I must advise you that today's conference is being recorded today, February 16, 2022. I'd now like to hand the conference over to your first speaker today, Mr. John Cullity, CEO, EBOS Group. Please go ahead, John.
Welcome everyone to EBOS Group's Half-year 2022 Results Presentation. My name is John Cullity, CEO of EBOS Group, and I'm joined this morning by Leonard Hansen, our CFO, and Martin Krauskopf, our GM for Investor Relations. I'm very pleased to report that EBOS' strong performance has continued with another record result, driven by both our Healthcare and Animal Care segments. Key highlights of the half-year's result include double-digit revenue growth, strong EPS growth of 15.2%, significant investments both on acquisitions and into our operational infrastructure, which position the Group for future growth, maintaining our strong balance sheet, and increasing dividends to shareholders. Before we go through this morning's presentation, I should point out the following. The results are expressed in Australian dollars unless otherwise noted. The presentation refers to both statutory and underlying results.
The underlying results exclude AUD 7.8 million of one-off costs related to the significant M&A activity undertaken during the period. The commentary this morning is predominantly based on our underlying results, and we have included in the appendix a reconciliation between reported and underlying. The key financial headlines of our half year result are revenue increased 12.8% to just under AUD 5.3 billion, underlying EBIT increased 14.4% to AUD 169 million, and underlying NPAT increased by 15.8% to AUD 109 million. In light of the Group's performance, the board has declared an interim dividend of NZD 0.47, representing an increase of 10.6%, and that dividend will be paid on all the new shares issued in December and January as part of the placement and retail offer.
The Group's double-digit earnings growth was driven by strong performances from both the Healthc are and Animal Care segments. This again demonstrates the benefits of our diversified portfolio of market-leading businesses and our strategy of investing for growth. Our Healthc are segment increased underlying EBIT by 17%, driven by Community Pharmacy, TerryWhite Chemmart, Institutional Healthcare, and Contract Logistics businesses. Key highlights of this performance were particularly strong Community Pharmacy growth, driven by customer and market share growth and the return of Pfizer products to the wholesale channel. TWC's network of stores grew by 16. Since completion of the half year, we have added further stores, and the total network currently sits at 483, making it one of the largest Community Pharmacy networks in Australia.
Our Institutional Healthc are division continues its really strong performance, driven by growth within our hospital and medical consumables businesses, as well as an organic and inorganic growth in medical devices distribution. Our Animal Care segment continued its outstanding growth trajectory, increasing EBIT by 14.9% for the half. Our key brands, Black Hawk and VitaPet, as well as our Australian vet wholesaling business, Lyppard, continue to capitalize on strong pet market conditions, and each recorded robust sales growth. Construction of our new state-of-the-art pet food manufacturing facility in Parkes, New South Wales, has now been completed, and we are now in the commissioning phase of that facility. This facility provides us with many benefits. Principally, the self-manufacturing of Black Hawk, as well as opening many new product development opportunities.
At the roup level, we recorded an excellent cash flow result, a record return on capital employed, and we've maintained our strong balance sheet. Leonard will take you through each of these points later in the presentation. You can see from this graph that the growth across the Group was very broad-based, and what's particularly pleasing is the double digit GOR and EBIT growth across each of our principal divisions. Consistent with our strategy of investing for growth, the first half was a very active period, with three new bolt-on acquisitions, including Pioneer Medical, Sentry Medical, and MD Solutions, all of which strengthen our positions in medical consumables and medical devices distribution. In addition, in December, we announced that we had reached agreement to acquire LifeHealthcare, and I'll make some further comments on progress with that deal on the next page.
In aggregate, these four businesses will add over AUD 400 million of annual revenue to the Group, and each are EPS accretive to shareholders. We also continue to invest in our manufacturing and distribution infrastructure to support the continued growth of our Healthcare and Animal Care businesses in a variety of locations across New Zealand and Australia. On the ninth of December, 2021, EBOS announced it had reached agreement to acquire LifeHealthcare for just under AUD 1.2 billion. Upon completion, EBOS will become a leading distributor of medical devices in Australia, New Zealand, and South East Asia. Funding for the acquisition has been completed with approximately AUD 800 million equity raised and AUD 540 million of committed new debt facilities now in place.
The share placement and retail offer were very strongly supported, and as has been previously announced, we did increase the size of the retail offer to AUD 161 million to provide as many participating retail shareholders as possible with their pro rata allocation. The transaction remains subject to regulatory approvals and a number of other conditions, which are all in progress, and we remain on track to complete the acquisition prior to the end of FY 2022. This slide provides further details on the Group's financial performance on both a reported and underlying basis. The increase in underlying EBIT of AUD 21.3 million or 14.4% reflects an increase in revenue of 12.8% and a slight expansion of our EBIT margin from 3.18%- 3.22%.
During the period, underlying NPAT grew by AUD 14.9 million- AUD 109.3 million, representing growth of 15.8%. As I mentioned earlier, we saw a high level of M&A activity during the half, and as a result, we incurred AUD 7.8 million of one-off M&A costs on a pre-tax basis. These costs are excluded from underlying earnings. Turning to our segment performance. Healthcare generated revenue growth of 12.9% and underlying EBIT growth of 17%. Our Australian and New Zealand Healthcare businesses each contributed to this growth. The strong Healthcare result was driven by a number of factors, including increased sales in our Community Pharmacy business, strong performance from the growing TWC network, increased demand for medical consumables and medical devices, and growth in our Contract Logistics Business.
The recently acquired businesses have also performed very well in the half and contributed to our growth. Moving now to the specific components of Healthcare and starting with Community Pharmacy. In Community Pharmacy, we occupy the leading wholesale market position in both Australia and New Zealand. The Community Pharmacy business had a particularly strong first half, recording a 15.2% increase in revenue and a 10.5% increase in gross operating revenue. There were several key drivers of the results, including a very strong market environment assisted by increased pharmacy visitation as a result of COVID-19, highlighting the important role Community Pharmacies are playing during this pandemic, supplying medicines, vaccinations, and other PPE items. Within this strong market environment, we increased our market share as a result of above-market growth by our major wholesale customers, as well as winning business from our competitors.
Ethical sales were particularly strong, growing at 16%, in part due to new medicines being added to the PBS. OTC sales grew by approximately 16%. This represents a return to growth in OTC products following previous declines during COVID-19 restrictions, with key categories such as cold and flu, natural medicines, weight management, and pain relief all performing strongly. Our growth was further assisted by the return of Pfizer's products to the wholesale channel. The gross margin percentage reduced slightly, reflecting product mix, PBS pricing reforms, and a broadly stable CSO income. Our TerryWhite Chemmart business, which is reported within our Community Pharmacy result, has further expanded its network and reinforced its position as one of Australia's leading Community Pharmacy networks with over 480 stores.
This half year, TWC added 16 net new pharmacies to its network and continues to target +500 trading stores by the end of FY 2022. TWC network retail sales increased by 7.4%, and like-for-like retail sales grew by 5.6%. This performance was driven by new store growth and continued investment in media spend, maintaining our position as the second-largest advertiser in the Australian retail pharmacy sector. Pleasingly, the TWC pharmacy network has been responsible for delivering 23% of all pharmacy-delivered COVID-19 vaccinations in Australia, highlighting the important role our pharmacists are playing during the pandemic. Our Institutional Healthcare business continues to build upon the positive momentum of previous periods, growing its gross operating revenue by AUD 32 million- AUD 158 million.
Within this division, we continue to occupy the leading market position in wholesaling medicines to hospitals, as well as a strong and growing market position in medical consumables distribution. Upon completion of the LifeHealthcare acquisition, we will also have a leading position in medical devices distribution within Australia, New Zealand, and Southeast Asia. The key drivers of this result in this particular division were the increased sales of specialty medicines into the hospital network, continued strong demand for medical consumables, including PPE, and benefits from the acquisitions of Pioneer Medical, MD Solutions, and Sentry Medical. Our contract logistics business has delivered another very strong performance with GOR growth of just under 40%. I would also note that GOR in this division has almost doubled over the last three years.
In this business unit, we continue to occupy the leading market position in New Zealand, and our Australian business is growing ahead of expectations, driven mainly by servicing additional new customers. The business also grew as a result of increased demand for protective equipment and COVID-19 vaccinations in New Zealand. As I mentioned at the time of our 30 June 2021 results presentation, we have committed to investing in a new contract logistics distribution center in Sydney, it's our second facility there, to support our growth. I'm pleased to note that these plans are well progressed, with its opening expected during mid-2023. Turning now to our Animal Care segment.
Our Animal Care business has continued to capitalize on strong pet market conditions with EBIT growth of just under 15% over the period, with our Black Hawk and VitaPet brands either increasing or maintaining market share. The strong trading conditions that we highlighted last year have continued, supported by established global trends such as the humanization of pets and premiumization of products, further accelerated by ongoing favorable COVID-19 conditions. There is no doubt that COVID has led to an increase in the pet population, and according to one Australian industry body, pet ownership increased from 61% to 69% of Australian households from 2019 to 2021, reflecting growth in the pet population of approximately two million pets over this period. Black Hawk, VitaPet, and Lyppard all demonstrated solid sales growth during the period.
Black Hawk remains a leading premium dog food brand in the pet specialty channel in Australia and continues to increase its market share in New Zealand. Vita Pet remains the leading dog treats brand in the grocery channel in both Australia and New Zealand. Lyppard also experienced strong growth, particularly primarily driven by sales in the Australian vet channel. That concludes my overview of the segment performance. I'll now hand over to Leonard Hansen, our Chief Financial Officer, to cover the financial information.
Thanks, John. Statutory pre-tax for operations for the six months to December 2021 was AUD 106.8 million. This represents an improvement of AUD 8 million on the prior corresponding period with earnings growth as well as improvement of working capital management offset by higher tax payments. CapEx expenditure for the period was AUD 43.3 million, includes a further AUD 26 million investment during the half in our new pet food manufacturing facility, which is now entering the commissioning phase. Business as usual CapEx of AUD 17.3 million for the period relates to investment over more than 60 operating sites across the Group and our Group IT systems. Working capital management remains a key focus for the Group. It enables our strategy of to invest in growth opportunities while returning value to our shareholders.
Our investment of working capital of AUD 265.1 million is up AUD 4 million from June, with our cash conversion cycle of 14 days also consistent with what we reported at the full year for June 2021. Return on capital employed as at December 2021 of 18.2% is a record for the Group and well above our own internal target of 15%. Improvement in return on capital employed from the 18% that we reported at June 2021 is attributable to a further continuation of our strong earnings growth and disciplined approach to capital management. Underlying net debt for the Group, excluding IFRS 16 leases and the AUD 628.3 million proceeds from our December 2021 share placement, was AUD 402 million at December 2021.
This represents an increase of AUD 131 million as compared to June 2021 as a result of a AUD 107 million of investment in our current period acquisitions and AUD 26 million further investment in our pet food manufacturing facility that John referred to earlier. Excluding the December 2021 share placement proceeds, the Group's net debt-to-EBITDA ratio remains conservative at 1.28x , and EBOS has no debt maturities until the second half of FY 2023. At December 2021, the Group has undrawn debt facilities of over AUD 900 million, in addition to cash on hand of approximately AUD 500 million. Also noting that the Group has in place additional fully committed debt facilities of AUD 540 million to undertake the expected LifeHealthcare acquisition in the second half of FY 2022.
Underlying EPS for the half is AUD 0.666 per share, representing growth on the prior corresponding period of 15.2%. The Group has incurred AUD 7.8 million of one-off costs associated with M&A activities during the half. These costs were primarily attributable to the expected acquisition of LifeHealthcare. These costs are excluded from our underlying results. Included, however, are the higher corporate costs recognized during the period, which comprise or reflect the investment to protect to enhance our IT security applications. EBOS board has declared an interim dividend of NZD 0.47 per share, and this will be imputed to 25% and fully franked for Australian tax resident shareholders.
FY 2022 interim dividend is an increase of 10.6% on the FY 2021 interim dividend. This represents an underlying payout ratio for the period of 77.4% or 67.3%, excluding the dividends to be paid on new shares issued under the capital raise in connection with the expected LifeHealthcare acquisition. The dividend reinvestment plan will not be available for the interim dividend in light of EBOS's decision to accept those subscriptions and upsize the retail offer to shareholders in January 2022. Thank you, and I'll hand you back to John.
Thank you, Leonard. In conclusion, we are very pleased with our strong performance in the first half of FY 2022, which included continued double-digit revenue and earnings growth, significant investments both on acquisitions and in building further operational capacity, which will position the Group for future growth, maintaining our strong balance sheet, and increasing dividends to shareholders. We're comfortable with current trading conditions. However, it is uncertain what the ongoing disruptions caused by COVID-19 variants will have on our trading performance.
We expect capital expenditure for the second half of FY 2022 to remain elevated as a result of continued investment in our operational infrastructure to support the Group's growth. We remain on track to complete the acquisition of LifeHealthcare before the end of FY 2022, and we anticipate net debt to EBITDA at 30 June 2022, following completion of that transaction will be less than 2.25x . With that, I will conclude the formal part of the presentation, and I'll hand back to Desmond to facilitate any questions.
Thank you, John. At this time, if you wish to ask a question, please press star one on your telephone and wait for a name to be announced. If you wish to cancel your request, please press the pound or hash key. Our first question comes from the line of Matt Montgomerie from Forsyth Barr. Please ask your question.
Hey, John. Thanks for taking my questions and well done on another solid result. Maybe firstly on the Healthcare segment, clearly very strong. I'm just trying to, you know, understand the drivers of that more specifically. Is there any way you can sort of attempt to split out the contributions between, you know, the Sigma SAP issues, Pfizer returning to the wholesale channel, and then, you know, COVID-19 related products like the vaccines and RATs?
Okay.
Just trying to get a sense of, I guess-
Yeah.
-underlying growth.
Yeah, no problems, Matt. No problem. Why don't we provide some further color, say, on the return of Pfizer products into the Community Pharmacy channel. We estimate that contributed probably +AUD 50 million, around AUD 50 million-AUD 55 million to the sales growth. Right. On the Sigma issues, we certainly did benefit from their issues in respect of volumes. But really don't have a number on that, to be truthful. Then your final question, I think, was on the RATs was it? Sale of RATs?
Yeah, just RATs, yeah, RATs and vaccines more broadly.
Yeah. I think the way we'd answer that, Matt, is if you look at the numbers, we've benefited from both acquisitions in the result. We estimate that the acquisitions contributed about 4% to the EBIT growth during the period. When you look at the benefit of RATs and other items that negatively impacted the result as a result of COVID-19, all up, we estimate that the net benefit of that was about another 1%. If you combine the benefits of acquisitions and COVID-19 into the result, we estimate that that contributed about 5% to the EBIT growth rate for the period.
Great. That's very helpful.
At the Group level.
Yeah. Maybe one more, if I may. Haven't seen much of any comments just on general inflation through the pack. Just wondering if you could shed a bit more light on this and what you're seeing in the business across segments and geographies.
Yeah, okay. There, as we know, we are in a different economic cycle at present, and there are inflationary impacts, goes without saying, coming through into the business. If I look at the two principal segments differently, in our Animal Care business, we've had cost increases come through on raw materials and other costs like freight, et cetera. But we have also the ability to take adjustments to our retail prices, which we have been doing and have been able to basically maintain our margins. In that particular business, you know, we've been dealing with that environment really for the last six months, right? Being proactive with our response there. In respect of the Healthcare businesses, if you look at the la-
The major components of those, the expense lines for that business, it's really the labor, the freight, and the rental costs. On labor, we've had some adjustments to labor costs, but nothing really out of the ordinary there, right? A lot of our workforce are in collective bargaining agreements or EBAs, etc., and they're typically running at about 3% increases, and that's just par for the course. We're not expecting anything too untoward on that labor line. Where we see probably the more larger move on the cost line is in the freight line. We are seeing cost increases on that line coming through of, say, 5%-10%. They've started to come through.
I think our ability to negate the impacts of those cost increases, I think is demonstrated in the result. You can see the strong revenue growth that we are generating. We are orientating the business to higher margin businesses. We are taking market share, and we're generating strong volume gains. You know, there are impacts on the cost line coming through, and that will impact for the second half and also into FY 2023. There's also a lot of positive momentum in the business in terms of the revenue growth and the other activities and investments that we're undertaking.
That's great. Thanks for the color, John.
No worries.
Thank you for the questions. Our next question comes from the line of Saul Hadassin from Barrenjoey Capital. Please ask your question.
Thank you. Good morning, John. Good morning, Leonard. Just a couple of questions from me. John, first of all, just on contract logistics, you called out it's been very strong growth in that division for quite a few years now from a low base. I'm just wondering how much has COVID sort of played into the growth in the last sort of year and a half, two years, in terms of stocking onshore, et cetera? And do you think that's gonna be an ongoing trend? In other words, I guess just your ability to sustain that rate of growth and take market share, what do you think is sort of a sustainable rate of revenue growth, you know, the next, say, couple of years? Some comments there would be great.
Hi, Saul. No doubt, Saul, our contract logistics business has benefited from the COVID environment, but it's also benefiting from the, you know, the market opportunity that we see here in the Australian market. It's had a very strong growth rate, as you can see in the first half. What's sustainable going forward is a bit of a million-dollar question, to be truthful, but we would like to think it would always be double-digit growth there.
We, you know, a lot of the growth in this period is about 50%, really the growth in this period is still coming from the Australian business. Yeah, we would estimate that it should be able to continue to grow double-digit, and our confidence in that is really amplified by the fact that we're building that second facility in Sydney to cater for the growth. We're certainly, you know, backing ourselves to continue to win market share in this particular part of the business.
Thanks, John. Just one more for me on Animal Care. Again, maybe a longer-term question. Looking at sort of the larger offshore peers, listed peers, and their pet care divisions, we see sort of operating margins around sort of high teens, low 20%. With you internalizing manufacturing for that division and looking sort of at the trends of pet ownership, that margin which continues to accrete each year, I mean, how, again, how much headroom do you think there is to drive that margin higher? Do you have the scale, do you think, to get that margin up, potentially up into the mid and even high teens at the operating income level?
We believe we should be able to get it up to the high teens, Saul. We're on the record for our investment in the pet food plant that we'd get at least 15% return on our capital. That's not in these numbers, right? The other thing to bear in mind within that division is that half of the sales are a wholesaling business, the Lyppard wholesaling business.
Yeah.
That, of course, won't be a high-teens margin, right?
Sure.
You've got to sort of separate out the two. We certainly see further margin expansion coming within that Animal Care segment that relates to our branded business and the fact that we're moving to self-manufacture.
Great. Thank you, guys. That's all I had.
Okay. No problems.
Thank you for the questions. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from the line of Mathieu Chevrier from Citi. Please go ahead.
Good morning, guys, and thank you for taking my question. I just had a question on Q1 versus Q2. You've given a Q1 update saying that revenue and profit was up roughly 10%. You know, that implies an acceleration in the Q2. Is there anything specific there that you would like to call out and whether that's continued year to date?
Hi, Mathieu . Yeah, there's a couple of points to point out there with the acceleration of the growth in the Q2 . In the Q2 , we got the full impact of the Pfizer products into the channel. We didn't start distributing those till basically the first of September. Also, the three acquisitions we completed, the full benefit of those were in the Q2 as well, and not in the Q1. Then we also benefited in the month of December. Also December was quite strong because of the whole Omicron outbreak that occurred, increased foot traffic into pharmacy, et cetera, and driving increased volumes. Yeah, they would be the principal factors that were leading to that increased growth rate, Mathieu.
Understood. Thanks for that. I was just wondering if you could give any comments on whether these, you know, that trend of higher visitation into pharmacies continued, you know, since January 1.
Oh, we're not really commenting, Mathieu, on anything past December other than, you know, what we've got in the trading update there. What we could say is, you know, as a management team, we're very comfortable with the momentum we've got in the business, right? The investments we're making, so that's all we can really say.
Okay, maybe just one final one for Leonard, I guess. Could you give us an idea of what D&A interest in CapEx is likely going to be for the full year? Thank you.
Mathieu, in regards to CapEx, I think what we're looking at, we'll complete the beneficiation plant for Animal Care in the second half. There's obviously been a little bit of delayed CapEx in regards to COVID restrictions. I think CapEx in the second half at June, if I look at, what's right. i think june will be sort of more in the additional sort of AUD 40 million CapEx, in the second half will come through.
D&A, it'll also probably a little bit of an uptick from what we saw in the first half, just in relation to some additional CapEx we've been doing and also some new leases that have been entered into with regards to IFRS 16 that flows through to the D&A numbers. So a slight pickup in D&A in the second half from what we saw in the first half, and the CapEx number of circa AUD 80 million by June, that's what i'm expecting.
Great. Thanks very much.
Thanks, Mathieu.
Thank you for the questions. There are no further questions at this time. I'll now hand back to John for closing remarks.
Thanks, Desmond. Thank you everyone for your interest in the company and listening this afternoon, so I appreciate your support of the business. Speak to you later. Bye-bye.
T hat concludes our conference for today. Thank you for participating. You may now disconnect.