. Had we owned Capital Health for the full year, that margin would have been 20.4%. If you factor in obviously the full $40 million of synergies, then that number would be higher still. I'm sure we'll get into it in the Q&A, but you'll see that on a standalone basis, the operating EBITDA margin for RDX was slightly lower. That was fundamentally a function of the reduction in CT reimbursement from Medicare by 2% from 1 November 2024, together with the impact of clinical labor shortages, particularly radiologists and associated cost pressures, especially in the regional areas, consistent with what we've talked to before.
Turning to slide nine to discuss revenue in a little more detail. You can see that the combination of Medicare indexation, mix, and volume has driven solid operating revenue growth in Australia of 7.3%. Importantly, when you compare that to Medicare for FY 2025, that 7.3% compares to 8.3%, so a 1% gap. Importantly, that gap is significantly reduced from the gap that we saw at 31 December for the first half, which was a 2.7% gap. Average fees per exam have increased by a solid 5%, being a function of both the price and mix as we continue and the industry continues to shift to the higher-end CT, MRI, and PET scan modalities.
Pleasingly, Capital Health also delivered a 7.3% growth when you adjust for the closure of four clinics, the sale of Melton, which was required as part of the merger, and an insurance recovery that Capital Health had in the prior year. New Zealand's growth, as you can see from a revenue perspective, was more muted, and we can no doubt discuss that in more detail in the Q&A. Worth noting, though, that New Zealand is now a much smaller part of the group following the merger with Capital Health. Just turning to operating expenditure on slide 10, I think the key messages here are that you can see that operating expenses as a percentage of revenue are down overall 0.6%. If we look at the individual lines, you can see the benefit of some of the procurement initiatives that we've put in place following the merger.
On the consumables line, consumable expenses were 40 basis points lower as a percent of revenue compared with the prior year. Labor costs were 30 basis points higher, reflecting the clinical and, in particular, radiologist shortages and labor cost inflation in regional areas. You can see, though, that the labor efficiencies that we've achieved post the merger with Capital Health mean that labor costs percent of revenue have basically come down 2.2% or 220 basis points compared to 1H FY 2025. In a similar profile to consumables, equipment costs have come down by 30 basis points, which is a function of some of the procurement efficiencies that we've been able to achieve so far given the larger size of the group. Occupancy costs increased slightly by 20 basis points, just reflecting CPI increases embedded in leases and the few adjustments to make good provision.
On the technology front, we're beginning to see, I think, some of the benefits from the investment that we've put in over the last probably two to three years in building out our IT platforms, including cybersecurity. Technology costs have come down by 10 basis points on the larger fixed cost base of the group. Overall, other expenses have decreased by 40 basis points. That, again, is just a function of an ongoing focus on controlling discretionary expenditure. Turning to slide 11 and cash flow. As I mentioned earlier, cash flow, operating free cash flow across the year has been strong at $80 million, up 42.9%. Expressed as a percentage from a conversion perspective, it's at 85.4%, up from 77.2% in the prior year.
Turning to capital expenditure on slide 12, you can see that across the year, total CapEx for replacement capital was $28 million, growth CapEx of 27.3%, roughly evenly split, with a breakdown there just showing some of the new greenfield sites that we have opened during FY 2025. Just touching briefly on slide 13 on the balance sheet, I think we've discussed previously the leverage coming down from 2.8 x at 31 December down to 2.6x reported now or 2.4x on a pro forma basis. We would expect that downward trend to continue. Importantly, we maintain significant liquidity headroom under our facilities of just under $120 million, with significant cash on hand at 30 June of $52 million. I'll now pass back to Ian to take us through an overview of the industry and revenue update. Thanks, Ian.
Thank you, Craig. We're nicely positioned to capitalize on some positive industry fundamentals. The aging population and increase in chronic disease will continue to drive the use of diagnostic imaging, especially given our ability to detect disease early. Medicare DI benefits and services are growing consistently above the long-term trend, and I'll show you the graph on the next page. Medicare indexation for financial 2026 is 2.4%. The structural shift to the higher value modalities will continue both in Australia and overseas in the OECD countries, where we're seeing a continued movement towards high-speed CT, MRI, and PET/CT. Importantly, from July this year, we hold 42 fully licensed MRIs in Australia. That's twice the number of fully licensed MRIs that both groups had individually last year.
The National Lung Cancer Screening Program from the 1st of July is driving growth in screening CTs and also follow-up growth in interventional CT and PET/CTs. The Health Department has committed $264 million to the screening program over the four-year forward estimates. It's an outstanding program for patients as well as for us, for the industry. The technological advancements we've seen in teleradiology, which currently we provide is about 15% in the work we do, and AI, where we have about 10% of the scans that pass through our AI algorithms, enhance quality of care and also improve labor productivity.
The proposed expansion of the GP bulk billing practice incentive program to all Australians with effect from 1 November 2025 will continue to increase GP visits and radiology referrals, particularly in regional areas because the bulk billing incentive for the practices in regional areas are two to three times what the incentive is in the metro areas. The expedited specialist pathway for radiologists from the UK and Ireland is expected to be implemented later this calendar year, where reciprocity will be provided for their overseas credentials by the Medical Board of Australia and AHPRA. The government has also pledged new funds for 400 new nursing scholarships and 2,000 more doctors.
Turning to the Medicare graph on the next page, what's notable on the graph is the continued growth of both benefits and services above the long-term trend lines, but also the divergence between the services and benefits lines, which continues to be evident and has been growing in recent years. This is because we're doing a lot more across the industry. We're doing a lot more MRIs, CTs, and nuclear medicine studies like PET/CTs, and relatively fewer of the basic x-rays and ultrasounds. This trend will continue as the medical industry evolves and takes advantage of the technology that's offered in these newer diagnostic technologies. Moving to our FY 2026 strategy, priorities, and outlook.
Our strategy remains the same: to drive organic earnings growth, including a relentless focus on radiologist recruitment and productivity and operational efficiency, to accelerate the use of teleradiology, digital, and AI, to drive our ESG strategy, and to continue to lead through our values. We will complete the Integral Diagnostics and Capital Health merger integration. We'll continue to realize synergies from the integration. We will continually look at the market as the market evolves and consolidation in the radiology space continues.
Our outlook for FY 2026 and beyond is that Integral Diagnostics, as a specialist high-quality provider of diagnostic services, is strategically very well positioned to benefit from the positive industry fundamentals and to grow our services strongly going forward. Integral Diagnostics, including Capital Health, achieved a 7.0% revenue growth in July on a like-for-like basis with four closed clinics and the sale of the Melton Clinic versus the prior corresponding period. Our revenue growth and operating EBITDA margin is expected to continue to expand further over time, driven by the inclusion of the full $14 million in annualized synergies, the ramp-up of the new greenfield and brownfield investments, most of which occurred in the second half of the financial year, scale benefits, including the increased use of the RDXT teleradiology platform both internally and externally, together with the procurement efficiencies.
This will be supported by the further deregulation of MRIs and the growth of the National Lung Cancer Screening Program. We do expect this to be partially offset by ongoing clinical labor shortages and cost pressures, together with an alignment of Capital Health repairs and maintenance accounting policy to Integral Diagnostics. In FY 2026, we expect that replacement and growth CapEx expenditure will be between $45 million and $55 million. We'll turn now to Q&A, and the first question would be coming in from David Stanton at Jefferies.
Good morning, team, and thanks very much for taking my questions. Hello, can you hear me?
Yes, we can.
Thank you very much for taking my questions, and congratulations on a very solid result. Look, I wonder if you could give us an idea of what you're expecting for Medicare market growth in revenue terms for FY 2026, given the puts and takes that we've seen and you've laid out, please.
I'd expect, David, that we'll see continued growth, especially in the higher value modalities. The growth will be propelled by the MRI deregulation, where the upgrade of the partial licenses to full licenses, as well as the additional licenses that practices like ours are able to add to clinics like Imaging Olympic Park, for instance, where we now have three MRIs in place. We expect that the MRI deregulation, plus the National Lung Cancer Screening Program, will continue to propel or to drive Medicare growth. We expect the growth to continue to be, in FY 2026, above the long-term trend.
Thank you, above long-term. Second question from me, and then I'll get back in the queue. One for Craig. Can you explain to us a little bit about the capital, as you've called out, the capital repairs and maintenance accounting policy, and how that's going to impact profitability into 2026, please?
Sure, David. As part of the integration of the business and doing all the purchase price accounting and then looking at the accounting policies, we've obviously aligned all those with IDX's existing policies. Effectively, within the result for the six months, there would be about $450,000 of repairs and maintenance cost that has gone through the P&L that would not have gone through the P&L for Capital Health on a standalone basis. Capital Health's accounting policy was slightly different. I think IDX takes a slightly more conservative approach to expense things in the repairs and maintenance nature. If you want to annualize that number, it's probably in the order of $900,000 on a full-year basis.
Understood. Thank you.
Your next question will come from Saul Hadassin with Barrenjoey. Please go ahead.
Thanks. Good morning, Ian and Craig. Hope you're well. My first question is, of the increase in the synergies that you're now guiding to $14 million, can you give some color or detail as to where the extra $4 million comes from? Is it additional cost out on procurement? Are there any revenue synergies baked into that $4 million? Just some context there would be great.
Yeah, sure. Good morning. I think, as we've talked about the half year, the bulk of the synergies were realized at or around the time of the acquisition from a headcount perspective. Within that number of seven, there would be about $5 million of headcount synergies. They were pretty much in line with what we'd planned pre-merger. It was just a question of realizing probably a few hundred thousand dollars more than perhaps we anticipated. That number of around five is what we expected. I think the incremental two is a function of, obviously, the elimination of the public listing costs, but more particularly where we've seen the upside has been in procurement. We had very little in the original $10 million for procurement. As we've gone through the work and the diligence, those procurement synergies have come through higher.
I talked earlier about the benefits we're seeing in the consumables line, benefits of the equipment service line in terms of, obviously, as a larger group, we are able to negotiate better agreements with the equipment suppliers. We've also seen procurement efficiencies and other expenses, particularly in areas like IT, where costs on a per-click basis for reading scans have come down and things of that nature. It's really procurement where we've seen the upside. I think we'll continue to see some further benefits over time. It's just difficult to put a number on it as we continue to sort of leverage our larger scale in the market. Probably just one thing, Saul, I might touch on whilst we're talking about synergies.
You may be wondering how, if you have $7 million within FY 2025, how that annualizes to $14 million on a full-year basis, given there's probably a ramp-up in that in the second half of FY 2025. The reality is that, firstly, most of those synergies, as I say, were realized around the time of the merger in terms of headcount. There is effectively probably a one-off what we call for an administrative efficiency around billing that's in that second half FY 2025 number. That won't recur, but there are then some other efficiencies that are occurring that roughly offset that number so that together we achieve $7 million in the first half and then $14 million on an annualized basis.
Great. That's very clear. I had one other question as well. You gave the 7% growth rate for July month, but that's normalized, obviously, for clinic closures and in a clinic sale. Can you give us a sense of what that growth was on a reported basis for July?
To be honest, it wouldn't have been too much different because the clinic closures were relatively small. I mean, we sold Melton, obviously. That was a profitable clinic. That was a required disposal by the HBC. I'd also say that we report 7% adjustable working days, but that actually is the same number on a reported basis. There's no difference on working days.
Okay, that's all I had. Thank you.
Your next question will come from David Low with JP Morgan. Please go ahead.
Thanks for taking my questions. Craig, you alluded to the RDX core margin going down a little. Can I get you to talk to that? I'm guessing labor is going to form part of that answer as well, so maybe you could touch on what's happening there. I guess I'm interested to know whether you think there's really any light at the end of the tunnel on the labor challenges or the labor cost challenge, please. Yeah. Sure, David. Yes, I think I've called out two things that have really driven that slight decline in the margin. One being the eight months of the impact for 2% covered in CT reimbursement, which RDX would have a higher weighting of CT relative to the market, just given that we're more of a specialist provider. That would have impacted us probably more than some others. That certainly dampened the margin.
Obviously, this piece around labor costs that we've talked about in terms of particularly radiologists in some of the regional areas, Central Queensland, Western Australia. The question, I suppose, is how do we see things going forward? I think a couple of things. One is RDXT has, through this back half, continued to grow. We now have 114 RDXT doctors reporting, and that clearly is a solution to the problem. We will continue to grow that business. It is growing at at least twice the rate of the overall business, which really helps in terms of reducing costs, but also providing flexibility on where the reporting is required across the group in terms of dealing with reporting lists.
The other thing I think is, and I'm sure Ian will probably want to talk about this, you'll see Ian talked in the industry and regulatory update that later this year, there will be an opening up of this expedited pathway for doctors to be able to move from the UK and Ireland to Australia. There's a significant remuneration differential between Australia and the UK, which, together with lifestyle and other factors, I think makes a pretty compelling proposition. We think that will help not only us, but also the industry. I think those things combined with probably a, I think we would expect to see a slowing of probably the growth rates in the reporting contracts in these regional areas, which have been a challenge to service, particularly in the first half of this year.
I think the combination of all those things would give us some confidence that the issue hasn't gone away, but it's moderating, and we're dealing with it. To be honest, in the broader scheme of the overall shape of the revenue growth and margin profile, I think this will become a lesser part of the story.
Just to add to that, thank you, Craig. The teleradiology business is the one business within our group that is able to continue to attract large numbers of radiologists with an interest in joining us and in joining teleradiology and doing teleradiology with us. We have, I believe, leapfrogged many in the industry with the technology that we now offer in teleradiology, and it makes it a lot more attractive for radiologists to join our group when they're able to use the technology to see more patients within the same amount of time than they could with the older teleradiology systems. If we look right now at RDXT, we have a pipeline of 20 or 30 radiologists that are looking to continue to join us over the next few months.
That will increase the number beyond the 114 we have right now, up from about 80 we had a year ago. We continue to see growth in teleradiologists and a strong demand for the teleradiology business we have. The other thing about teleradiology is that the larger amount of work you have, the more you're able to provide radiologists with the scale and the subspecialisation opportunities that they're not able to get with smaller groups. It also gives us the ability to continue to start 24/7 and to have redundancy to service the hospital contracts after hours by using radiologists in Australia and New Zealand, but also radiologists that are based overseas in Europe and the Middle East. Teleradiology is an important part of our ability to service the growing demand in our industry.
It will be helped by the expedited specialist pathway where we're going to be providing reciprocity for the overseas credentials in the UK and Ireland that radiologists have. We expect that this program will be implemented during the latter part of this calendar year. Our expectation, based on the information we have from APRA and the medical board, is that the program should be implemented in the October-November timeframe. It has been implemented for other specialty areas other than radiology. For instance, in OB-GYN and anesthetics, as well as GP and psychiatry, the program has been in place for some time. We're looking forward to it being opened up for radiologists as well.
I think that was a very comprehensive answer. The only question I otherwise had really is, will the incoming UK, Ireland radiologists be required to work regionally?
Yes, they will. They'll still be required to work for up to 10 years in regional areas. That will not change from the current requirement.
Great. Thank you very much for taking my questions.
Your next question will come from Steven Wheen with Jarden. Please go ahead.
Thanks, Ian and Craig. Just a few questions for you. I wonder, you've given that revenue insight into July. I wonder if you could just talk to MRIs specifically and what you're seeing on that front now that you've got a month's worth of experience. Appreciated, if not very long, but just to just sort of give us some color around what's happening post that deregulation.
Thanks, Steve. MRI utilization has increased quite nicely since the deregulation. We are seeing MRI volumes well above where they were historically. We have twice the number of fully licensed MRIs now than we had a year ago. The MRI deregulation is occurring, I suppose, on track for us where we expect to be. Just moving on, I suppose, to the National Lung Cancer Screening Program would be ahead of expectations, but MRI deregulation is roughly where we expect it would be at this time. I think, Steve, it'll be important to look at a longer period than one month to really see the full benefit of these programs coming through. Even though MRI deregulation did kick in on July 1, there is a time period that specialists need to become aware, as much work as we've done to make them aware of the MRIs in the area.
It's still habits do need to change and referral patterns need to change. We'll continue to see, I believe, extra volumes coming in from MRI, particularly in Australia, where historically our MRI utilization relative to the rest of the OECDs has been a lot lower. The deregulation is going to help put us on a par with the rest of the developed world in terms of providing our patients with access to this very useful technology.
Great. Thanks, Ian. I wonder if I could drill down a little bit further. I noticed that you, apart from the partials moving to a full MRI license, had two sites where you brought in a brand new machine to take advantage of the new structure at Olympic Park and John Flynn. Were they part of this revenue growth that you quoted for July? If not, have you seen, is the utilization of those new machines, given you went ahead in terms of your numbers, are you seeing that they are being well utilized within the sites that you put them into?
John Flynn has done very well. The new magnet there is beating expectations. Imaging Olympic Park, we did run into a slight technical issue having three MRIs next to each other. We did need to resolve some of those technical challenges, having the three magnetic fields so close to each other, and ran into some issues during the month of July, such that for most of July, we only had two of the three MRIs operational. Imaging Olympic Park, as you know, is a very high-volume site. The MRIs there do between 40 - 50 patients a day, almost every day of the week. Being down one MRI for most of the month at Imaging Olympic Park meant that we were not meeting the projected volumes that we expect to get from Imaging Olympic Park for the rest of the year.
It's important to note, though, that Imaging Olympic Park would be one of the few sites anywhere, especially private sites, that have three MRIs on one site. There was some learning in place that needed to occur to ensure that the three MRIs could all work well next to each other. That's in place now. As of today and this month, during the month of August, we have three MRIs fully operational at Imaging Olympic Park. Probably more MRIs than any private practice has on any one site in the country.
Great. Okay. Next question I had was just regarding your reporting contracts. Some of those were reset. I'm just curious as to what the volume or the utilization of those contracts looks like and whether or not there's a chance that you might, for the next term of those contracts, push up against that cap where it's sort of imposing some margin pressures at the back end of the year or back end of that contract.
We've continued to see pretty strong growth in the public sector hospital contracts. It's helped us, for example, in Queensland, where the contract reset on the 1st of July, and the growth has been within the parameters of the increase that we will be receiving in that contract to reimburse us for that strong additional growth. I would expect that growth at some point over the course of the next year has got to temper a bit and become a lot more normalized. In fact, if you take a look at the Medicare numbers in the second half, you'll easily be able to see that the Medicare numbers have not grown as strongly as they did previously. A lot of that strong growth in Medicare has come about from the public hospital EDs that have historically seen such very strong growth.
I would expect over the course of the next year that we would see that growth tailor off, that very strong growth tailor off.
Yeah, which obviously has benefits from a margin perspective because you're not breaching that cap. Is that correct?
That's right.
Yeah. Last one, just with regards to your CapEx in the year, it came in a touch over $55 million, and I think you've been guiding to $60 million -$65 million. I'm just interested in where you achieved some savings there. I guess, similarly, we had expectations that CapEx would be of a similar order going into 2026. Where you're getting some savings there as well, based on your guidance.
Sure, Steve. I'll take that one. I think, first of all, just to be clear, the CapEx actually spent was around $55 million with IDX Capital on a combined basis, but only remember for the period that Capital was under IDX ownership. If you actually pro forma that to look at it in terms of what IDX and Capital spent for FY 2025, it's not full year, that number's around $65 million. It came in at that top end of that range that we referenced at the half year. Hopefully, that clarifies things for FY 2025. For FY 2026, we're guiding to a lower number of $45 million - $55 million. That's really a function of probably just leveraging the existing installed base of equipment that we've now got across the clinics.
We've gone through a detailed analysis of where we've got capacity in our machines, and there's just not an opportunity for us to increase utilization, move patients who are overweight in less than one clinic to an adjacent clinic where there's capacity on the machine. I think that we're pretty focused on looking to lift our return on invested capital, and the capital spend in FY 2026 will be a little bit lower. Hopefully, that helps.
Yep. That's very clear. Sorry, I did say that was the last one, but I did think of one just now. On your interest, you mean you've obviously degeared through the acquisition. I'm just wondering if you can give us any insight as to what sort of effective interest rate we could expect now that you start moving down the grid with your lenders.
Sure. I'd say probably the right answer to that is, you'll see in note 28, we talked about probably the future interest rate on the debt. The debt facility was 6.24% for FY 2025. That was down from 7.83% in FY 2024. Since then, obviously, at the time of the merger, we did refinance. Coming into FY 2026, the interest rate is lower as a function of, firstly, the base rate reductions that the RBA put through, but also the lower margin that was negotiated. I would guide you to a number that's probably half to three-quarters of a percent lower than that 6.24% for FY 2026. That's obviously based on current interest rates based on today. Depending on what the RBA does in the future will determine where it really lands. We expect to see that interest expense come down.
I might just also, whilst we're talking interest, perhaps clarify that when you look at particularly the supplementary information in the investor pack on page 24, you'll see a breakdown there for depreciation and finance costs between true depreciation of plant equipment and right-of-use assets, and then the interest expense on the debt facilities versus right-of-use assets. I just want to talk a little bit to the purchase price accounting and the impact that that's had on financials. We've had to fair value all the assets for Capital Health coming into the group under WSP3. As part of that process, we had to effectively restate capital leases to the incremental borrowing rate at the time of the merger. That rate was about 6%. Importantly, that rate was quite a bit higher than the interest rate at the time that Capital Health originally put those leases onto its balance sheet.
The effect of that is it's increased the finance cost for the right-of-use assets. You can see that on that slide. There is an offsetting impact to that because as part of that same exercise, Integral Diagnostics Ltd basically brings all the capital leases on both for the initial term of the lease, but also for any options. The impact of that is reduced depreciation. If you were to look at the impact of the higher interest offset by low depreciation of both right-of-use assets and plant equipment, you're probably looking at about $1.5 million impact for the half year on a net basis in terms of a net increase in cost.
The reason I'm covering that is, on the one hand, we've got what we call real interest expense on the debt coming down, but we have got that slightly higher net cost as a result of the purchase price.
Understood. Thanks. That was very helpful, Craig.
Your next question will come from Craig Wong-Pan with RBC. Please go ahead.
Good morning. I was going to ask a question on why the revenue growth in July has only been 7%, but I think part of that's due to one of your MRIs being out for most of July. I mean, are you able to split out what kind of benefit you have seen from the MRI deregulation and lung cancer screening program in that month of July?
Yeah, we haven't provided Craig the detail behind MRI deregulation growth specifically or lung cancer screening. Suffice to say that during the month of July, we did not get the full benefit from MRI deregulation and lung cancer screening, even though it came in above expectations. We did expect and did see that the initial demand had been growing. I expect that as the lung cancer screening program becomes better known and better marketed by government as well as the industry, we'll continue to see growth. At least that's what the overseas experience has been, just continued growth from the initial baseline levels. I'm not giving any sort of numbers in regards to July, but I can give you a directional trend that we expect for both.
For MRI deregulation, we will get continued growth, especially when the high-volume side of the IOP is operating on all three cylinders, if you will. The National Lung Cancer Screening Program will continue to grow month on month based on our expectations going forward, at least for financial 2026.
To maybe unpack that number a little bit further, remember what we've given you is a group number. That's Australia and New Zealand. I referenced earlier that growth in New Zealand has been soft. If you were to look at Australia only, the number would be close to 8% for July, and it would probably be slightly higher still by virtue of, again, the reference, say, the MRI machine at the IOP not being fully operational for the full month.
Okay, that's helpful. I just wanted to drill down a bit more on lung cancer screening. With other programs you've seen, this is a multi-year program. Should we be thinking of this as like a gradual ramp-up in year one? Really, kind of year two is when you see a lot of that benefit with patients being screened in that second year, or how should we think about the first year?
I would expect that we would continue to see a ramp-up throughout the course of financial 2026. We will reach a steady state, though, a steady high state in terms of lung cancer referrals, where the initial referrals will continue to come in at, you know, a fairly high level based on our expectations for the remaining three years of the four-year program. Importantly, in addition to those screening tests, we will then start seeing a lot more referrals for the cancers that are picked up in the lung cancer screening program because the reason it's in place is to pick up cancer. We expect that roughly 3%, depending on the study, it does vary, but roughly 3% of those patients seen will have cancer. Roughly 15% or more, 15% - 20%, will need follow-up studies.
We will, you know, just in terms of lung cancer screening, continue to see ramp-up at least for this year and then steady high state going forward. The referrals from the program will continue to grow for some years after. A lot of the patients in that program need to come back for further studies. It's just a question of whether those studies are, you know, needed in a year's time or six months' time or any shorter timeframe than that.
Thanks. My last question, just on competition, like we had been hearing a bit of competition from bulk billing providers, more so in Victoria. If I look at, you know, the Capital Health numbers, they seem to be pretty good. Could you just talk about how that bulk billing business has been experiencing competition or not across the Victorian and the other markets that it operates in?
Yeah, there's no question that the bulk billing competition in Victoria is higher than it is in other states. We've not seen any pickup in terms of bulk billing competition, at least not materially across the business. There are pockets in Victoria that, you know, RDX practices or Capital Health practices have been impacted by some new bulk billing competitors over the course of the last year or two. I can't think of anything material in the last year, but it's been the last year or two. It's been mainly limited to Victoria. There's been some competition, I guess, on the Sunshine Coast as well. Again, it's not material. It's roughly at the same level that it has been for quite a long time.
Okay, thank you.
Your next question will come from Andrew Paine with CLSA. Please go ahead.
Yeah, morning, Ian, Craig. Congrats on the good result. Just want to touch on indexation for a bit of a step down, both with prior years. Just good to get your thoughts around if you see this as a fair level given the current environment. Really wanting to know if you see this as a bit of a margin headwind in the 2026. I know there's a few moving parts here, you know, CP reduction in MRI and that. Just, you know, if we can drill down on the indexation and, you know, the outlook for that.
The indexation number came in roughly where we expected it. It would be maybe at the slightly lower end of that range. We expected an indexation number around 2.5% or thereabouts. It came in at 2.4%, a little lower than what we were expecting it to come in at. Importantly, this year, we do not have the reduction in CT that we had from November last year. In November last year, there was a 2% reduction that was implemented in CT reimbursement as of November 2024. That hurts our results a little in the second half because we're over-indexed to CT. This year, the 2.4% applies across the modalities we offer.
I might just add to that. If you were to look at FY 2025, the 3.5% increases and then 2% cut in CT, on a blended basis, it equates to about 2.7% for FY 2025. Remember, that was in an environment of higher inflation coming into the year. Obviously, as we go into FY 2026, the government will be looking at inflation coming down. I think, therefore, the 2.4% that's been set was probably a bit lower than we were expecting, probably hoping for. I can imagine.
Okay, that's great. Going forward, it feels like it'll be around that level unless there's more offsets or something to consider there.
I think, as we understand it, the way that the government and Medicare think about it is that it's a reflection of sort of CT, where CT goes, that guides the user segment.
Okay, that's great. Just on one thing on AI, you mentioned in there that 10% of scans are being done via AI. Could you see if you could unpack the benefits you're seeing from this and what percentage that could lift to over the next few years and how that's being deployed and supporting the radiologist?
Importantly, Andrew, the 10% of scans are not being done by AI. They're being assisted by AI. There's a radiologist doing the scans and using AI as a tool, just like they use, you know, everyone uses many other tools in the business. AI is just a very important tool and one that's growing in importance, both from a clinical perspective as well as with regard to operational efficiency. I would expect that the use of AI in our industry is going to continue to grow. I think that now, with the National Lung Cancer Screening Program, we're getting close to a tipping point where AI really drives efficiency and clinical quality. The reason that I say that is, if you look at lung cancer screening in particular, it's a high-volume modality, and it's one that lends itself particularly well to an AI intervention.
It's very difficult to do lung cancer screening without the use of AI and still make it profitable, whereas what AI does is it reduces the amount of time that the radiologist spends on the scan, and it allows us to make a good margin from these screening studies.
Yeah, okay. That's been the debate for a long time. You know, is it going to be a decision support tool or a tool to replace radiologists? I think decision support tools are very much blurring. You're kind of implying that the efficiencies to read more scans per radiologist is where you're going to get the benefits from.
I think that's right. I think, in the same way as we saw technologies in the past, digital technologies and then PAC systems allow radiologists to see many more scans per day than they had seen prior to that, I think that AI will do exactly the same thing going forward. In fact, the benefit that we will see in AI may be even more pronounced because it is such a powerful tool.
Okay, that's great. Could I just throw in, just clarifying the $14 million synergies that you're talking about, is that all being delivered in 2026? Up from $7 million in 2025 and add another $7 million in 2026.
Okay, that's great. Yep, all good. Thank you.
Your next question will come from Sacha Krien with Evans and Partners. Please go ahead.
Good afternoon, Ian and Craig. I'm just wondering whether or not you think IDX can actually, as a group, can actually outgrow MBS in FY 2026, given you seem to have a bit of a disproportionate benefit from the increase in full licensed MRIs, and you're going to get the bulk billing method the regional areas as well. Is there any reason why you can't grow as fast as or faster than the NBS this year?
Yeah, we're very conscious, as Sacha, to under-promise and over-deliver. I do think that, you know, we will get closer to the NBS numbers and, you know, there is every possibility that we will be able to do better than Medicare. We have shown in the past several months that we've gotten closer and closer to the NBS published numbers. Remember that the NBS published numbers also include the public hospital EDs, which have seen an inordinate amount of growth since COVID, really. Going forward, we've seen that tailor off, and we've begun to tailor off and we should see continued growth from our over-indexation in terms of lung cancer screening and also in terms of the upgrade of the partial licenses, the full licenses, and the additional licenses that we've managed to secure through the MRI deregulation on the 1st of July.
We should continue to, you know, get closer and closer to the Medicare numbers. You know, I don't want to promise anything, but, you know, all indications are that we should continue to grow strongly and maybe surprise Medicare.
Thank you. In terms of the CT indexation decline in November, how much forewarning did you have on that? Given the really strict growth in benefits at the moment, is there any risk that we are hit with more surprise indexation declines over the next 12 months?
That was announced at the same time, Sacha, last year. It was announced at the same time as the indexation. We were provided with indexation in FY 2024 or for the FY 2025 year, in May of 2024. That indicated both that we would receive the CPI of 3.5%, but then we were also told that we would receive a 2.2% reduction from the 1st of November that year in CT, which came to a blended average that we calculated at the time of around 2.7%.
Thank you. When I look at your operating leverage on a pro forma basis in FY 2025, when you back out the synergies, you didn't actually get any operating leverage, so OpEx grew faster than sales. I'm just wondering, excluding the synergies into FY 2026, can you get underlying operating leverage given we're going to be cycling some of those, or still strong top line growth, but potentially cycling some of those additional locum costs that you had to wear in first half 2025?
Yeah, Sacha, I mean, look, this is a directional comment. It's not guidance, but I think the short answer is yes, absolutely. We would expect to see the operating leverage come through. I sort of talked about the fact that, you know, the fact that the industry is, you know, has a shortage of radiologists, right? We are in a sense no different. We do have more regional exposures to that. This creates some challenges, but we would expect that to moderate as doctors come in from overseas. We increase the use of RDXT, the rates of growth for some of those remote contracts slow, all those things. As I said earlier, I just think that will become a smaller part of the story overall.
Yep. Just on that, radiologists coming in from overseas, if we get approval in October or November, when do you think you'll actually get radiologists on the ground in regional areas, which will help the shortage?
In all likelihood, it will occur in the first part of the calendar year. We're ready to go on the back of that program as soon as it is announced. We're ready to be recruiting in the UK and in Ireland. We do need to wait for the program to be announced. As Craig indicated earlier, it's a compelling proposition for an NHS radiologist to pretty much double their salary and move to a place where it's a lot more desirable to live. I expect that the program is going to have some traction. It won't happen immediately, but we do expect that at the beginning of the calendar year, which is a useful time for people to move with regard to schooling and the like. We expect to see the first radiologists come into the program at that time.
Radiologists overseas are expecting the program to be, it's been flagged for some time. They're expecting the program to be announced at some stage. We do have recruiters that are waiting on the announcement and will be ready to hit the ground running as soon as it's made.
All right, that's all from me. Thank you.
Your next question will come from Martyn Jacobs with Bell Potter Securities. Please go ahead.
Hi guys, congratulations on the result. Hopefully you can hear me because my earpiece is running out of charge, but that's well done. It's a couple from me. I was just wondering, on the teleradiology side, you've got 15% of scans now. Can you give some color where you think that might be in the next, you know, three years or so? To add to that, how many more additional radiologists you might be able to recruit into that area over the next, over that time? I mean, you mentioned 10 to 20 more soon coming, so I was just interested in that.
I might just comment and let Ian comment, but just so you understand that number of 15%, that is a blended average across IDX and Capital, right? A few years ago, we would have been telling you that IDX standalone was around being 15%. That number is probably now closer to 20% if you look at IDX standalone. We've only just really started rolling out IDXT across Capital, which is probably sitting around that 4% - 5%. Clearly, if you sort of extrapolate, there's no reason why you can't grow IDXT to a similar percentage. I just wanted to sort of give you that breakdown of what's in that 15% and perhaps let Ian comment.
Okay. Teleradiology business, Martyn, has been growing at a CAGR of about 30% since inception in August of 2020. We expect that this kind of growth will continue, although as you get larger, the percentage growth is not as high. The number of radiologists joining continues to grow. It's the one area where there really is a supply of radiologists because people do like the flexibility that teleradiology offers. The technology that we offer in teleradiology also makes it very attractive for radiologists to join us. I expect that teleradiology will continue to grow. I think at some stage, it will level off and that'll be perhaps at, you know, close on 30%.
You know, between 25% and 30%, we might see some leveling off at that stage because you still do need radiologists on the ground to do a lot of the work, the interventional work, the injections, and the like that teleradiologists are not able to do.
Thank you. Secondly, you mentioned that the National Lung Cancer Screening Program, although one month in, is above expectations. I was just wondering if you could give us a bit more color on the spread of the utilization of that program and any other color you can add.
Thanks, Martin. The beauty of that program is that it's a CT-based program and it's based on the high-resolution, high-speed CTs that are now in place. Integral Diagnostics Ltd (IDX) has been acquiring these CTs for quite a long time. CTs are the highest margin modality, CT itself. Even though lung cancer screening is not as highly paid as some other CT tests are, it's still a profitable modality. The referrals from the National Lung Cancer Screening Program also make the program very, very worthwhile. It's a win-win program. It's a real win for patients because disease is picked up earlier when it can be more effectively treated, both more effectively for the patient, but also more cost-effectively for the payer. It's a great program for the industry.
In fact, where we see the program working in North America and Europe, it's had outstanding success in terms of saving lives, but also in terms of its driving volume for the diagnostic industry and then also to healthcare more broadly. The volume that's being driven in is for the earlier detection of cancer. Cancers detected earlier are treated far more effectively in every respect than cancer diagnosed late.
The one thing I want to just add, just for some context, is that when you look at the two programs, the MRI deregulation and the National Lung Cancer Screening Program, if you just think about the way we're thinking about it in terms of budgeting, we would expect benefit of those extra 16 partial licenses converted for the three or four extra machines. We would expect that revenue benefit to be significantly more incrementally than through the National Lung Cancer Screening Program.
Okay. Just the last one from me. You guys, like everyone, have had time to plan for MRI deregulation, make sure that a big part's got its third machine up and running now. What have you seen from your competitors in terms of doing this to benefit from the deregulation phase that the industry is now in?
We have seen good, strong growth in areas where we were able to, I guess, convince the specialists that we were offering a useful modality from July 1 that they'd be able to use, would be very convenient for their patients, and they'd get good diagnostic workups done. Where we were able to brief the specialists well, we saw the program pick up very, very quickly. In some other areas, we have had less access to specialists than before. For example, Capital Health historically has been very much a GP-oriented business as opposed to a specialist-oriented business. It has taken some time for us to work with the Capital Health marketing team, with their medical liaison offices, and to upskill them to be able to market to specialists as well as GPs.
As you say, there was ample time to prepare them, and much of that preparation was put into place and was done. However, when it comes to July 1, it doesn't all happen at the turnover of the legislation to allow billing. There is some ramp-up, and we are seeing that ramp-up occurring now. There are additional fully licensed MRIs out in the market as well. There would be areas where we would be impacted by additional competition in those areas. Overall, the MRI deregulation program has been a great success for the industry as well as for ourselves.
Right. No meaningful competitive response at this point, albeit early days.
Depending on the market that we're talking about, there are additional competitor MRIs that have been upgraded from partial to full, but we're not seeing a material impact from that.
Okay. Perfect. Thank you very much again.
Your next question will come from Elyse Shapiro with Canaccord. Please go ahead.
Hey, guys, congrats on the result. Maybe just picking apart the synergies piece quickly with IDX kind of in the frame of mind. Does the $14 million synergies also assume more fulsome adoption of IDX across the Capital Health network, or is that not included? Got it. Thank you.
Your next question will come.
Even though it's not included in the actual synergy number, it is a real benefit because oftentimes the IDX radiologists are doing work that would have taken a longer time to report or may have been lost in the absence of having the ability to rely on IDX to support that extra work coming in. Capital had done very little external teleradiology work previously. Their use of some of the IDX competitors was really immaterial in terms of the savings that we're able to generate by switching Capital teleradiology from competitors to IDX.
Got it. Thanks.
Your next question will come from Dan Hurren with MST Marquee. Please go ahead.
Good afternoon. I wanted to just go back to employee costs again. I'm just wondering how you think about the Fair Work Commission recommendations for radiographer wages and how that sort of fits into your outlook for 2026 and beyond.
We are aware of the Fair Work recommendations, and when they do come in, we would expect to see some impact, but we don't expect it to be material at this point. In fact, with the discussions that the industry has been having, I think that the impact that we'd be looking at in radiology would not be material in the near term or medium term.
Okay. To be clear, you have no allowance for any of those increases in the sort of the broad outlook you're talking about today?
We do. We do have allowances in there because we do expect that wage costs will continue to increase for a number of reasons. Because inflation's a lot lower than it was and we received indexation again and expect to receive indexation each year, and there are efficiencies that we've spoken about in several other areas, we don't expect it's going to have a material impact going forward.
Can you put a number to the number you're expecting out of the Fair Work Commission increases? The recommendations are fairly high.
Yeah. A couple of comments I would make. Look, we can't put a number on it. What I would say is a couple of things. One, you know, we generally, as an employer, pay above market. Some of those recommendations coming out of that are not relevant to Integral Diagnostics Ltd. We also have a number of EBAs in place where we have negotiated agreements. Certainly, when you look at this overall, it's just not a main issue in the context of the overall numbers. I think when you look at analyst consensus for FY 2026, we'd be, you know, pre the announcement of this result, we would be comfortable with that consensus number for EBITDA and incorporate. We would be referring to.
Okay, thank you.
Your next question will come from Vanessa Thompson with Jefferies. Please go ahead.
Hi, it's Dave Stanton sneaking on for Vanessa, who's kind of given me her phone. Just very quickly, because I'm not that smart, basically, can you give us some directional color for depreciation amortization? In FY 2025, you're at about $57 million for our calculations. Can you talk to, you know, potentially what you expect for 2026? I've got one more after that, please.
David, I think we're again comfortable with a specific number on it. I mean, I think if you have a look at the numbers we've disclosed in slide 24 of the investor presentation in terms of pro forma depreciation, I think that.
Is it the same for net interest expense for 2026 as well, or is that going to step up?
I think probably to my earlier comments, we would expect to see, this is the interest on the debt facilities, not the finance cost of the right-of-use assets. If I just look at the debt facilities, 2%, 4%, I'd expect that to be sort of half to 0.75% lower in FY 2026. That's assuming that base rates stay where they are overnight.
Compared to the all-in interest expense of, call it, $29 million in 2025, should broad brush, should we be expecting that to go up or down?
If I look at, I'm going to reference specific numbers. Slide 24, the pro forma finance cost of $21.5 million on the debt facilities, I would expect that number to come down.
Understood. Thank you.
There are no further questions at this time. I'll now hand back to Dr. Ian Kadish for closing remarks.
Thank you very much. Thank you all for your participation and your engagement with us on the call today. We are very excited about what Financial 2026 has to offer to Integral Diagnostics Ltd (IDX) and our patients. We're appreciative of all of your time on the call. Thank you all.
That does conclude our conference for today. Thank you for participating. You may now disconnect.