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Edited Transcript of SHL.AX earnings conference call or presentation 17-Feb-21 9:30pm GMT

·59 min read

Half Year 2021 Sonic Healthcare Ltd Earnings Call NORTH RYDE , NSW Feb 18, 2021 (Thomson StreetEvents) -- Edited Transcript of Sonic Healthcare Ltd earnings conference call or presentation Wednesday, February 17, 2021 at 9:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Christopher David Wilks Sonic Healthcare Limited - Finance Director, CFO & Executive Director * Colin Stephen Goldschmidt Sonic Healthcare Limited - CEO, MD & Executive Director * Paul J. Alexander Sonic Healthcare Limited - Deputy CFO & Company Secretary ================================================================================ Conference Call Participants ================================================================================ * Andrew Goodsall MST Marquee - Healthcare analyst * Chris Cooper Goldman Sachs Group, Inc., Research Division - Research Analyst * David A. Low JPMorgan Chase & Co, Research Division - Research Analyst * David Andrew Stanton Jefferies LLC, Research Division - Equity Analyst * Gretel Janu Crédit Suisse AG, Research Division - Research Analyst * John Deakin-Bell Citigroup Inc. Exchange Research - Research Analyst * Lyanne Harrison BofA Securities, Research Division - VP * Megan J. Kirby-Lewis Morgan Stanley, Research Division - Research Associate * Michael Murray Australian Ethical Investment Ltd. - Equities Analyst * Rod Sleath Rimor Equity Research Pty Ltd - Equity Analyst * Saul Hadassin UBS Investment Bank, Research Division - Executive Director & Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Colin Stephen Goldschmidt, Sonic Healthcare Limited - CEO, MD & Executive Director [1] -------------------------------------------------------------------------------- Good morning, ladies and gentlemen, and welcome to Sonic Healthcare's First Half Results Presentation for financial year 2021. My name is Colin Goldschmidt. I'm the CEO of Sonic Healthcare. And I'm joined today by my colleagues, Chris Wilks, who is Sonic's CFO; and Paul Alexander, who is Sonic's Deputy CFO. Before taking you through our slide pack, which I hope you have in front of you, I'd like to take a couple of minutes just to make a few introductory comments, which might help to set the scene for this result and also provide a setting for Sonic's current and future position. So the half year to December 31, 2020, was dominated by the pandemic and the critical COVID-19 testing we're doing for the countries in which we operate. Since the pandemic's outbreak in February, March last year, that's almost a year ago now, we've performed over 18 million COVID PCR tests in 60 separate Sonic labs and in 8 countries of operation. These testing volumes would place Sonic Healthcare as 1 of the leading COVID testing organizations in the world. Speaking on behalf of Sonic's Board, our amazing leadership teams, our pathologists, radiologists and other doctors and all our worldwide staff, we stand very proud of Sonic Healthcare and what we've achieved, not just our results, but our contribution to the pandemic effort. The results that you have seen today reflect the most intense 6-month period in Sonic's history. But despite this, I'm pleased to say that we ended the period with great strength at P&L level, at cash level and at balance sheet level, too. I want to say that these results, they haven't come easily. Sonic has heated a call to a global emergency, and our people have literally risen to the occasion in a magnificent fashion. We've done it in a measured and determined and efficient manner. And we've leveraged our global infrastructure and our prior investments to make our contribution and to get the job done. The pandemic and the high demand for COVID testing have certainly challenged our people like never before. But despite all the disruptions from the pandemic itself, we've been open for business on a 24/7 basis. We've kept our labs, our imaging centers and our medical centers open at all times not just for COVID testing, but also to maintain our very important non-COVID services. That's our base business without interruption. If you just consider our laboratory division for a moment, the handling of huge COVID specimens have literally changed the face of our day-to-day operations. Our leadership teams and staff have shown incredible flexibility to adapt to such a big change so rapidly and, in fact, so seamlessly as well. So the way I see it is that our staff and particularly our laboratory staff in this situation are nothing short of heroes working at the front line of the pandemic. And just to give you a sense of our COVID work very briefly, we've developed and implemented new COVID-19 testing methods in a very short space of time. We've built out COVID testing labs to cope with huge demand. Our procurement teams have shipped in masses of new testing instruments and precious COVID testing reagents. Our couriers have handled and transported COVID specimens over millions of miles. Our lab staff has handled the millions of COVID specimens every day. And our molecular lab staff have performed the millions of COVID tests using a variety of testing platforms. And of course, we've delivered all these COVID results with rapid turnaround times to patients, to doctors and to health authorities via a variety of methods, including SMS and other electronic channels directly to patients. And in Australia, finally, our staff have personally taken the COVID swab from every patient whose test we've performed. These swabs have been taken by our staff, usually wearing full PPE gear in our collection centers, in our many drive-through facilities around the country and in the nursing homes of Australia under a federal government contract where we've swabbed hundreds of thousands of residents and staff in those facilities. And so if you look at Sonic at the moment from a business perspective alone, we've been very careful not to squander what is essentially an unprecedented opportunity. By responding responsibly and efficiently, we've bolstered our position for the future. Our strengthened balance sheet will facilitate growth for Sonic in the months and years ahead. Allowing us to take advantage of acquisition opportunities, whether they're small or large, and to invest in state-of-the-art technologies, equipment, facilities and the like. But perhaps more important even than the pure business perspective, from a health care perspective, we've made a huge public health contribution at a time of need. And I really want to take this opportunity to thank all of our 37,000 staff worldwide for their part in Sonic's stellar, I have no other word, contribution to the pandemic. So now if we can move to the slide deck, please, which I hope you have. We will start with Slide 3, which provides the headlines of our first half performance. Revenue for the half came in at $4.432 billion, which was up 33% on the prior period. We achieved EBITDA of $1.3 billion, which is up almost 90% on the prior period, and our net profit was up 166% at $678 million. I'm referring to Australian dollars each time I say dollars, unless I qualified otherwise. Just a few comments about our strong revenue growth, which, of course, was driven by our COVID-19 testing. Firstly, the 33% revenue growth needs to be viewed in the light of a just under 1% fall in our base business across the group. That's base business revenue. Then when you split the revenue by division, our Laboratory division achieved revenue growth of 39% with an even stronger weighting than that to our Northern Hemisphere markets. And then our Imaging division delivered a very positive 14% revenue growth, obviously, with no contribution from COVID testing. Now I've covered off on most of the points under the heading COVID-19. That's the main bullet point. But I would make the point, which I think is in sub bullet point #4, that these record numbers reflect very much the leveraging power inherent in Sonic's global infrastructure. And by that, I mean, Sonic's investments over a long period of time in modern facilities and equipment in IT, in networks, in couriers, collection facilities and relationships with clinicians, governments and other stakeholders and, of course, the investments in people, too. We've been able to leverage these investments and our infrastructure to respond to the pandemic and to offer widespread COVID testing at very short notice. But the last sub bullet point under the COVID-19 heading, is to make the point that we're seeing a strong return to normal base business volumes and it's clear to us now that there is much less pandemic impact on base business volumes and revenues than in the early months of the pandemic. And then moving on, our balance sheet now is in very strong shape, with gearing at record low levels, and we have available liquidity of around $1.3 billion before the interim dividend is paid. And finally, the Board of Sonic has ratified an interim dividend of $0.36 per share, maintaining our long record of a progressive dividend strategy. Slide 4 repeats our headline financial numbers. Just to add to these, the earnings per share growth number for the period is in line with the net profit growth of 166%. Cash generation was strong at $810 million and was impacted by a number of factors, including the new AASB 16 lease accounting standard. Our cash generation was also impacted by an increase in debtors, which were up by $195 million, mainly due to the German statutory insurance fee system which lags revenue growth by about 5 months. And cash generation was also impacted by an increase in inventory, which was up by around $90 million, and that's related to capacity and preparedness for COVID testing. There were also some COVID-related tax deferments, which affected H2 of last financial year and H1 of this financial year. They also affected the cash generation in this particular period. If you exclude the AASB impacts and if you factor in the debtor and inventory movements, the conversion of EBITDA to cash was over 100%. Moving to Slide 5 and looking ahead to the full FY 2021 financial year. We're expecting a strong second half result, and we say that based on the revenue trend in both January and February of this financial year. So that's the January and February -- February, we're in right now. We are not providing guidance for FY 2021, simply because of COVID-related unpredictability. The pandemic has the potential to cause fluctuations in COVID testing as well as in our base business levels, even though our base business is showing increasing resilience to the impacts of COVID waves. But having said that, we are seeing that any decline in our base business, for example, what occurred in Melbourne during the recent outbreak, is more than offset by increases in COVID testing. If we go to Slide 6, on the interim dividend. As mentioned already, Sonic's Board has declared an interim dividend of $0.36 per share, which is up 6% on last year's interim dividend, and franking is to 30% as per last year. The record in payment dates are there for your information. And the dividend reinvestment plan remains suspended for this dividend. And on to Slide 7, which shows our traditional Sonic pie chart for the half year this time, expressed in reported actual revenue in millions of Australian dollars. Now compared to the half year chart a year ago, there are some interesting changes, which reflect in some way the progression of our business. First of all, obviously, the whole pie has increased by about 1/3. H1 revenue this year is $4.4 billion. Last year, it was $3.3 billion. Secondly, the largest growth contributions have come from our laboratory divisions, as expected due to COVID testing. Our Laboratory division, and by that, I mean, all the segments in this pie other than Sonic Imaging and SCS now account for 88% of total Sonic revenues. Last year, it was 86%. Then within our Laboratory division, the largest revenue increments have come from our largest operating divisions in the Northern Hemisphere, most notably from the U.S.A. and Germany. And you'll see from this chart that another change is that Germany is now our second largest operating division by revenue. Germany was third last year. And it's also interesting that the U.S.A. and Germany together now comprise 50% of Sonic's total revenue. Last year, it was 46%. And the final point of interest is that total Australian revenue, so that's adding the Australian lab division with Sonic Imaging and SCS, make up just 34% of Sonic's total revenues. Last year, it was 37%. So 2/3 of Sonic's revenue now is attributable to our Northern Hemisphere businesses in Europe and the U.S.A. And of course, conversely, 1/3 of our revenues are now sourced in Australia. Moving to Slide 8. And we'll move through the country slides at a pace so that we can leave time for questions after this presentation. The performance of our U.S. division has been quite incredible over the half. Under the leadership of CEO, Dr. Jerry Hussong, based in Austin, Texas, together with his Central Office team. I want to make the general point here that over the course of the half and even through to today, the pandemic continues to range in the U.S. and Europe at levels that are certainly more intense than in Australia, making life and operating conditions much more trying for our teams over there when compared to Australia. And as you know, new case numbers and COVID debts still remain high in the northern hemisphere, with lockdowns of various degrees still in place despite the positive vaccine rollouts that are taking place. Our U.S. division delivered revenue growth of 39% for the half, with our base business down by about 8%, but less impacted by second waves than those at the start of the pandemic. We did receive government grants totaling USD 26 million, but these have now been repaid in full. And there are 2 pieces of good news on the revenue front, which fall outside of the COVID arena. And these were, firstly, that the proposed changes to Medicare fees for anatomical pathology, which were due to come in on January 2021, have now been revised, and the result is that there will be a negligible impact on Sonic with the revised fee structures. And secondly, the PAMA fee reductions, which were also due to come in on January 2021, have now been deferred to January 2022. If we move to operational level. We are performing high-volume COVID PCR testing in 13 separate laboratories across the United States. We were also awarded a National Institutes of Health contract to create significant additional search capacity in our labs for COVID testing. This capacity has now been established in our labs, even though we're not fully utilizing it yet. Another positive operational development is that labor savings were achieved at a structural level at the start of the pandemic, a real tribute to our leadership teams in the U.S., and those savings are still in place and will generate savings for us as we progress down the track. And finally, just a word about our exclusive genetic test for the classification of thyroid malignancy, this is our Thyroseq test. It has taken off. Our Thyroseq national sales strategy has been fully launched now, and we've almost completed a dedicated Thyroseq laboratory in New York. Revenues from Thyroseq testing alone are now standing at USD 20 million per annum, and we expect the demand for this test to grow significantly into the future. Moving on to Slide 9, which covers Sonic Healthcare Germany. And like our U.S. division, Sonic Germany has delivered incredible performance under very difficult conditions led by our CEO, Evangelos Kotsopoulos, who is based with his executive team in Sonic's German and European head office in Berlin. First half revenues grew at an amazing 58% attributed to this division's early and widespread COVID PCR testing. Our base business revenues in Germany have been minimally affected despite the lockdowns and despite huge pandemic activity in general. And we also make the point that no government subsidies have been received. And then at operational level, Sonic is the largest provider of COVID PCR testing in Germany. We're performing these tests in 30 separate Sonic labs right across Germany. Our German division is also playing a leading role in a national screening program to identify new coronavirus strains and mutations and perhaps even more excitedly, we're directly involved in another unique national program to do whole genome sequencing on the SARS COVID-2 virus. And we're doing this at our Bioscientia, which is a very highly regarded genetics lab based in Ingelheim, the Sonic Bioscientia lab. So this is a complex program, which our staff have helped to shape and establish. And currently, we are the laboratory with the largest number of whole genome sequencing data sets, which have been submitted to government. We've almost done 3,000 of these already. This particular program is a source of great pride for all our staff in Germany, and of course, for all of us in Sonic, too. And it does represent a great example of how Sonic businesses especially in Germany, but also in our other countries, have collaborated with governments and health authorities to assist in an important and meaningful way in the overall pandemic effort. Throughout the pandemic to date, Sonic has played a leading role in the German Laboratory Industry Association to provide pandemic-related advice to government. And a similar situation has existed in most of the countries in which we operate, where we are integral members of our industry associations. And finally, on our German division, again, in the non-COVID Arena, the recently rolled out national HPV cervical cancer screening program is contributing to our base volume growth. But we expect that it will be further enhanced due to a backlog in testing related to the pandemic itself. If we move on to Slide 10, which covers our Australian Laboratory division, which has achieved outstanding performance under the leadership of CEO, Dr. Ian Clark, and his executive team based in Sydney. Revenue growth for the half was 26%, including base business revenue growth of around 5%, which was a very pleasing result. Once again, we have received no government subsidies here in Australia. At operational level, Sonic is a leading provider of COVID PCR testing in Australia. And in addition to this, we've maintained PCR surge capacity in all Australian states to assist with potential outbreak management. And as mentioned earlier, Sonic is providing COVID testing for Australia's aged care facilities, that's nursing homes or care homes as they call it somewhere, under a federal government contract. This is a massive undertaking, amazingly carried out by our staff and a source of great pride to us all. And lastly, 2 pieces of non-COVID news. Firstly, that our National Bowel Cancer Screening contract has been extended for a further 2 years from January 2021. And secondly, despite the pandemic, we continue to experience ongoing strong growth in our Genetics division, which is really great news, so much so that we've commenced a major expansion of our genetics testing laboratory at Douglas Hanly Moir Pathology here in Sydney. If we move to Slide 11, which covers Sonic's U.K. division. And here, again, we've seen incredible performance over the half. Our U.K. division is headed by CEO, David Byrne, together with his head office team based in Sonic's newly constructed Halo building, which is located in Central London. Our U.K. division achieved revenue growth of 43% over the half. Now from a base business perspective, our private market business has largely fully recovered, following significant earlier falls in the early stages of the pandemic. On the other hand, our public NHS-based business revenue was slightly down in the half. And like in our other markets, we're also seeing less base business impact from subsequent waves and lockdowns. And then moving to our operations. We've recently completed the fit-out of a new on-site COVID PCR search laboratory. This is a laboratory within a laboratory in our Halo building in Central London. The lab was opened, commissioned in December 2020 and is now testing at full capacity. And on the non-COVID front, TDL's new Manchester laboratory is set to open in March 2021. This will be a modern and efficient lab that will certainly enhance our business in that part of England. I'm going to cover Slides 12 and 13 together. That's our Swiss and Belgium divisions, both of which have performed with great distinction despite very difficult pandemic conditions, particularly in Belgium. Revenue growth was strong in both countries, with ramping up of COVID testing during the half. Our base business revenue growth in Switzerland was a fantastic 6% for the half, which is the incredible outcome in the circumstances, whereas base business in Belgium was down 4% for the half. And if we can now move to Slide 14, covering Sonic's Imaging division under the leadership of Dr. Julian Adler and his executive team based here in Sydney. Obviously, there's no COVID testing revenue in this division, but revenue growth was a standout at 14% for the half, including market share gains, with EBITDA growth of 19% and margin accretion. These excellent results are the outcome of workflow and efficiency projects, as well as benefits flowing from investments in greenfield sites, so these are previous investments in greenfield sites over the past years. We're also extending our imaging interests in Melbourne by moving to a majority position in Epworth Medical imaging. We've announced this before. And this will take place soon in the second half of FY 2021. Slide 15 covers Sonic Clinical Services, which just as a reminder, comprises itself of Sonic's medical centers and occupational health businesses throughout Australia under the leadership of Dr. Ged Foley and his executive team based in Sydney. Despite a revenue decline of 4%, which was due to pandemic-related lower consultations, earnings were pleasingly maintained at last year's levels. And this is a great achievement in the circumstance. Throughout the pandemic, which really represented difficult conditions for general practice, our consultations and services were maintained at full levels throughout. We use flexible models of consultation, including the adoption of telehealth consultations, which reached a peak much earlier in the pandemic and are now tailing off progressively. A point of note is that SCS has been selected by the Australian government to provide clinical and advisory services in the vaccination rollout program for Australia. And we expect Sonic to play a significant role in the vaccination program via this division. Slide 16 summarizes our balance sheet position as at December 31, 2020. You'll see from the table that our net debt position has reduced by $374 million, to now stand at around $1.6 billion. Our debt covenants are now at extremely healthy levels with our gearing ratio down to almost 20%. Our interest cover at a very healthy 20x, and our debt cover, which is net debt-to-EBITDA, down to parity at 1x, and that's the lowest level it's been in over 20 years. And as mentioned at the start of the presentation, we've got significant available headroom of around $1.3 billion pre interim dividend again to add to the mix. These are very important numbers for Sonic, obviously, and for our future growth trajectory. Over the past months, we've not only driven record operating results at P&L level, but we've also not wasted what is clearly a one-off opportunity for us. I mentioned earlier that we've taken a measured and responsible approach to use this opportunity to greatly strengthen our balance sheet in preparation for future growth, particularly from here onwards, as we begin to emerge from what I have to say are the darkest months of the pandemic. Our growth plan includes bidding for contracts ands JV partnerships, but it's also very much around the pursuit of value-accretive acquisitions and also to invest in technologies and efficiencies to keep our services and financials at the highest quality levels possible. So this is now a very strong balance sheet, one that can be leveraged further to support our growth plans into the future. And the final slide, which is the outlook slide. This gives a summary of our current position and, of course, an outlook to the future. The first bullet point is there is a reminder that Sonic Healthcare is a health care company, providing essential medical services. And as such, we have participated integrally in the pandemic effort via our COVID testing and at the same time, we've continued to provide our base business services in an uninterrupted fashion throughout the pandemic. Like COVID testing, our base business represents essential medical services, many millions of laboratory tests each year plus imaging investigations and clinical consultations as well. We expect demand for COVID PCR testing to continue into the coming years at volumes that are unpredictable at this point in time. We also believe that demand for serology testing, which involves measuring antibodies to coronavirus, may increase as we proceed into the vaccination stage of the pandemic. I've already mentioned that we have fairly ambitious plans for growth. And as per the last slide before the one before this, we are fortunate to have a very strong balance sheet to support this growth. We're currently bidding on significant opportunities at the moment. There are a mix of contracts and acquisitions in Australia, the U.K., the U.S.A. and in Canada to Alberta, Canada. The Alberta tender, just as a side note, is a return to the contract that Sonic actually won 5 years ago, but which was then canceled due to a change in government. This time around, in a completely new tender process, the contract is slightly broader, in fact, covering community laboratory services in both Northern and Southern Alberta, previously, it was just Northern Alberta. And the final bullet point in this presentation, final major bullet point, sets out the key company and market attributes, which will support Sonic's growth into the future. And these are, firstly, that we are geographically diversified, which provides us with risk mitigation and opportunities for expansion. We want to remind people that the underlying drivers of the health care markets and health care growth, in general, remain unchanged, perhaps even a bit amplified now that tests and services have actually been missed during the height of the pandemic. We also want to remind that we currently hold market-leading positions in the U.S.A., Germany, in Australia, the U.K. and Switzerland. And importantly, that our deep-seated culture of medical leadership continues to strengthen as time progresses. It resonates more and more strongly with our people and with our customers as well. And finally, I want to say that we are very, very fortunate to have a brilliant team of experienced and committed leaders throughout our global operations. So all up the points on the last slide are a good summary to give you a sense of why I'm particularly optimistic about Sonic's growth and our continued success into the future. Thank you very much. I'm going to hand you back to our operator now to start the question-and-answer session. And I'm going to invite Chris and Paul to join in, and we'll take the questions as a group. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question comes from David Low from JPMorgan. -------------------------------------------------------------------------------- David A. Low, JPMorgan Chase & Co, Research Division - Research Analyst [2] -------------------------------------------------------------------------------- Colin, the dividend was a little bit of a surprise to me. And I understand there's a progressive dividend policy, and hence, I understand the rationale. But it certainly sort of begs the question about capital management, given how much Sonic has benefited from the COVID testing and the pandemic generally. I was just wondering if you could talk a little bit to how Sonic's thinking about that, whether you will be looking to return some of this gain to shareholders, please? -------------------------------------------------------------------------------- Colin Stephen Goldschmidt, Sonic Healthcare Limited - CEO, MD & Executive Director [3] -------------------------------------------------------------------------------- Okay. So I'll make the first comments, and then I'll hand to Chris and maybe Paul as well. So I've covered off in the presentation on many of the points that are relevant to your question, David. And to perhaps add that this is the interim dividend, there's still a final dividend to come at the full year result presentation. But the view of our Board was to take a conservative position at this point. And to use the opportunity to strengthen our balance sheet for the growth of Sonic, going forward. We see this particularly at a time of pandemic uncertainty is a very important issue for the company. And so we end up now with a very strong balance sheet, as I hope we've demonstrated in the presentation and in the results, and very well set for growth going forward. So it's a balance between how best shareholders will benefit from this additional cash. And at the moment, we have a number of opportunities in front of us. We want to exploit these in the best interests of shareholders going forward. So maybe, Chris, if you want to make comments. -------------------------------------------------------------------------------- Christopher David Wilks, Sonic Healthcare Limited - Finance Director, CFO & Executive Director [4] -------------------------------------------------------------------------------- Maybe the only thing I'd add would be just to emphasize that what Colin saying is we're not saying that we want a strong balance sheet forever and a lazy balance sheet. We really see this as an opportunity to make acquisitions, grow the business that will give the shareholders some exciting medium and long-term value gains. If for some reason, those opportunities don't materialize, as a Board, we will reconsider because we don't want to be sitting there with a 1x EBITDA balance sheet forever. I think we see our long-term debt to EBITDA at more than the 2.5x debt to EBITDA, which keeps us at investment grade. So it's really it's a situation where we see some interesting opportunities out there, and we'll be doing our best to try and see if we can pull some of those off for the benefit of shareholders. -------------------------------------------------------------------------------- David A. Low, JPMorgan Chase & Co, Research Division - Research Analyst [5] -------------------------------------------------------------------------------- Okay. I mean it sounds to me like we should see some activity on that front, certainly, this calendar year, otherwise, you might reassess. -------------------------------------------------------------------------------- Christopher David Wilks, Sonic Healthcare Limited - Finance Director, CFO & Executive Director [6] -------------------------------------------------------------------------------- Yes, that's probably the way to look at it. -------------------------------------------------------------------------------- David A. Low, JPMorgan Chase & Co, Research Division - Research Analyst [7] -------------------------------------------------------------------------------- Okay. Look, the other question, and apologies if you did answer this one as well. I mean, it's a somewhat distracting morning with the competitor result out. But just the core business, or the routine business. I mean, I read the commentary. I heard the comments. Just if you could talk about the trends there as we go into this calendar year. I mean, is your expectation that given the pandemic receding in most regions, seemingly on the data, that routine business at least gets back to previous levels? I'm thinking the U.S., particularly, I think we have probably have a better handle in Australia. -------------------------------------------------------------------------------- Colin Stephen Goldschmidt, Sonic Healthcare Limited - CEO, MD & Executive Director [8] -------------------------------------------------------------------------------- With -- so David, we're certainly expecting that based on the trends that we're seeing. And we're seeing different stages of the pandemic in different countries. And so if you take, for example, the Australian market where there is much less pandemic activity, our base business is almost back to normal levels. And we're seeing a return trend with, I guess, accommodation to the pandemic is the one thing. And I think vaccination is going to add to the return to base business. There's a very, very important issue underlying your question, which is that tests have actually been missed over the period of the pandemic. And so in Australia, for example, we've actually seen a rebound phenomenon in, for example, our anatomical pathology testing, where you can see that tests that were missed are now being caught up at this point in time. And we expect a bit of that to occur in addition to the normal return to base business as the next months unfold. I think the vaccination programs around the world are going to be a big help to bring everyone back. Right at the side of the pandemic, there was fear about going to doctors. I think that's really diminished dramatically. It's still there in some of our northern hemisphere markets, but certainly much less so than before. So we're very optimistic about the return of our base business, given that there are miss tests and also (technical difficulty) -------------------------------------------------------------------------------- Operator [9] -------------------------------------------------------------------------------- We are now back. -------------------------------------------------------------------------------- Colin Stephen Goldschmidt, Sonic Healthcare Limited - CEO, MD & Executive Director [10] -------------------------------------------------------------------------------- Sincere apologies to everyone for that interruption. There was a fire testing going on in our building. And I just want to say that wasn't the sort of testing we were anticipating on a day like today. So David, I think we're complete with your question, maybe back to Taylor. -------------------------------------------------------------------------------- Operator [11] -------------------------------------------------------------------------------- Your next question comes from Lyanne Harrison from Bank of America. -------------------------------------------------------------------------------- Lyanne Harrison, BofA Securities, Research Division - VP [12] -------------------------------------------------------------------------------- My questions are around -- on COVID testing. And earlier in your comments, you mentioned that you were seeing January and February of this year, seeing a revenue growth trend. Can you provide a bit of color on what you're seeing in your 3 key markets on COVID testing and how that compared with, I guess, the peak months of November and December? -------------------------------------------------------------------------------- Colin Stephen Goldschmidt, Sonic Healthcare Limited - CEO, MD & Executive Director [13] -------------------------------------------------------------------------------- Yes. So we obviously don't want to say more than we've actually released. But other than to say that the January and February revenue trends remain very robust. So we're seeing an increase in our base business right around the world, and we're seeing, maintaining high volumes of COVID PCR testing in all our markets, perhaps with the exclusion of New Zealand and Ireland. So we just do not worry about those. But the bigger markets that we're in, COVID testing remains very strong, including in Australia, interestingly enough. -------------------------------------------------------------------------------- Lyanne Harrison, BofA Securities, Research Division - VP [14] -------------------------------------------------------------------------------- Okay. And you also mentioned surge capacity. How much additional capacity would that provide for Sonic in its key market? -------------------------------------------------------------------------------- Colin Stephen Goldschmidt, Sonic Healthcare Limited - CEO, MD & Executive Director [15] -------------------------------------------------------------------------------- So I can't actually give you a number, but we can at least double what we're doing now in Australia. That is in the U.S., we can go up 2 or 3x because we've built significant additional capacity under the grant that we received for that purpose. And in Germany, our capacity, I believe, from where we sit at the moment, we could more or less double our volume as well. In the U.K., we're kind of reaching our limits. It's a smaller -- slightly smaller market than Germany and the U.S., and we're probably at capacity there. -------------------------------------------------------------------------------- Operator [16] -------------------------------------------------------------------------------- Your next question comes from Megan Kirby-Lewis from Morgan Stanley. -------------------------------------------------------------------------------- Megan J. Kirby-Lewis, Morgan Stanley, Research Division - Research Associate [17] -------------------------------------------------------------------------------- Just a couple on the U.S. market as well. Just firstly, if you could just provide an update on what you're seeing on PCR pricing since the reimbursement changes came through in January. And then my second question on the U.S. is just around the market share on COVID testing. In the past, you have said that market share is above what you see in your normal core testing. Just wondering if that statement still holds. -------------------------------------------------------------------------------- Colin Stephen Goldschmidt, Sonic Healthcare Limited - CEO, MD & Executive Director [18] -------------------------------------------------------------------------------- Okay. So first, thanks, Megan. First, on the fees for COVID testing, we're not seeing any movement up or down. You probably are aware that the Federal Health Emergency has been extended through calendar 2021 into the commencement of 2022. Whilst there's no certain coupling, it's the loose understanding in the industry that the current fee, which is USD 75-plus USD 25 with the rapid turnaround, will link with the Federal Health Emergency Provisions. So that's the fee that we're getting from Medicare in the U.S.A. The fee that we're getting from private insurers is a little more variable. But it's not actually moving at this point in time. On to your second question, which is a very difficult one. It's almost impossible for us to work out market shares of COVID PCR testing in the U.S. We're doing very big numbers, but I am aware that some of our big competitors like Western and LabCorp are doing huge numbers as well. And of course, there are many players in the U.S. who are doing PCR testing as well. I would -- I don't know what our market share number is, but we're certainly close to what our market share would be ex pandemic. And so it's just a very difficult one to answer. We can only really look at the absolute numbers we're doing, and they're huge. -------------------------------------------------------------------------------- Operator [19] -------------------------------------------------------------------------------- Your next question comes from David Stanton from Jefferies. -------------------------------------------------------------------------------- David Andrew Stanton, Jefferies LLC, Research Division - Equity Analyst [20] -------------------------------------------------------------------------------- Firstly, on your base business. I'd be interested in your view as to whether you think you'll see growth in volume terms compared to pre-COVID. So in the second half FY '21 compared to second half FY '19, whether you'll see -- you think you'll see growth on that second half FY '19 number? -------------------------------------------------------------------------------- Colin Stephen Goldschmidt, Sonic Healthcare Limited - CEO, MD & Executive Director [21] -------------------------------------------------------------------------------- So this is an interesting question. As I mentioned a little earlier, in certain areas of our business, my opinion would be yes. We've already seen this in our anatomical business -- pathology business here in Australia. There would be other areas of our testing where this is possible as well. So this would simply be the rebound phenomenon because of miss test. So if you take, for example, Pap Smears, we know that around the world, women are not having Pap Smears because of the pandemic. There will need to be a catch-up of that testing. And then you can extend that out because clinicians are very aware about the big, big dangers for countries and communities of miss tests. And I think they will be on-board as well to be encouraging all the tests that were missed, particularly in the earliest phases of the pandemic. One of the fascinating things that's occurred in our result, which you'll see there, is that our Imaging division grown by 14%, which is an unusual number for us. The market -- we have taken market share. So our growth is slightly ahead of the market, to our knowledge. But the market itself here in Australia, the imaging market is growing at above traditional trend levels. And of course, there's been a lot of question as to why that's happened because this is quite outside of the lab. But the feeling is that this is related to COVID or to the pandemic in some way. And here in Australia, the feeling is that it is because people have -- clinicians and patients have not taken holidays. Everyone's in the country. And so whether this is a catch-up phenomenon or whether it's because people are in the country, it's actually happened. And we're still discussing -- nobody knows for sure why it's happened, but it does go to your question in some way. And we might see a phenomenon like this in the broader context of our Imaging business, and possibly even in our primary care business as well. -------------------------------------------------------------------------------- David Andrew Stanton, Jefferies LLC, Research Division - Equity Analyst [22] -------------------------------------------------------------------------------- Understood. So it's probably fair to say that you will see some -- likely to see some growth compared to second half '19. I guess my second question and final question is, just to help us with our modeling. Given you've already got base business infrastructure that continues to expand, any color you can give us on incremental margin from COVID testing as a general statement would be greatly appreciated. I mean, is it -- it seems to me, it must be much higher-margin at present than the base business, as a general statement. Can you help us in that regard? -------------------------------------------------------------------------------- Colin Stephen Goldschmidt, Sonic Healthcare Limited - CEO, MD & Executive Director [23] -------------------------------------------------------------------------------- Yes. So I'll make some comments and then maybe hand to Chris and Paul. You've got a situation here where you've got to consider margins in our base business and margins in our COVID testing. And so for example, just starting with our base business, as our base business returns to normal, that would actually represent a margin tailwind in a sense because the infrastructure is all there. And so with the reduction in base business, our margin would have gone down in our core business, whereas as it grows, there'll be margin tailwind. On the other hand, if COVID PCR testing falls off slightly, that's going to represent margin headwind. And then it's a matter of considering the balance between the headwind and the tailwind. And so we'll have to see how it plays out in terms of the volumes in both of those categories. -------------------------------------------------------------------------------- Christopher David Wilks, Sonic Healthcare Limited - Finance Director, CFO & Executive Director [24] -------------------------------------------------------------------------------- Perhaps the only thing I'd add to that, David, and draw your attention to the U.S. slide, where Colin made the comment about the fact that there's some structural change in our business there that post -- once the pandemic starts to wane, we should see some improvements in margins on the labor side. So that's something that I think is kind of a positive that came out of the early stage of the pandemic when a bunch of levers will pull to help us through those early difficult months. -------------------------------------------------------------------------------- Paul J. Alexander, Sonic Healthcare Limited - Deputy CFO & Company Secretary [25] -------------------------------------------------------------------------------- And David, just to add to your -- to answer for your first question, remember that in the second half of the year, we're going to be cycling. So in these next few months, we're going to be cycling the early months of the pandemic when our base businesses were very significantly down. So obviously, we can't accurately predict what our COVID volumes will be over the next few months versus the COVID volumes in that period, which were ramping up as we ran to the end of that financial year. But certainly, from a base business point of view, there will be very significant growth due to the cycling effect. -------------------------------------------------------------------------------- Operator [26] -------------------------------------------------------------------------------- Your next question comes from Gretel Janu from Credit Suisse. -------------------------------------------------------------------------------- Gretel Janu, Crédit Suisse AG, Research Division - Research Analyst [27] -------------------------------------------------------------------------------- Firstly, just on M&A. So you've given us a bit of color in terms of some of the opportunities you're looking at. I guess how do we think about valuations of these potential targets, given that the whole industry has benefited from COVID? Are we looking at pretty stretched valuations currently? -------------------------------------------------------------------------------- Colin Stephen Goldschmidt, Sonic Healthcare Limited - CEO, MD & Executive Director [28] -------------------------------------------------------------------------------- Look, to the extent that those opportunities are businesses that have benefited from COVID, obviously, we'll need to take that into consideration. It is -- it's a complicated period to be valuing a lab business. Some of those opportunities aren't so complicated by COVID testing, and some of them are interesting RFPs, which are more contractual arrangements like the Alberta opportunity, and there's a couple of other quite large ones that we're working on in the U.K. and here in Australia, even. So we'll be careful. We're not going to be paying inflated values. But it is a bit of a challenge to value-based just normal lab businesses in this COVID environment. -------------------------------------------------------------------------------- Paul J. Alexander, Sonic Healthcare Limited - Deputy CFO & Company Secretary [29] -------------------------------------------------------------------------------- Gretel, it's fair to say that most acquisition discussions we're having earn-outs are the topic. -------------------------------------------------------------------------------- Colin Stephen Goldschmidt, Sonic Healthcare Limited - CEO, MD & Executive Director [30] -------------------------------------------------------------------------------- To most likely bifurcate the business with the COVID piece and the base business piece. -------------------------------------------------------------------------------- Gretel Janu, Crédit Suisse AG, Research Division - Research Analyst [31] -------------------------------------------------------------------------------- Yes. Understand. And then just in terms of the Australia opportunities, is that within pathology or outside? Because I thought in the past, you've basically said that you've kind of constrained in any further pathology opportunity from a competition perspective in Australia? -------------------------------------------------------------------------------- Colin Stephen Goldschmidt, Sonic Healthcare Limited - CEO, MD & Executive Director [32] -------------------------------------------------------------------------------- Yes. So in Australia, it's more in the area of contracts, contracts along the line of our bowel cancer screening, cervical cancer screening, et cetera. So there are other contracts that we're bidding for government contracts. So yes, you're right that in terms of acquisition in Australia, we're probably pretty quiet on that front and much more active with M&A overseas. -------------------------------------------------------------------------------- Paul J. Alexander, Sonic Healthcare Limited - Deputy CFO & Company Secretary [33] -------------------------------------------------------------------------------- At least on the lab side. -------------------------------------------------------------------------------- Colin Stephen Goldschmidt, Sonic Healthcare Limited - CEO, MD & Executive Director [34] -------------------------------------------------------------------------------- On the lab side. -------------------------------------------------------------------------------- Gretel Janu, Crédit Suisse AG, Research Division - Research Analyst [35] -------------------------------------------------------------------------------- Good. Excellent. Understand. And then just final question in Australia pathology. Your competitor has been quite aggressive in closing collection centers in the period. I guess what is Sonic's [stand], and kind of how do you view kind of that competitive environment going forward? -------------------------------------------------------------------------------- Colin Stephen Goldschmidt, Sonic Healthcare Limited - CEO, MD & Executive Director [36] -------------------------------------------------------------------------------- Yes. Look, I think everyone's somehow accommodated to the new normal of collection centers. We're sort of playing it by ear, spending a lot of time considering each situation and assessing it on its merits. So we don't have a set policy to announce here, like perhaps one of our competitors has. And we see our position as pretty strong in terms of competitiveness in that space. But we're -- we're pretty sanguine about the costs associated with some of these collection centers as well. And I think our strategy to date has been reasonably successful. That's probably the best answer I can give even, though it's not too definitive. -------------------------------------------------------------------------------- Operator [37] -------------------------------------------------------------------------------- Your next question comes from Andrew Goodsall from MST Marquee. -------------------------------------------------------------------------------- Andrew Goodsall, MST Marquee - Healthcare analyst [38] -------------------------------------------------------------------------------- Congratulations on the result and your response to COVID. Just going to ask, it's pretty hard to see with the numbers moving so quickly, just sort of where the trend line is on sort of the cost of reagents and other items and just labor cost? Just trying to get a sense of where that's going? And are you seeing a knock-on effect to non-COVID test costs and prices? -------------------------------------------------------------------------------- Colin Stephen Goldschmidt, Sonic Healthcare Limited - CEO, MD & Executive Director [39] -------------------------------------------------------------------------------- Do you want to take that, Chris? -------------------------------------------------------------------------------- Christopher David Wilks, Sonic Healthcare Limited - Finance Director, CFO & Executive Director [40] -------------------------------------------------------------------------------- Yes. Andrew, if you look at the straight consumables cost in the 4d, it is impacted significantly by the COVID test consumables, which are in percentage terms, higher than the average. But we're certainly not seeing any -- other than things like the increase in PPE costs that we had in the early stages of the pandemic, we're not seeing any other increases in the base business consumables. If anything, as we continue to run our procurement programs, we're seeing savings in that area, and we will continue to see savings. On the labor side, perhaps the only -- I'll just draw you back to that comment we made about the U.S., where, I guess, we think that ongoing, we'll see some fairly significant savings in the labor cost in our U.S. market at least, and there's probably a little bit of that effect in other parts of our business as well. -------------------------------------------------------------------------------- Andrew Goodsall, MST Marquee - Healthcare analyst [41] -------------------------------------------------------------------------------- And just within the sort of individual cost base of the items, you see your expectation that there might have been some movement downwards. I guess, was there a period where some of the reagent costs were sort of ramping up in... -------------------------------------------------------------------------------- Christopher David Wilks, Sonic Healthcare Limited - Finance Director, CFO & Executive Director [42] -------------------------------------------------------------------------------- No, there was a yes, there was a period in those early stages of the pandemic, which have pretty much washed through our financials now where cost of PPE went kind of through the roof. Some of the transport costs went through the roof when airline stopped flying. From what I understand right now, most of that was washed through, and we're back to more normal levels. Supply chains have settled down. And if anything, even with sort of a slow inversion of the supply and demand on PCR testing. I think we'll see some of the prices that were struck, which was -- it was hard to negotiate those because they were so rare at the time. Everyone was fighting to get supply. I think you might find in the coming months that some of those prices start to come off when RFPs are ran, and that sort of thing where it wasn't possible to run an RFP on PCR testing gets up to now. -------------------------------------------------------------------------------- Andrew Goodsall, MST Marquee - Healthcare analyst [43] -------------------------------------------------------------------------------- And just one for Colin, just around sort of the mix of point-of-care testing in each jurisdiction. It seems Australia is sort of almost exclusively PCR, but other jurisdictions seem to have a bit of a mix Germany and the U.S. Just what would your sort of longer-term view benen and sort of how that's going to play out? -------------------------------------------------------------------------------- Colin Stephen Goldschmidt, Sonic Healthcare Limited - CEO, MD & Executive Director [44] -------------------------------------------------------------------------------- Yes. Andrew, so it's very hard to actually predict exactly how it's going to play out. And I certainly don't put myself up as an expert in this area. But it seems like the rapid antigen tests are going to have more value in higher infectivity countries and areas. So for Australia, I think the value will be pretty limited. And there may be a role in other locations. As you know, the sensitivity and specificity of the rapid test is not at the same level as COVID PCR tests, but they have the advantage of rapid results and they're cheaper. So we're not actually seeing a major impact on our PCR volumes even though antigen tests are being used quite extensively in Europe and also in the U.S.A. But I think their use is going to be limited going forward. -------------------------------------------------------------------------------- Andrew Goodsall, MST Marquee - Healthcare analyst [45] -------------------------------------------------------------------------------- And just a really quick final one. This morning, Biden came out and said he's going to fund another 650 -- you want to do 25 million tests per year in -- sorry, per month, I think it is in the U.S. You have much capacity, you might have touched on this, apologies if I missed it. But do you have much to anticipate? -------------------------------------------------------------------------------- Colin Stephen Goldschmidt, Sonic Healthcare Limited - CEO, MD & Executive Director [46] -------------------------------------------------------------------------------- I mentioned that through our National Institutes of Health contract, we have set up surge capacity, which essentially can triple the volume that we're doing right now, approximately. So we have huge capacity in the U.S.A. and that's a positive announcement from the Biden administration as far as Sonic is concerned. -------------------------------------------------------------------------------- Operator [47] -------------------------------------------------------------------------------- Your next question comes from Saul Hadassin from UBS. -------------------------------------------------------------------------------- Saul Hadassin, UBS Investment Bank, Research Division - Executive Director & Research Analyst [48] -------------------------------------------------------------------------------- Look, Colin, maybe one for you. Just I apologies if you covered this topic already, but the rise of telehealth during the pandemic, and I guess, the extension of use of telehealth, can you talk to how that's translated to changes, if at all, in routine pathology testing? Are you seeing any increased or decreased referrals on the basis of people not seeing their GP face to face? -------------------------------------------------------------------------------- Colin Stephen Goldschmidt, Sonic Healthcare Limited - CEO, MD & Executive Director [49] -------------------------------------------------------------------------------- Yes. That is an interesting question. And in the early phases of telehealth, which occurred in the early stages of the pandemic, that was the case because you can imagine a GP doing a telehealth consultation, it's not as easy to order pathology as if the patient was there in front of him or her. We responded very, very rapidly around Australia to put in place systems, which enabled the easy ordering of pathology for both GPs and specialists. And there was a reversal of that initial trend. So at the moment, we don't believe that telehealth is in any way a hindrance to the ordering of pathology. -------------------------------------------------------------------------------- Saul Hadassin, UBS Investment Bank, Research Division - Executive Director & Research Analyst [50] -------------------------------------------------------------------------------- And then just shifting to the U.S.A., just keen to get -- noting the delay to the PAMA cuts as it relates to CMS. Just if you could give us any commentary in terms of what you've seen during the last 6 months as it relates to your commercial insurance contracts and pricing in that environment? -------------------------------------------------------------------------------- Colin Stephen Goldschmidt, Sonic Healthcare Limited - CEO, MD & Executive Director [51] -------------------------------------------------------------------------------- I'll give this one to Paul. -------------------------------------------------------------------------------- Paul J. Alexander, Sonic Healthcare Limited - Deputy CFO & Company Secretary [52] -------------------------------------------------------------------------------- Yes. So basically stable. That hasn't been a major focus of the insurance companies during the pandemic. It's probably fair. So as always, there's anecdotes of little changes. But overall, I'd say stable is the word. -------------------------------------------------------------------------------- Operator [53] -------------------------------------------------------------------------------- Your next question comes from John Deakin-Bell from Citi. -------------------------------------------------------------------------------- John Deakin-Bell, Citigroup Inc. Exchange Research - Research Analyst [54] -------------------------------------------------------------------------------- I have 2 quick questions on the U.S. The first is you talked a little bit about market share. But I'll just ask that question in a slightly different way. I note that the testing per day across the country in the -- this year has been about 2 million, up quite significantly on the second half of last year. Is there any reason why your market share wouldn't be maintained roughly at where it was in this -- in the half that you've just reported? -------------------------------------------------------------------------------- Colin Stephen Goldschmidt, Sonic Healthcare Limited - CEO, MD & Executive Director [55] -------------------------------------------------------------------------------- No, there's no reason. Because we now have -- John, we've set up facilities across the U.S. And I believe that we're very well placed. So we track our COVID volumes on a daily basis, and have done since the beginning of our testing in the U.S. and it's a very solid line and trend. So there is no reason. And just to emphasize that previous question about the Biden, I think, it came from Andrew with the Biden Administration announcement. If there is an additional surge of testing, our labs are very well situated to handle that surge. I mean, that's the reason we were given this grant. So it's possible that our share actually might increase if there's a push to test more people. -------------------------------------------------------------------------------- John Deakin-Bell, Citigroup Inc. Exchange Research - Research Analyst [56] -------------------------------------------------------------------------------- And just a slightly more strategic question in the U.S. It seems like a lifetime ago when you bought Aurora, which was largely an anatomical pathology business. And subsequent to that, you've obviously done a lot of more diagnostic testing. Post the pandemic, do you think your mix of business will be as it was before, like dominated by anatomical? Or do you think this exposure has given you the opportunity to actually be a bigger player in the more base diagnostic business? -------------------------------------------------------------------------------- Colin Stephen Goldschmidt, Sonic Healthcare Limited - CEO, MD & Executive Director [57] -------------------------------------------------------------------------------- So I -- just to clarify, the way our lab businesses are structured in all our markets now is really a healthy mix of both clinical pathology, which is every -- all the testing except anatomical pathology and anatomical pathology. So we've added anatomical pathology in the U.S. through the Aurora acquisition. Now we already owned a lab in New York called CBLPath, and that was a relatively small anatomical versus clinical mix of business. But with the addition of Aurora, we now are a major player in both anatomical pathology and clinical pathology. So where Sonic started in Australia, that's the structure or the mix of business that we had. We've now got it similar in the U.S. and we're almost in a similar position to that in Germany as well. So these are our biggest markets. So we see our market presence in the U.S., not as one or the other, but as both. And we are -- the Aurora acquisition has been a great success. It was obviously pandemic affected, particularly early on, but then recovered pretty rapidly. We -- I was quite surprised to see the rapidity of the recovery. But it's going exceptionally well. We've got a fantastic group of pathologists. We've got practices all around the U.S. and there's a lot of growth prospect for Sonic ahead in that space, anatomical pathology as well as in clinical pathology. So just on this question. The market in the U.S. remains very fragmented, and we see big M&A opportunities for Sonic going forward, big labs, medium labs, small and even larger labs. Big, small and medium labs, all kinds in both clinical and anatomical pathology. -------------------------------------------------------------------------------- Operator [58] -------------------------------------------------------------------------------- Our next question comes from Rod Sleath from Rimor Equity Research. -------------------------------------------------------------------------------- Rod Sleath, Rimor Equity Research Pty Ltd - Equity Analyst [59] -------------------------------------------------------------------------------- It's just a quick one. You did speak to the PCR test pricing in the U.S., But I was just wondering in Australia, my understanding was that when the price for the COVID-19 test, or reimbursement for the COVID-19 test in Australia was raised, that the price was set until the end of March '21. So I was just wondering, are you expecting a revision on Medicare rebates for COVID-19 tests in Australia at the end of March? -------------------------------------------------------------------------------- Colin Stephen Goldschmidt, Sonic Healthcare Limited - CEO, MD & Executive Director [60] -------------------------------------------------------------------------------- So you're correct with your dates there. There is going to be a review. But we have no indication whatsoever that there will be a change to that reimbursement level. Obviously, time will tell, but there's absolutely no signal. And I guess you're only asking about Australia, your question there. So that's the answer. -------------------------------------------------------------------------------- Rod Sleath, Rimor Equity Research Pty Ltd - Equity Analyst [61] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Christopher David Wilks, Sonic Healthcare Limited - Finance Director, CFO & Executive Director [62] -------------------------------------------------------------------------------- In Australia, we do the collection for that price as well as doing the test, which is a bit different to other. -------------------------------------------------------------------------------- Colin Stephen Goldschmidt, Sonic Healthcare Limited - CEO, MD & Executive Director [63] -------------------------------------------------------------------------------- Absolutely. So on a relative basis, just to take up on Chris' point, so the fee of AUD 100 compares very favorably to, say, the USD 100 that I mentioned a minute ago, where in the U.S., there is no collection, no swab taking required. The specimen arrives in the lab, and that's the reimbursement for the testing in the lab. Here in Australia, the actual collection, the taking of the swab is a huge job for us. We're a standout country in the world because in Europe, the swab taking is generally not done as well. So there are some exceptions, for example, in Germany. But in the main, swab taking is done by clinicians, hospitals and various other people and our labs are reimbursed just for the testing. So our industry association here in Australia has certainly been lobbying over the time -- over the course of this and last year, that the fee that we get here is a reasonable fee. And we certainly can back that up with some of our cost numbers, particularly in the setting of doing collections. -------------------------------------------------------------------------------- Operator [64] -------------------------------------------------------------------------------- Our next question comes from Michael Murray from Australian Ethical. -------------------------------------------------------------------------------- Michael Murray, Australian Ethical Investment Ltd. - Equities Analyst [65] -------------------------------------------------------------------------------- Colin, I didn't get all of the call. But just wanted to know a little bit more about what's happening in Imaging in Australia, and that looks particularly strong. -------------------------------------------------------------------------------- Colin Stephen Goldschmidt, Sonic Healthcare Limited - CEO, MD & Executive Director [66] -------------------------------------------------------------------------------- Yes. So I just -- apologies if I'm repeating anything that was said before. But our Imaging division is really flying at great speed at the moment. So we've given the 14% revenue growth for the half, which was very, very pleasing result. And our calculations done different ways show that we have gained market share across the country as well. I made the comment earlier that the entire industry is growing at above-average rates. I think it's sitting at something like 10% or 11% for the same period. And there's a lot of discussion about why radiology, as an industry, was a profession is growing at above historic rates. And I put out a number of possibilities, including the fact that specialists are not taking holidays and that even patients are not taking holidays, and there could be a catch-up phenomenon from earlier in the pandemic. There's a number of factors all coming together to drive this higher-than-expected growth rate. So we're very, very pleased with our radiology division. And as I mentioned as well, to boot, we've delivered exceptional earnings results and margin accretion at the same time. Our division is in a very sound position here in Australia. It's -- we've got exceptional leadership, exceptional radiologists and previous investments that we've made in greenfield sites, for example, and in equipment, are really paying off, and we expect that to continue for years to come. So we're very pleased with the division. -------------------------------------------------------------------------------- Operator [67] -------------------------------------------------------------------------------- (Operator Instructions) Your next question comes from Chris Cooper from Goldman Sachs. -------------------------------------------------------------------------------- Chris Cooper, Goldman Sachs Group, Inc., Research Division - Research Analyst [68] -------------------------------------------------------------------------------- Again, apologies if this has been asked, but I'm really just after your latest views on the longer-term COVID testing fees. So I guess do you envisage COVID testing being part of the sort of seasonal respiratory panel going forward over the longer-term and how the economics might work in that kind of scenario? I also just noted your comments on serology testing as well. I guess it's fair to say there's still a pretty broad range of debate. It sounds like you're maybe becoming a bit more positive on that opportunity again. Just curious to hear what sort of volumes you're seeing in serology right now. And I guess what gives you the confidence that, that's going to continue to develop? -------------------------------------------------------------------------------- Colin Stephen Goldschmidt, Sonic Healthcare Limited - CEO, MD & Executive Director [69] -------------------------------------------------------------------------------- Yes. A very difficult question to answer. And number one, my disclaimer is not to be an expert in this area; number two, not to have a crystal ball and I mean that seriously. So what we're seeing with COVID PCR testing is that volumes are holding up for different reasons. So if you take Australia, for example, where we're in the very fortunate position where we're basically virus free, COVID testing continues to run at fairly significant levels. And so the policy when our governments are pursuing an elimination strategy really does revolve around ongoing testing, and specifically PCR testing for symptomatic patients or people who have been in hotspots or exposed to the virus. So if you can -- let's go forward into winter, when people do start getting coughs and colds. Depending on the situation with quarantine, people coming into the country, if the status quo prevails, those people are actually strongly advised to get a COVID test immediately. And so we expect that could continue for the foreseeable future. What we're seeing in other markets of the world where the pandemic's at a different stage, there'll be different reasons why COVID PCR testing will continue. I imagine that as the virus diminishes in prevalence in countries, a situation like Australia will be reached, where there will be a need to -- for surveillance to identify cases and then to track and trace and isolate and quarantine people who are positive. So it's -- I think the prevailing view is that PCR testing is going to be around for years to come. At exactly what volumes, I don't know for sure. The question, just moving on to the question of serology testing. Again, I want to put out there that I do not claim to have any definitive answer. There are some experts who say that serology testing will not play a part, or should not play a part in the future of the pandemic control. And the reason for that is that there is so much uncertainty about the immune response from either infection or from the vaccine. So if you get an immune response, which we can identify via a serology test, these people would say, well, that doesn't mean anything. It does -- even if you got an antibody response, it doesn't mean that you're then protected or that you can't infect someone else. And the corollary or the conclusion from that is then why have the test at all. However, having said that, there is demand from the public and from certain doctors to do the test to see whether people have mounted that response. And I think much more information is going to come out very soon now that vaccines are being rolled out to determine the meaning of the antibody response that the vaccine generates and whether there is any purpose in testing that response and even quantifying that response. The jury is still out there. We are doing a sort of low-level percentage of serology testing. I'll give you just a rough number in the U.S., it's something like about 10% of our total COVID testing every day. And in the U.S. market, I'm reading more and more that serology testing could become more in demand. But I don't want to cross any lines here because, honestly, I think the medical and scientific jury is still -- are still out at this point in time. -------------------------------------------------------------------------------- Christopher David Wilks, Sonic Healthcare Limited - Finance Director, CFO & Executive Director [70] -------------------------------------------------------------------------------- I think we've talked internally, Colin, a bit about that possibly it could be used when we start to travel again, that people might, before they travel, want to know that they've got antibodies rather than expose themselves into more prevalent countries. So that's another space where it could... -------------------------------------------------------------------------------- Colin Stephen Goldschmidt, Sonic Healthcare Limited - CEO, MD & Executive Director [71] -------------------------------------------------------------------------------- It is. But I'm just going to qualify that with -- there's opinions on both sides here where some people say, yes, some people say, no. So this is an uncertainty. -------------------------------------------------------------------------------- Chris Cooper, Goldman Sachs Group, Inc., Research Division - Research Analyst [72] -------------------------------------------------------------------------------- So just to follow-up on that 10% number. So is it reasonable to assume, at the moment at least, that serology testing is growing in absolute terms, while PCR testing in the U.S. is declining in absolute terms? -------------------------------------------------------------------------------- Colin Stephen Goldschmidt, Sonic Healthcare Limited - CEO, MD & Executive Director [73] -------------------------------------------------------------------------------- No, I wouldn't say that. It's -- as you know, we haven't given out numbers, PCR numbers by country. But that serology percentage has been sitting at that level for quite some time. So ever since the serology tests were available. So whether it's actually increasing, it's too early to say because here in Australia, for example, we are doing serology testing every day, COVID serology, but it's at a lower level. And it remains to be seen whether that grows or wanes, we'll see what happens. -------------------------------------------------------------------------------- Chris Cooper, Goldman Sachs Group, Inc., Research Division - Research Analyst [74] -------------------------------------------------------------------------------- And just a very final question. The -- obviously, the reimbursement for serology is somewhere below PCR. Would it be reasonable to assume that the margin is in the same kind of ballpark? I mean, noting the fact that the cost per serology test is going to be something lower than the PCR test? That's my final question. -------------------------------------------------------------------------------- Colin Stephen Goldschmidt, Sonic Healthcare Limited - CEO, MD & Executive Director [75] -------------------------------------------------------------------------------- Yes. So the difference between the 2 tests is that the serology test is a much more automated test. The reimbursement level is much lower, but it's a test that can be mass produced on fully automated equipment. And so I don't want to make a pronouncement about the margins other than to say that it would also be a profitable test for us, given our extensive infrastructure. -------------------------------------------------------------------------------- Operator [76] -------------------------------------------------------------------------------- There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.