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Edited Transcript of PRY.AX earnings conference call or presentation 16-Aug-19 1:30am GMT

Full Year 2019 Healius Ltd Earnings Call

LEICHHARDT , NSW Sep 18, 2019 (Thomson StreetEvents) -- Edited Transcript of Healius Ltd earnings conference call or presentation Friday, August 16, 2019 at 1:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Janet Payne

Healius Limited - Group Executive of Corporate Affairs

* Malcolm W. Parmenter

Healius Limited - MD, CEO & Director

* Mark Ellis

Healius Limited - General Manager of Finance

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Conference Call Participants

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* Andrew Goodsall

MST Marquee - Healthcare analyst

* David A. Low

JP Morgan Chase & Co, Research Division - Research Analyst

* Gretel Janu

Crédit Suisse AG, Research Division - Research Analyst

* John Deakin-Bell

Citigroup Inc, Research Division - Director & Head of Healthcare in Australia and New Zealand

* Lyanne Harrison

BofA Merrill Lynch, Research Division - VP

* Saul Hadassin

UBS Investment Bank, Research Division - Executive Director & Research Analyst

* Sean M. Laaman

Morgan Stanley, Research Division - Australian Healthcare Analyst

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Presentation

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Janet Payne, Healius Limited - Group Executive of Corporate Affairs [1]

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Good morning, everybody. Janet Payne here. Welcome to Healius' Financial Year 2019 Results. I have with me in the room, of course, Dr. Malcolm Parmenter, our CEO and MD. I also have Mark Ellis here, who is our General Manager of Finance.

We will start off, of course, with Malcolm doing a short presentation on the -- or a short speech on the presentation that we launched today.

Malcolm, over to you.

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Malcolm W. Parmenter, Healius Limited - MD, CEO & Director [2]

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Thanks, Janet. Hello, everybody. Thanks for joining our full year results call today. Now before I start into the detail, I think I'd like to say at the outset, contrary to frequent media speculation, I can confirm we're not selling anything, not Pathology, not Imaging, not IVF, not anything else.

So look, I've spoken before about our 3 main businesses: Pathology, Medical Centres and Imaging; and our 3 emerging businesses: dental, IVF and day hospitals, and about how we have a clear strategy to deliver growth. This strategy incorporates the repositioning of our Medical Centres under Leapfrog, the investment in leading-edge technology and the development of our emerging businesses. We are ensuring alignment of resources and capital towards our strategic growth through the current organizational redesign. Now this redesign also aims to simplify our management structures, improve divisional agility and drive a more efficient group function to deliver a more competitive cost base.

I will get you to move to Slide 4 on key achievements. And I want to give you a progress check on our strategic initiatives, at the same time, acknowledging we still have plenty to achieve. But it's a good story. All 3 divisions saw increasing positive momentum throughout the year. Pathology was up nearly 50% in the second half compared to the first half, and its normalized revenue grew above market in FY '19.

In Medical Centres, we delivered 2 halves of improved EBIT, a record number of GP recruits and an increase in gross billings per hour. We're also nearing the end of a successful technology rollout. 15 medical centers have been transformed as planned, and we have launched exciting new consumer offerings. During the year, we acquired Montserrat Day Hospitals and invested in our IVF business, which Medicare data indicates has the fastest growth rates in the country.

In Imaging, we have now seen 3 years of double-digit EBIT growth, which is a credit to Dean Lewsam and his team. The iCAR rollout continues apace, and benefits are already being realized, proving our ability to deliver on key IT projects. The Imaging contracts for the Northern Beaches Hospital here in Sydney and the Australian Defense Force have both successfully commenced.

So turning to the details of the group results for the year. I've covered many of the key points already, but we delivered a 6.5% increase in underlying net profit after tax on the back of a 5.9% increase in revenue. At the EBIT level, we are carrying nearly $13 million from our greenfield investments, including 5 medical centers, 5 day hospitals and expansion of our IVF services. Without them, EBIT would have been $180 million, and underlying net profit after tax, over $102 million. We're actively speeding up the ramp-up of these centers and should see a positive swing in our numbers as we stop carrying these costs.

Moving on to Slide 7 on strategic projects. Our reported NPAT was $55.9 million compared to $4.1 million last year. We have 4 key initiatives in Leapfrog, technology upgrades in Pathology and Imaging and the corporate renewal program. Now these are undeniably transformational in nature and unlikely to be undertaken again at such a collective magnitude.

This slide sets out the adjusted cost and capital expenditure for these projects in the year FY '20. FY '20 should be the peak year of adjustments, including cost of redundancy. iCAR will complete, and the Leapfrog program should substantially reduce after this. The balance of the nonunderlying adjustments relate to the business setup costs, restructuring and redundancies, rebranding and corporate defense.

Turning to cash flow. Our operating cash flow was lower than in FY '18. It includes $22 million for the Medical Centres modern awards back payments and for the Dorevitch pay determination. At the tax line, our outflows increased by $16 million as we returned to a more normal tax payment schedule after the receipt of a large refund in FY '18. In terms of our CapEx, we spent around $52 million on maintenance CapEx, in line with our usual run rate. Our growth CapEx was around $176 million, of which $68 million was the Montserrat acquisition.

Turning to the slide on debt and dividend. Our cash flow and capital raise delivered net debt of $678 million at 2.4x gearing. Our expenditure was high in this year as we continue to fund our strategic investments, which will deliver substantial cash flow in the future. As we've said before, we need to balance our gearing levels, our capital requirements and dividends. Given this, the Board has decided to temporarily reduce the dividend. We've declared a final dividend of $0.034 per share, which equates to a payout ratio of 60% of reported net profit after tax. Total dividends for the year was $0.072 per share.

Now turning to the divisional results. Pathology produced a very credible performance overall after the well-publicized softness in the market in the first half of the year. It delivered revenue growth of 3.5% to $1.1 billion and EBIT just shy of last year's result of $111 million. Importantly, our revenue growth over the year was above market after normalizing for the loss of the National Bowel Screening contract. At the moment, we are seeing a return to long-term averages in our June and July volumes. The division was able to produce a strong EBIT contribution in the second half of the year. Our productivity programs also delivered on their projected savings. When normalized for the loss of the bowel screening contract and the Dorevitch labor cost increases, annual EBIT grew greater than revenue.

Turning to the strategy in Pathology. Productivity savings continue with a range of tactical initiatives to optimize the footprint of collection centers and laboratories. Our total collection center numbers reduced in the year with closures of some lower-margin centers. We continue to target a reduction in rents as a percentage of revenue. The current organizational redesign is identifying further efficiencies.

In terms of investment for growth, we are upgrading our core instruments, known as the Serum Work Area. Building works at Laverty will see these major lines go live in September with other states to follow. We are also progressing the Laboratory Information System, or LIS, program, which formed a key part of the capital raise last year. We signed a contract with the SCC Soft Computer, a global supplier, and we are standardizing the processes and conventions across our existing systems to ensure a smooth implementation. This is expected to commence later this calendar year.

As you're aware, the Laboratory Information System will support the future growth of the Pathology division with significantly enhanced clinical outcomes and operating efficiencies. It will bring lasting benefits in terms of brand and reputation. The numbers we called out in the capital raise remain. They're approximately $100 million in total spend and $20 million in net annual benefits once fully operational. We'll update these figures as we progress.

Part of the growth in Pathology is coming from our niche specialties. Genomic Diagnostics is a particularly exciting area, and we are lucky to have in our business Dr. Melody Caramins, one of Australia's leading pathologists in this field. Our noninvasive prenatal testing, or NIPT, has increased its contribution by 33% this year, and our strong market presence will underpin further growth. We have introduced a breast cancer screening process and recently commenced pharmacogenomics testing with promising early results. And this month, we were pleased to acquire a pathology practice in Queensland after ACCC clearance, which should deliver a couple of million in EBIT.

Now turning to the Medical Centres division. We now have 95 major sites nationwide and 1,300 partner GPs, together with dentists, IVF and an array of other specialists operating out of our facilities. Pleasingly, the division grew its EBIT in consecutive halves to deliver an annual contribution of $37.6 million compared with $31.6 million in FY '18. This is a sign of the turnaround in Medical Centres and of Health & Co making its first profit. IVF and day hospitals grew our revenue but are not yet contributing to EBIT.

As you're aware, we've made a substantial investment in greenfield sites. Our EBIT would have been nearly $50 million without the cost of these sites. Importantly, we are accelerating the ramp-up with M&A roll-ins into greenfield medical centers.

Now looking at the key drivers in Healius Medical Centres. We recruited a record number of 259 GPs. Departures stabilized from quarter 2 onwards, delivering a net increase for the year. We're nearing the end of our contract transition period with only around 1 in 10 GPs on the original 5-year contracts. Health & Co delivered a maiden EBIT contribution of $1.9 million, reflecting growth in its network. It has 13 clinics, 132 GPs and increasing patient numbers.

In terms of the Medical Centres strategy, let me expand on the progress of our Leapfrog program. In terms of the GP recruitment targets in the capital raise, we are behind the annual run rate. However, we did have a very strong result in the second half with a net increase of over 60 FTEs. We aim to build on this in FY '20 and '21. Our pipeline -- our recruitment pipeline for FY '20 is strong. We have 70 full-time equivalent GPs with contracts signed or terms approved and a decent M&A pipeline. The rollout of a single practice management system and appointment capability is nearing completion with only 4 sites still to undergo the changes. Currently, appointments make up around 40% of our patient visits, and 1/3 of those appointments are booked online. We expect these figures to trend upwards.

We have successfully expanded our consumer offerings, including the introduction of SwiftQ Immediate Care effectively for Level 4 and 5 emergency department presentations. This is a high-quality nurse triage solution for the majority of our walk-in patients seeking an answer to a single health issue.

The early increases in gross billing per hour has continued. Our overall -- or overall, our gross billings per hour reached $239 in June, as you can see from the chart. We are on track to meet our capital raise target of a 10% to 15% uplift. We are also trialing a range of digital initiatives to improve the consumer experience and reduce our costs.

In terms of property, 15 centers have successfully undergone a transformation and extension with a raft of new consulting rooms, dental surgeries, immediate care and procedure rooms. Most of these works were completed in the back end of the financial year and will help our recruitment drive in FY '20.

Overall, it's a question of when, not if, we deliver all the Leapfrog targets. However, it is likely to be a further year down the track before we attain our big picture $1 million EBIT per center.

Now let me run through the highlights of our emerging businesses. Our dental business grew its EBIT strongly in the year. In addition, we're trialing a new service in dental called SwiftQ Dental, which offers 5 dental treatments for $99 each. This addresses a real need within the community for affordable and transparent dental services. I believe it may prove as disruptive as our low-cost IVF offering.

In IVF, we rebranded our IVF services to Adora Fertility. We've also updated our capacity with the opening of our Craigie clinic in Perth in Western Australia, new facilities in Melbourne and Sydney and satellite clinics in Queensland and Western Australia. Overall, the latest Medicare statistics show we are the fastest-growing IVF provider in the country. Our cycles and revenue were both up around 30%. The division recorded a small loss in the year as a result of the new start-up clinics. However, we made around $2.3 million in the whole of group EBIT. We continue to see great potential as we grow this business.

Turning to the slide on day hospitals. We closed the deal on the Montserrat acquisition in October. Since then, 3 new sites have opened, while the potential M&A acquisition of Waikiki in Western Australia will not go ahead. The new flagship Westside Private Hospital in Brisbane is comparable to the ambulatory surgical centers that we see in the U.S. ASCs have grown to well over 5,000 in number in the U.S., performing same-day outpatient surgical care and other treatments. Cancer treatment, cardiology and orthopedic procedures are all projected to grow strongly in this outpatient setting.

As I've said before, there are similar cost drivers and innovations here in Australia. This acquisition provides us with a substantial platform to grow and diversify away from bulk-billed MBS revenue. It also provides synergies with IVF and Pathology. Last year saw Montserrat deliver $19.5 million in revenue. Established hospitals performed broadly to expectations. However, a delayed ramp-up in the new hospitals reduced its contribution to our result to $0.6 million for the 8 months of ownership.

EBIT is expected to grow strongly in FY '20, and July has seen a 26% increase in revenue on the prior period. And 2 of the 3 new sites are now profitable. We also have a further 5 day hospitals within our own medical centers, including 2 new hospitals. Together, they delivered $13.5 million in revenue in FY '19. The maturer hospitals were profitable, but overall, with the 2 new start-ups, we recorded a $2.1 million loss.

The first phase of the integrated day hospital division will see our Healius facilities-branded Montserrat and the integration of Montserrat's quality and billing systems. This will bring Montserrat's approach to business development, health fund negotiations, list scheduling and labor management to a unified day hospital business.

Turning to our Imaging results. This FY '19 was another great result for the Imaging division and the third year of double-digit increases in EBIT. Revenue grew by 8% notwithstanding softer overall market conditions. Our top line growth came from a combination of new and same-site growth with an overall increase in market share. The EBIT margin expansion was assisted by our productivity programs and reached 10% in the second half of the year, the first time since FY '15.

This year, we have successfully delivered on the Northern Beaches Hospital imaging contract with its fully licensed MRI. And in June, it delivered its first positive contribution and should continue to ramp up in FY '20. In July '19, we commenced the imaging portion of the Australian Defense Force Health Services contract in partnership with BUPA, which will provide a large boost for many of our facilities.

In terms of recent media reports about the medical data of Australian Defence Force personnel, I want to say that Healius has always handled the medical data of a wide cohort of Australians. And I want to assure you, we maintain strict protocols to protect the privacy and security of that information. As well as the hospital and commercial contracts, we continue on our strategy of investing in high-end community sites, including the new large-scale imaging center at Highfields in Port Macquarie.

The rollout of our new imaging technology, iCAR, continues with over 70 sites now live and the remainder scheduled for completion by March 2020. We have around 60% of our radiologists now trained in this new technology. The program is proof of the successful rollout of IT projects at Healius and is already delivering a reduction in operating costs. Overall, we are projecting around $9 million in annualized benefits once fully implemented. We continue to see further opportunities to improve returns in this division through our current organizational redesign.

In standalone corporate, we saw a small increase in group IT costs and insurance premiums, but the big driver there is the current organizational redesign initiatives that will drive a more efficient group function in FY '20.

So in summary, after a soft first half result, we were able to deliver a strong second half, delivering an annual 6.5% increase in underlying profit after tax. This result was underpinned by the successful productivity improvement programs. Looking to the future, our strategic growth agenda does require investment ahead of returns, and the benefits take time to be fully realized. However, the results today underscore our ability to deliver on this agenda.

For the near term, we expect growth in our underlying profit after tax in FY '20, subject, of course, to market decisions -- market conditions and any changes from AASB 16 on leasing. We expect to give further guidance at our upcoming AGM in October.

So let me finish by mentioning the departures of Mal Ashcroft, our CFO, for the last 4 years; and Wes Lawrence, our CEO of Pathology. And I want to sincerely thank them both for their service and wish them well in their future endeavors. They have both given a lot to this company, and I personally will miss them both.

Now fortunately, we've been able to plan for this transition and have 2 highly capable individuals ready to step into their shoes, with Maxine Jaquet becoming our CFO; and John McKechnie, our CEO of Pathology. I've worked with both Maxine and John for the last 2 years. Both bring a high degree of experience and ability to their roles, and I look forward to having them on board from this coming Monday.

So thank you this morning for listening, and that's it for me. I'll hand you back to Janet.

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Janet Payne, Healius Limited - Group Executive of Corporate Affairs [3]

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Thank you, Malcolm. I'm going to open up to questions now. Just before we do, I just wanted to say upfront, a couple of the analysts have picked up or commented on the change in the Pathology figures for FY '18. And apologies if we didn't make it clear as we should have done. We actually had a post balance date event. If you remember, on the 14th of September, the Fair Work Commission came down with their decision on the Dorevitch EBA. We actually adjusted our annual report and the segment note in the annual report to the tune of $6.9 million pretax and $4.8 million after tax. And those adjustments were all in the Pathology division, and we have flowed them through into the figures -- the comparable figures in FY '18 in the presentation. So apologies if you hadn't picked up on that. And any further questions on that, let me know. I hope to make it any clearer.

Thank you. We'll go over now to the line and to our questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question today comes from Lyanne Harrison with Bank of America.

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Lyanne Harrison, BofA Merrill Lynch, Research Division - VP [2]

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They're mainly on the medical center business. And congratulations on having net new adds of 103 GPs for the year. With 70 contracts signed or approved for 2020, where do you think you might end up? What's your target in terms of the ending number of net new -- net GP adds for 2020?

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Malcolm W. Parmenter, Healius Limited - MD, CEO & Director [3]

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Look, we would hope to continue the same growth rate that we've had in the second half of FY '19. So you'd be able to get those numbers from the half year and the full year. But we see the trend continuing that. Our churn rates have stabilized at that same sort of number, and we're expecting that, that will be the run rate going forward. We would aim to obviously get it as high as we can, but that's the run rate at this point in time and it looks like continuing for some time.

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Lyanne Harrison, BofA Merrill Lynch, Research Division - VP [4]

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And in order to, I guess, attract the additional GPs in the second half of '19, have you had to amend or provide more favorable terms to the GPs?

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Malcolm W. Parmenter, Healius Limited - MD, CEO & Director [5]

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Look, in medical centers, it's -- or in general practice, it is still a fairly competitive market in terms of GP recruitment. But look, we're sticking to the proposal you'll see from the CapEx, that in terms of upfront, that's been fairly flat year-on-year. So that hasn't changed a lot. The one difference there is around M&A acquisitions into greenfield sites where we have acquired local practices. Now typically, these are practices that are anywhere from sort of 2 or 3 GPs up to sometimes 6, 7 or 8 GPs in one acquisition where they move into the centers. So that involves a different metric for those GPs. But look, that -- we don't see that as our solution to GP recruitment more broadly, but it is a way to ramp up those start-up greenfield centers that are lossmaking and prevent the cash burn from going on for any longer than it needs to.

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Lyanne Harrison, BofA Merrill Lynch, Research Division - VP [6]

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Okay. And just a follow-up on that in terms of the cash burn on the greenfield sites for 2020. Do you expect that to sort of maintain its level just similar to 2019? Or do you expect that to reduce? And could you give us an estimate for 2020?

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Malcolm W. Parmenter, Healius Limited - MD, CEO & Director [7]

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Yes. Look, I don't have an estimate for 2020, but we do expect it to reduce substantially in 2020. We have a number of backfill acquisitions coming into those greenfield sites that will certainly improve their revenue significantly and reduce the loss over time. And we would be hoping that by FY '21, we would have the majority of those sites into profitability.

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Janet Payne, Healius Limited - Group Executive of Corporate Affairs [8]

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Lyanne, if I could just add to that comment. Yes, we're certainly going to -- expect it to go down next year. We're thinking there's a small amount in Imaging which will probably disappear. The Montserrat will obviously disappear as those new sites are profitable. And we're thinking, net-net, we'll probably be in the order of about a $5 million cost we're carrying at next year. But it's not an exact science.

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Operator [9]

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Your next question comes from Andrew Goodsall with MST Marquee.

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Andrew Goodsall, MST Marquee - Healthcare analyst [10]

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Just on the restructure that, I guess, is being profiled by yourselves and the media recently. I'm just trying to get a sense of what sort of savings targets you think you're going to be able to take out of that, I guess, short and medium term.

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Malcolm W. Parmenter, Healius Limited - MD, CEO & Director [11]

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Yes. Thanks, Andrew. As you remember from the half year result, we talked about some efficiency savings in the second half, and that would lead to a $25 million annual run rate in FY '20. And we're still really -- we're very much on track for that. We're hoping to do a little better than that, but that's the kind of number that we're targeting with this.

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Andrew Goodsall, MST Marquee - Healthcare analyst [12]

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And so the sort of recent redundancies and so on are sort of part of that $25 million?

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Malcolm W. Parmenter, Healius Limited - MD, CEO & Director [13]

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Yes. So we hope to do a little better than that, but that's what we're targeting.

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Andrew Goodsall, MST Marquee - Healthcare analyst [14]

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Okay. And I know you haven't been explicit in guidance. But if I'm sort of looking at those second half exit rates in terms of each of the businesses, is your expectation for that, before we think about the flow of that restructure, that, that's sort of a base number now in terms of where you think, taking out seasonality, the operating day-to-day operations of the business is running?

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Janet Payne, Healius Limited - Group Executive of Corporate Affairs [15]

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Andrew, yes. It's Janet here. Yes. I think -- we think those run rates, the turnaround in Path with the volumes coming back and the tick up in Med Centres plus Imaging, we think those ones are good run rates to flow forward into next year.

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Andrew Goodsall, MST Marquee - Healthcare analyst [16]

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Before any additional savings might come in on top of that?

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Janet Payne, Healius Limited - Group Executive of Corporate Affairs [17]

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Yes. Yes, I know. I mean, obviously, we're always fighting against costs, as you know, increases in our -- especially in our labor costs with EBAs and all of the agreements that happened. But yes, there will be some increases there as well. We also got Montserrat, which is turning around.

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Operator [18]

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Your next question comes from Sean Laaman with Morgan Stanley.

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Sean M. Laaman, Morgan Stanley, Research Division - Australian Healthcare Analyst [19]

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I was hoping to get a bit more granularity on the collections and the closures in Pathology in with respect to timing. Was it evenly balanced through the period? Or was there any skew to any quarter or any half?

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Malcolm W. Parmenter, Healius Limited - MD, CEO & Director [20]

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Yes. Look, I'm not aware that it was -- I don't think it was skewed to any quarter or half. It was a fairly even phenomena through the year in terms of where they go. Often, a lot of the closures tend to be smaller collection centers that happened over that period of time. But it was largely spread over the years, Sean.

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Sean M. Laaman, Morgan Stanley, Research Division - Australian Healthcare Analyst [21]

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And just a follow-up. Just on IVF, are you able to give us a bit more granularity on where the growth came from? For example, we know that you're in Western Australia. Is that a relatively small contributor off a low base? Or we're seeing sort of well above market growth in some of the existing markets in New South Wales and Victoria?

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Malcolm W. Parmenter, Healius Limited - MD, CEO & Director [22]

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Yes. So it is very much on a state-by-state basis. So we were pretty much at capacity in New South Wales and Victoria. So we had caps on the numbers simply because of the facilities that we're in down there. So we've -- in Melbourne, we've moved into new facilities, which now have removed those caps, which is allowing it to grow. The Sydney businesses moved into standalone facilities for its consulting space, which gives it more space. We doubled the size of the laboratory in the previous financial year, so -- and increased the number of days in the day hospitals. So the business -- the demand for that business is -- has been difficult to meet, and so it's taken quite a bit of investment and growth in that space. And then you've got the opening of the Craigie clinic in Western Australia, which has been significant growth as well.

So it's on a market-by-market basis. We now have a pathway to -- with available demand in those. So we've created the capacity going forward, and we expect growth to continue really. And I think -- previously, we discovered that about 60% of the growth that we get comes from couples who had not been able to afford fertility services in -- from premium providers. So to some extent, it expands the market in that regard.

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Sean M. Laaman, Morgan Stanley, Research Division - Australian Healthcare Analyst [23]

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Sure. Sure. And I know you haven't explicitly expressed cycle numbers, but we should be able to work it out just from the revenue number that you've given us. So I'm just trying to think, we got some very strong, I guess, sort of Medicare data once it finally came through. And I'm just wondering if it's kind of more broad-based growth or it's really sort of growth driven by Healius.

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Malcolm W. Parmenter, Healius Limited - MD, CEO & Director [24]

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Look, it depends on the market, I think. I think in Western Australia, the growth in the Perth market is -- it's mostly the opening of the bulk-billing Healius clinic over there. So it's -- I think in Western Australia, we're almost all the growth there. Our Sydney clinic has been growing strongly as well over that period of time given the increased capacity. In Melbourne, we had caps there until probably about the last -- something like the last 3 months or so of FY '19. So we haven't really seen the benefit of the changes that we've had there. So...

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Operator [25]

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The next question comes from Gretel Janu with Crédit Suisse.

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Gretel Janu, Crédit Suisse AG, Research Division - Research Analyst [26]

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Just firstly, on the GPs. Better progress in recruits in the second half, but I have noticed that gross billings per FTE was down in second half. So what is the reason for this? And then do you expect this to improve in FY '20?

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Malcolm W. Parmenter, Healius Limited - MD, CEO & Director [27]

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Yes. Look, it was a bit of a mixed performance from that perspective, I think, for general practice. So if you look at GP for the whole market for Australia, growth rates in both volume and revenue for the GP market up until about May -- the beginning of May were pretty low, pretty flat year-on-year. And so that -- it's hard to know exactly what drives that for a whole market for that length of time, but that was the reality of it. And we certainly saw that in our medical centers. And then we're seeing quite a bit of influenza, which you would have read about in the last little while. It started up pretty early in this season for when you normally see influenza, and that's certainly driven volumes in the last kind of 3 months or so. Since then, we've -- you've got increase in GP demand.

And so it's a bit of a mix. And as that happens, you get -- as the sort of demand comes, then you get -- you will see that graph on billings per hour and a range of other things as it sort of gains momentum. So I mean, GP volume is growing at something like 1.5% year-on-year on a sort of rolling 12-month basis is really unusual. I think in sort of the many years that I've spent looking at those kinds of things, I think it's the lowest I've seen in a long time. So I think that's where it was. I mean, at the moment, it's still going reasonably strongly. So long may it continue.

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Gretel Janu, Crédit Suisse AG, Research Division - Research Analyst [28]

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Great. And then just further on the industry growth, just looking forward, how much confidence do you have that we will be able to sustain these long-term averages throughout FY '20?

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Malcolm W. Parmenter, Healius Limited - MD, CEO & Director [29]

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Which averages are we talking about there?

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Gretel Janu, Crédit Suisse AG, Research Division - Research Analyst [30]

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Just for Pathology, GPs, Imaging as well, just across the board.

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Malcolm W. Parmenter, Healius Limited - MD, CEO & Director [31]

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In terms of growth rates?

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Gretel Janu, Crédit Suisse AG, Research Division - Research Analyst [32]

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Yes.

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Malcolm W. Parmenter, Healius Limited - MD, CEO & Director [33]

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Yes. Look, it's -- if I had a crystal ball, I'd probably be more confident about that. But look, the reality is, I think, Pathology growth rates have come back quite strongly since the beginning of May. Now to some extent, that's off a fairly soft base last year, which makes them look stronger for this year. And I think that low growth rate last year continued for us, at least, all the way through to probably March or April. And so I guess the likely thing is that Path growth rates will probably stay at that sort of level through to the end. And then let's see what happens after that, whether they still continue to grow at the same rate year-on-year.

For general practice, the long-term growth rates in GP, likely -- I mean they're likely to return to where they were before. So I think that will recover. We've got great demand in our practices. So we're not anywhere near the point of saturating the patient demand in our medical centers. So for general practice, it's really a recruitment phenomenon, not really anything else.

Imaging, the market is still reasonably soft. You'd have to say, it hasn't had the recovery that we've seen in Path year-on-year. We're doing okay in Imaging because of new contracts and other things that we've done, but the underlying market in Imaging is still relatively soft.

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Gretel Janu, Crédit Suisse AG, Research Division - Research Analyst [34]

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Okay. And then just on the guidance, are you able to give any guidance in terms of the improvement to EBITDA and EBIT from the accounting changes?

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Janet Payne, Healius Limited - Group Executive of Corporate Affairs [35]

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It's probably in the order -- or it will be north of $200-odd million. If you look in the accounts, you've got your lease commitment and you've got your operating lease charge in the year. So if you sort of take our figures sort of broadly in the middle of that, it's between $200 million and $250 million. I've got Mark shaking his head here. Have I got that wrong?

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Mark Ellis, Healius Limited - General Manager of Finance [36]

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No, Janet. It's correct.

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Malcolm W. Parmenter, Healius Limited - MD, CEO & Director [37]

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It is, Janet. I mean, next year, when we get to it, we'll disclose the numbers under both the old and the new methodology. So you better continue the analysis that you've been doing at the moment. But I think somewhere around the $250 million mark in respect to EBITDA will be about right.

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Janet Payne, Healius Limited - Group Executive of Corporate Affairs [38]

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Thank you. And -- but of course, that doesn't flow down from EBIT down to NPAT because, of course, you then got the interest charge on that. So in terms of actual NPAT figure, it's not going to be that big by any means.

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Gretel Janu, Crédit Suisse AG, Research Division - Research Analyst [39]

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Okay. But you will disclose both?

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Janet Payne, Healius Limited - Group Executive of Corporate Affairs [40]

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Yes, we will. Yes.

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Operator [41]

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Your next question comes from Saul Hadassin with UBS.

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Saul Hadassin, UBS Investment Bank, Research Division - Executive Director & Research Analyst [42]

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Malcolm, just a question back on the GP billings. If I look at primary share of GP billings on an average FSE basis, it was down 5%. And I'm just wondering -- you've called out share of billings down 100 basis points in '19. I'm just wondering, do you think it's reached a steady state now? Or do you think in that recruitment drive, you're going to have to continue to see that primary share -- or sorry, Healius' share of billings continue to go down?

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Malcolm W. Parmenter, Healius Limited - MD, CEO & Director [43]

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Yes. Look, we think it's close to having bottomed out, if not sort of flat there. It's a little hard to be absolutely certain of that. I don't think -- we don't think it's going to shift much from where it is, if it shifts at all. I mean, obviously, the drive is to try and maintain that as best we can. It is quite a competitive market, though, for GPs at this point. Look, it's hard to say exactly where that goes, but I think general practice more broadly, I think, is struggling in Australia at the moment. And so there are a number of general practice businesses that have had kind of at least publicly discussed financial difficulties in the last little while. So it's -- we have the benefit in Medical Centres of having a network of large centers, which gives us an advantage in that space. And we can afford to pay higher percentages for GPs than most of our competitors can because of that. It is quite an advantage. And so being able to have 30 or 40 GPs in a medical center rather than 10 or 12 makes a big difference to the efficiency there. So I think the competitiveness probably -- the competition in that space probably does ease at some point. But yes, that's the way the market is right at this point in time.

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Saul Hadassin, UBS Investment Bank, Research Division - Executive Director & Research Analyst [44]

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Okay. And then a couple of quick ones on the account. So in the cash flow statement, the $29 million that was spent on health care professionals, I'm just wondering how much of that was on upfront and how much was on resigning.

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Janet Payne, Healius Limited - Group Executive of Corporate Affairs [45]

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Yes. There's a split at the back, I think, in your -- right at the back of that last slide on the key stats. We got 90% of new GPs and 25% of resigns on that, which doesn't give you a figure, does it? Let me have a look at another schedule. Hang on. Hang on. Hang on. Thank you. Yes. About 10 of it was on new guys. They average about 300 per FTE of upfronts. And then about 13, 14 of it was for resigns, and they're at a lower average rate, about 180 of upfronts. And then there's various rats and mice around there on option payments and recruitment costs, et cetera. So that's the broad split.

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Sean M. Laaman, Morgan Stanley, Research Division - Australian Healthcare Analyst [46]

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And then just the last one. In the statutory P&L, there's $6 million of other income. I was wondering what that was from. And is that included in your underlying EBIT?

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Janet Payne, Healius Limited - Group Executive of Corporate Affairs [47]

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No. So in statutory -- sorry, Mark, jump in.

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Mark Ellis, Healius Limited - General Manager of Finance [48]

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That was true-ups to deferred considerations, which are payable on the practices that we have acquired. And no, it was added back.

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Saul Hadassin, UBS Investment Bank, Research Division - Executive Director & Research Analyst [49]

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That's not in underlying?

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Mark Ellis, Healius Limited - General Manager of Finance [50]

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It's not in underlying.

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Operator [51]

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Your next question comes from David Low with JPMorgan.

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David A. Low, JP Morgan Chase & Co, Research Division - Research Analyst [52]

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If I could just start with the $13.5 million from the drag from new centers and new imaging centers. And what should we expect that to be in the year and now?

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Janet Payne, Healius Limited - Group Executive of Corporate Affairs [53]

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We think it will be down, David, probably around the $5 million mark. We'll have -- our centers are turning around, as we said. We're accelerating roll-ins there. We expect the Imaging drags will be gone and Montserrat as well, so down around the $5 million mark in FY '20.

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David A. Low, JP Morgan Chase & Co, Research Division - Research Analyst [54]

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And there's nothing new planned on that front? The IVF contract, et cetera, wouldn't be a drag or anything on those lines?

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Janet Payne, Healius Limited - Group Executive of Corporate Affairs [55]

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No. We don't include any of the contracts or hospital contracts or any of that. That's just our new greenfield sites. And no, there's no new ones.

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David A. Low, JP Morgan Chase & Co, Research Division - Research Analyst [56]

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Great. You may have answered this earlier, I was a little unclear on it. But the strategic spendings are below the underlying ones. I was just wondering what we should be expecting in FY '20. Maybe just as an open question to better understand.

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Janet Payne, Healius Limited - Group Executive of Corporate Affairs [57]

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We tried to give some directional comments in the presentation there, David. So I think overall, we'd expect that spending to be up in FY '20, our increases on LIS and in Leapfrog and probably the corporate because we're accelerating some of the corporate initiatives. But then, thereafter, we expect it to come down as iCAR finishes, the Leapfrog nonunderlyings come off as well or taper. So up next year and then coming down after that.

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David A. Low, JP Morgan Chase & Co, Research Division - Research Analyst [58]

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Okay. And just on the guidance. So in recent years, Malcolm, we've had more specific numbers than what we got today. I was just wondering why you've chosen to be less specific in guidance. And frankly, I can see a lot of trends that seem to be quite positive, and it would seem to imply that there could be quite a lot better profit result in FY '20 than we saw in '19 sort of on an underlying basis. And is there anything that you would help -- or put out there to sort of perhaps temper my view or provide greater clarity?

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Malcolm W. Parmenter, Healius Limited - MD, CEO & Director [59]

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I would like to temper your view. Look, we haven't provided sort of, to my knowledge anyway, guidance at the full year results. We've provided guidance at the AGM, which is what we intend to do again this year in terms of where that goes. Last year, we provided a little earlier with the cap raise, but that was a one-off rather than something that we would intend to do. We do like -- I mean, obviously, to get a view of this, the run rate for market volumes and -- has a big impact on where this goes over the next little while. So having 3 or 4 months of visibility around that sort of gives the guidance credibility. What we don't want to be out there doing is sort of adjusting this all over the place. So we want one guidance, and we want to deliver it. So that's the plan with where it goes. But yes, look, we think we do have a positive momentum into FY '20. That is our story. And that's been our turnaround strategy, to get to that, and that's where we think this is headed. We think we have got -- we're on track with the markers that we -- that indicate that, that's the case, and we're keen to keep delivering it.

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Janet Payne, Healius Limited - Group Executive of Corporate Affairs [60]

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And David, we do have our AGM a month earlier this year, so you're not waiting until November for that forecast.

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David A. Low, JP Morgan Chase & Co, Research Division - Research Analyst [61]

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I'll have one -- perhaps one last facetious question. I mean the AFR has been promising me $30 million of savings from the McKenzie program and another $40 million of savings from headcount reduction. Just wondering where those figures. Is there anything that we should be reading into what the McKenzie program delivered? Is there any significant savings from headcount reduction that we should be thinking about into the FY '20 year, please?

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Malcolm W. Parmenter, Healius Limited - MD, CEO & Director [62]

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Yes. Well, the AFR said we were struggling and imploding and every other sort of word as well. I mean -- and as you can see, that's not really true either. So look, we have a run rate on this. So these initiatives actually will go over the next 2 years, and we believe that -- this program into FY '21 and '22 because it's not -- I mean, the programs are about a lot more than redundancies. It's about a whole range of initiatives that improve efficiency. And we think this leads into something closer to $70 million in FY '21 and '22, so -- as it gets out. So it's an ongoing program that delivers over time. And so some of those initiatives take a while. They need technology to deliver them. There's a whole range of things that come with it. But we're committed to being not just the best that we can be, but the most efficient that we can be as well. And part of that is a smaller group function, which is what we've been working on in the last little while in terms of what we carry here at group and what sits out in the businesses.

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David A. Low, JP Morgan Chase & Co, Research Division - Research Analyst [63]

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Sorry, just one last question. I mean, did I catch that right? You're saying you're hoping there could be $70 million in future years?

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Malcolm W. Parmenter, Healius Limited - MD, CEO & Director [64]

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In future years, yes.

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Operator [65]

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Your next question comes from John Deakin-Bell with Citigroup.

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John Deakin-Bell, Citigroup Inc, Research Division - Director & Head of Healthcare in Australia and New Zealand [66]

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My question is just around the cash flow. And I'm just trying to understand some of the provisions in the accounts. The 12 -- Note 12 that you've released, $30-odd million, $32 million of provisions in the period. And then just on the cash flow on that, if I add back your $20-odd million of -- for the Dorevitch, et cetera, the conversion's actually quite high. I'm just trying to understand when the actual cash goes out for all of the one-offs that we're talking about.

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Janet Payne, Healius Limited - Group Executive of Corporate Affairs [67]

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Thanks, John. Yes. Well, the one-offs in the year, so all the strategic stuff in the year were all cash-based. So the cash has gone out for them, and I think that's one of the reasons why the flow is a bit weaker than last year. Yes, we did release provisions. We also -- well, used provisions. We used, obviously, the Dorevitch and the [Omega] one. We've released some around a long-standing legal battle, which has finally been resolved. Our STI provisions for FY '18 weren't all fully used, so there are definitely some ins and outs there. And also, well, you've got the rec obviously on Note 16, but we've got a bit of pop-up in receivables compared with payables in the year. So it's all -- lots of rats and mice around really, John. We called out the big ones really with the Omega and Dorevitch and the tax profile. Those were the main things.

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John Deakin-Bell, Citigroup Inc, Research Division - Director & Head of Healthcare in Australia and New Zealand [68]

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So just around 3. Let's -- well, regarding to the one-offs being big in FY '20, so we really should expect another year of sort of a big gap between cash flow and P&L given all of that cash would go out in the FY '20 year?

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Janet Payne, Healius Limited - Group Executive of Corporate Affairs [69]

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Yes. That's correct because cash flow is obviously a statutory figure. And it's -- yes, they're all cash back, all those strategic projects effectively. That's sort of part of the reason why we're very conscious about balancing dividend, gearing and investment for growth. So that's sort of, I mean, behind the thinking around pulling back the dividend a bit really for the full year or the second half.

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Operator [70]

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There are no further questions at this time. I'll now hand back to Ms. Payne for closing remarks.

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Janet Payne, Healius Limited - Group Executive of Corporate Affairs [71]

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Levy, thank you very much. Thank you, ladies and gentlemen, for listening in. We obviously are all here. I think we've got some calls with the analysts coming up, and we're off on roadshow next week. So look forward to meeting everybody soon. And any other questions, please come through. Thank you.