FY 2019 Results Year ended 30 June 2019 16 August 2019
Our Group
A comprehensive strategy Repositioning the Medical Centres via the Leapfrog program Leading-edge technology People: Attracting the right GPs through a multi-channel approach Laboratory Information System (LIS) program will revolutionise and strengthening nursing and front-line support staff processes, reporting and service delivery Process: Delivering operational efficiencies, digitisation, and new Medical Director 3 (MD3) practice management system delivering and expanded service offerings uniformity throughout network and greater digital adaptability Property: Improving centre utilisation and consumer experience Imaging Core Application Refresh (iCAR) delivering efficiencies where local demand is evident and enhancing referrer / patient interaction Investing in emerging businesses - Dental, IVF, Day Hospitals Organisational redesign Operating in sectors with disruption and growth potential Simplifying management structure, improving divisional agility, driving a more efficient group function Diversifying revenue streams Developing patient flow opportunities within a community setting 3 FY 2019 Results
Key achievements with a strong run-rate into FY2020 Group Pathology Increasingly positive momentum throughout the year Improved 2H returns (up 46% on 1H) Rolled out ‘Healius’ brand – supporting record GP recruitment FY19 productivity program targets achieved Organisational redesign commenced 2H Progress on laboratory platforms Medical Centres Imaging 2 consecutive halves of improved returns, record number of GP 3 successive years of double-digit EBIT growth recruits, gross billings per hour up Market share increasing Over 95% of centres on the same PMS with appointments iCAR roll-out continues apace with over 70 live sites 15 sites upgraded as planned Successful contract wins and delivery: Expanded consumer offerings with SwiftQ Immediate Care, Skin 2 , o Northern Beaches Hospital Logic Health o Australian Defence Force Health Services Emerging businesses Montserrat to deliver a diversified growth platform IVF rebranded Adora. Fastest growing provider of IVF services SwiftQ Dental launch to address market need 4 FY 2019 Results
Group Results
Group results 1 2 Group Underlying Reported $m FY 2019 FY 2018 FY 2019 FY 2018 Revenue 1,804.5 1,704.6 1,810.3 1,704.6 EBIT 167.3 160.1 117.4 64.6 NPAT 93.2 87.5 55.9 4.1 • Group NPAT up 6.5% on revenue growth of 5.9% • EBIT up 4.5% with double-digit growth in Imaging and Medical Centres: All three divisions seeing increasingly positive momentum o Pathology up 46% 2H v 1H o Medical Centres delivered two halves of improved returns o Imaging delivered 3 years of double-digit growth o • EBIT includes $12.5 million of investment in greenfield sites 3 . M&A roll-ins accelerating ramp-up in Medical Centres. Strong improvement once fully contributing • Reported results improved with legacy issues addressed. Reported EBIT reflects $49.9m of investment, including in strategic initiatives 2 • Given current capital investment phase, dividend temporarily reduced. Final dividend at 3.4 cps. Total dividend 7.2 cps, both fully franked • Accounting standard changes: FY19 $39.5m reduction in revenue/EBITDA but nil EBIT impact (AASB 15 adoption) 4 o FY20 material improvement in EBITDA and EBIT (AASB 16 adoption) 5 o 6 FY 2019 Results 1 All comments relate to underlying results unless noted 2 Reconciliation – slide 30 3 Reconciliation – slide 31 4 AASB 15 adjustment – slide 32 5 AASB 16 adjustment – slide 33
Strategic projects FY 2019 Laboratory 1 iCAR Corporate Leapfrog $m Platforms Project management, design & planning 9.3 3.6 2.2 3.0 2 1.0 9.5 0.9 6.2 Project implementation & training 3 10.3 13.1 3.1 9.2 Total Opex (adjusted between reported and underlying) Property, plant & equipment 1.1 18.5 0.0 0.0 Intangibles 3.1 13.1 5.0 0.0 Total Capex 4.2 31.6 5.0 0.0 Total Project Costs 14.5 44.7 8.1 9.2 • Four key projects which are transformational in nature and unlikely to be undertaken again at such a collective magnitude • Opex costs are adjusted between reported and underlying results • Future adjustments: o iCAR expected to cease after FY20 Leapfrog opex expected to substantially reduce after FY20 o Corporate renewal to change following current organisational redesign o LIS in pathology is a 5-year project o 1 Included in opex for Leapfrog are project management costs, additional recruitment and M&A costs to support the Leapfrog ramp-up, and additional costs to support implementation and training 2 All implementation costs are capitalised where they directly relate to PPE or an intangible asset otherwise implementation costs are expensed as non-underlying items 3 Refer slide 30 for reconciliation between reported and underlying 7 FY 2019 Results
Free cash flow 200 (30) 92 150 (38) $m 100 (52) 195 128 50 76 0 Gross OCF Interest Tax OCF Maintenance capex Free cash flow • OCF of $128m (FY 2018 $202m): o $22m back pay for the Medical Centres modern awards adjustment and Dorevitch pay determination. Both fully provided in FY18 o $16m increase in tax payments overall including $10m tax refund in FY 2018 • Maintenance capex $52m delivering $76m FCF • Growth capex $176m - partly funded by the capital raise – includes: $68m Montserrat Day Hospitals acquisition o $36m strategic projects 1 o 1 Refer slide 7. Excludes $4.7m non-cash accrual 8 FY 2019 Results
Net debt and dividend Reported As at $m 30 June 2019 30 June 2018 Bank and finance debt 860.8 797.9 Cash (84.0) (119.7) Net debt 776.8 678.2 Bank gearing ratio (covenant <3.5x) 1 2.7x 2.4x Bank interest ratio (covenant >3.0x) 9.0x 9.5x Gearing (net debt: net debt + equity) 24.8% 29.9% Net debt reduction • Significant improvement in leverage since FY 2015 from capital recycling program, free cash flow generation and capital raise in 1H 2019 • Spend is high with investment in Montserrat and strategic initiatives. Spend is gated and monitored. 1,156 Will deliver future operating cash flow • Continual balance of competing demands: optimal gearing, investment in strategic initiatives and dividends 816 784 777 678 • Board decision to temporarily reduce dividend payout ratio given on-going investment phase FY15 FY16 FY17 FY18 FY19 1 Bank gearing ratio is calculated based on underlying EBITDA before the impact of AASB 15 9 FY 2019 Results
Divisional Results and Strategies
Pathology - results Underlying FY 2019 FY 2018 Better/ $m $m (worse) % Revenue 1,090.6 3.5 1,128.3 EBITDA 138.7 (1.8) 136.2 Depreciation (19.8) (19.0) (4.2) Amortisation (5.3) (5.6) 5.4 EBIT 114.1 (2.6) 111.1 Total capital expenditure 35.1 21.1 (66.4) • Revenue: Annual revenue growth above market when normalised for loss of bowel screening contract o Improved volume growth towards end of 2H with June & July returning to long term averages o Good fee growth o Increases in specialties including histo and genetics - latter revenue up 13% o • EBIT: Strong performance in 2H with margin expansion. Productivity programs delivered projected savings o Annual EBIT grew above revenue when normalised for loss of bowel screening contract and Dorevitch labour cost increases o Consumables savings despite growth in high-value tests (NIPT and HPV test 1 ) o • Investment in laboratory platforms 1 NIPT= Non-invasive prenatal test, HPV= human papillomavirus 11 FY 2019 Results
Pathology - strategy Cost control • Consolidation of esoteric testing and optimisation of regional lab network • Focus on returns metrics within collection centre footprint • Current organisational re-design initiatives identifying further efficiencies Investment • Upgraded Serum Work Area (main lab testing equipment) with Laverty to go-live in September • Implementation of new Laboratory Information System (LIS) to deliver improved accuracy and efficiencies: selection of provider, SCC o New Serum Work Area at Laverty standardisation of processes and conventions across current systems o detailed discovery phase o LIS • Expansion of niche specialties including Genomic Diagnostics: Referrer/clinical benefits with improved accuracy and advanced testing o NIPT continues its strong growth (revenue up 29% and EBIT 33%) Operational benefits of standardised testing and New markets: BRCA cancer screening in 1st full year and pharmacogenomics introduced o faster turn-around mid-May Financial benefits from FTE efficiency and automation 12 FY 2019 Results
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