Welcome to Integral Diagnostics FY 2023 results. All participants are on a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Ian Kadish, CEO. Please go ahead. Thank you very much. My name is Ian Kadish. I'm the Chief Executive and Managing Director of Integral Diagnostics. I'm joined here this morning by Craig White, our Chief Financial Officer. It's our privilege this morning to review with you the financial results for Integral Diagnostics financial year 2023. Integral Diagnostics is a purpose-driven company. We are defined by our five, five values: to put patients first, demonstrate medical leadership, ensure that everyone counts, to create value, and to embrace change. We served more than a million patients last year, the first time we had served over a million patients. We performed more than 2.5 million exams, and we invested AUD 45.2 million in CapEx, including new greenfield sites at Pimpama on the Gold Coast and Waiata Shores in Auckland. We also continued to develop and implement technologies to enhance the patient and referrer experience. We employed 248 reporting radiologists last year, and importantly, 107 of these radiologists are currently shareholders in our business. We continued to develop IDXt, our teleradiology offering, to provide services to both external as well as internal clients. We continued to develop the group-wide subspecialty reporting platform we have to capitalize on our specialist expertise, assisted by AI-enhanced screening and detection. We ensured that everyone counts, all 2,010 employees of our company. We conducted temperature checks and pulse surveys for our employees, which showed continual improvement in both response rates and engagement scores, benchmarking higher than industry comparators. We continued to focus on our ESG strategy. In order to creating value both for shareholders and also for others, we delivered a net profit after tax of AUD 17.8 million on operating basis, a decline of 17.6% versus the prior comparable period. Similarly, operating EPS declined by 26% to AUD 0.076 this year. We declared a fully franked FY 2023 dividend of AUD 0.06 a share. We invested AUD 19 million in growth initiatives across the business. We completed our acquisitions of Peloton Radiology and Horizon Radiology on the first of July 2022. We now have 6,156 shareholders at IDX. We look to embrace change over the past few years, and it's been where we've seen more change than we have in prior years of the company's existence. We implemented new clinical and corporate systems to better support the business, to facilitate workflows, and to drive shareholder value. We also diversified our referrer base in New Zealand as we accommodated the new environment in New Zealand with the non-arm's length referrals. Looking at our financial year 2023 financial highlight, group revenue by 22.1%, which reflected a continued recovery in patient volumes from COVID-19 and the acquisition of The X-Ray Group, Peloton Radiology and Horizon Radiology. Our statutory net profit after tax increased by 71.5% to AUD 25 million. Our operating NPAT declined by 17.6% to AUD 17.8 million. We increased our operating EBITDA by 13.9% to AUD 85.2 million. We saw a decline of 26% in our diluted earnings per share, to earnings of 7.6 cents per share. And importantly, we increased our free cash flow by 8% to AUD 53.1 million. We saw our net debt to EBITDA improve from 3.1 on the 31st of December last year to 2.9 times on the 30th of June, 2023. Overall, it was a challenging FY 2023 result, but it reflected a materially stronger second half profit, driven by the continued recovery of patient volumes, limited pricing increases, Medicare indexation of about 1.6%, which was materially below inflation. Similar limited increases from our payers in New Zealand. We did take selective price increases as gaps from patients where possible while remaining market competitive. We faced cost pressures, especially higher labor costs, driven by inflation and labor market supply constraints, together with higher interest spending costs. But we successfully managed in the second half to contain and reduce costs where possible. Our operating EBITDA margin decreased 140 basis points compared to PCP. Both Peloton and Horizon positions experienced very similar trends to IDX's existing businesses in Queensland and New Zealand. Our statutory NPAT of AUD 25 million, up to the write- back of non-operating provisions of AUD 7.2 million. We have declared a fully franked final dividend of AUD 0.035 a share, compared to AUD 0.03 in the same period last year, resulting in a total FY 2023 fully franked dividend of AUD 0.06 a share, compared to AUD 0.07 for the full year last year. This represents 77.9% by FY 2023 operating net profit after tax. Financial year 2023 was very much a story of two very different halves. A clearly stronger second half result demonstrated an improvement in group EBITDA margins by 1.7% to 20.2% for the second half of financial year 2023. This illustrates the operating leverage inherent in our business. As patient volumes came back, and we saw our operating margins also improve. In addition, we reduced our balance sheet leverage by 0.2x, from 3.1 on the December 31st to 2.9x on the June 30th, 2023. Importantly, to 2.8x, we take the second half and annualize it on a run rate basis. We produced stronger organic revenue growth in Australia of 10.3% in the second half, versus 4.2% in the first half. And we grew our average fee per exam by 6.1% in the second half, versus 5.2% in the first half. We also saw stronger organic revenue growth in New Zealand of 4.7% versus 1.1% in the first half. Our average fee per exam growing by 0.4% in the second half, versus a decline of 5.2% in the first half. Labor cost growth was 3.8% in the second half, well below revenue growth of 4.3%. The lower second half operating expenditure versus the first half, excluding labor, AUD 1.4 million, reflects our focus on reducing operating expenditure, together with a reassessment of our make-up provisions for some of our leased premises. You can see the details here in the footnote. Looking at the industry results on the next page, you can see that the improvement in calendar year 2023 shows up strongly in the industry results, too. In Australia, IDX recorded solid gains in revenue market share, evidenced by 7% revenue increase. This compares to 4.8% for Medicare overall for the year, indicating a solid revenue growth, revenue market share growth in the second half of the year. Over the whole year, but particularly in the second half. Declared the AUD 0.025, you'll see on the next page. AUD 0.05 versus second half last year, and then AUD 0.06 for the full year, and AUD 0.01 versus the full year last year. I hand over now to Craig White, to take us through the financials. Thanks, Ian, and good morning, everybody. Thanks for joining the call. I'm just going to take you to the results for FY 2023 page. As Ian mentioned, our revenue for FY 2023 grew strongly at 22.1%, including both organic growth as well as the acquisitions of Peloton Radiology and Horizon Radiology, and an additional four months contribution from the X-Ray Group. Operating EBITDA growing at 13.9% was lower, reflecting inflationary pressures in the P&L, particularly in the first half, and I'll talk to that in a little bit more detail shortly. Operating NPAT declined by 17.6%, again, reflecting those inflationary pressures, but also the higher interest funding costs on debt. Again, I'll talk to that in more detail shortly. Pleasingly, free cash flow was strong, and particularly when you look at free cash flow conversion. In other words, the conversion of our operating EBITDA to cash, excluding replacement CapEx, was, grew at 93% and 78.3% in the prior year. And as Ian mentioned, the leverage of the group came down to 2.9x, up from 1.6x at J une 30 last year, which was just before we drew down the debt as per the acquisitions of Peloton Radiology and Horizon Radiology. Pleasingly, it's down from the 3.1x at December 31 2022, at the half year. If you look at the second half annualized run rate, the leverage is a little lower at 2.8x rather than the 2.9. Each of the lines of the P&L in a little more detail, turning to the next slide on revenue. As I mentioned, it is up 22.1%. Revenue growth of just under AUD 80 million includes AUD 5.1 million for the four months from July to October 2022. The X-Ray Group, including the acquisition in November 2021, AUD 28 million for Peloton Radiology, and AUD 11.4 million for Horizon Radiology. We had both those acquisitions for the full 12 months in FY 2023. Excluding the acquisitions, organic operating revenue, all sources in Australia, grew solidly at 7% for FY 2023. Particularly, as Ian mentioned before, had a much stronger second half, organic revenue growing at 10.3% against the first half growth of 4.2%. The 7% overall for the full year reflects the fact that we have gained revenue market share relative to the industry, which grew at 4.8%, adjusted for working days. Looking at the average fees per exam, they grew in Australia by 5% across FY 2023. Again, just looking at the split between first half and second half. First half, average fees per exam in Australia grew by 5.2%, and the second half grew more strongly at 6.1%, reflecting, in particular, some price increases we took on ultrasound in Queensland from the early part of the second half of FY 2023. In New Zealand, organic operating revenue grew 4.4% for FY 2023. Again, a similar trend of a gradual improvement in the return of patient volumes. So the first half was 4.1%, second half, 4.7%. With limited price increases applying in New Zealand in FY 2023. Turning to operating expenditure on the next slide. Overall, operating costs grew by 24%, or around just under AUD 30 million, including acquisitions. Excluding the acquisitions, operating expenditure grew at 10.2%. Just looking at some of the key drivers of that, really, the biggest driver was labor. Linking back to my previous comments around some of the inflationary pressures that we and the industry generally experienced through FY 2023. Really, in terms of the increases in salaries and wages that we have paid are CPI-like nature through FY 2023, and also reflecting some of the supply-side constraints for both radiologists as well as some of the technical staff who support our clinical operations and perform some of those scans in our clinics. Looking at a couple of the other lines with regards to operating expenditure, you'll see that occupancy costs, excluding acquisitions, grew, sorry, declined just under 20%. We adjusted some of our make-good provisions relating to leases in FY 2023 to reflect our best estimate of what those provisions should stand at. Other expenses grew just under 20%, largely reflecting higher insurance premiums, investment that we've made in cybersecurity to bolster our expenses in FY 2023, as well as higher travel costs, as our COVID-19 travel restrictions were lifted, and we were able to travel more freely. Moving to capital management, on the next slide. You can see that our FY 2023 net debt ended at AUD 194.5 million. That was up from the position at June 30 2022, which stood at AUD 101.5 million. Just reminding you that that balance at June 30 2022 was just before we drew down the debt on the acquisition of Peloton Radiology and Horizon Radiology on July 1. And the increase largely reflects those acquisitions and various other operating cash flows, CapEx, and movements in working capital through the year. We end June 30 2023 with significant liquidity headroom through our existing debt facilities of AUD 152.4 million. That excludes an additional AUD 105 million accordion facility that we have access to. Noting that all of our facilities are in place until October 2026. Note on that slide is the fact that our contingent consideration provisions have decreased in FY 2023. The decrease largely reflects reduction in earn-out provision in regards to Imaging Queensland. Following the independent expert review of that earn-out earlier in the year. Turning to cash flow and cash conversion. As I mentioned before, we had strong free cash conversion. Sorry, strong free cash flow conversion of 93%, up from 78.3% in the prior year, excluding replacement CapEx. Continued to invest in growth capital expenditure in FY 2023 by an amount of AUD 19.1 million, and we had a favorable movement in working capital of AUD 13.4 million. Turning to capital expenditure on the next slide, you'll see that across the year, we invested AUD 45.2 million, split between AUD 26.1 million of replacement CapEx and AUD 19.1 million of growth CapEx. You can see a list of some of the more major investments of growth capital listed on the second part of that slide. We ended the year, in terms of capital expenditure overall, a little higher than we had expected. That largely reflects a couple of things. One was really the delayed investment of replacement CapEx following the lifting of some of the COVID-19 restrictions. And that flowed into FY 2023 as supply chains normalized and we were able to get equipment into place. But there's certainly some spillover from FY 2022 into that AUD 26.1 million from FY 2023. And we had a couple of sites towards the end of the second half of FY 2023 that we thought previously would fall into FY 2024. We were able to accelerate their opening, and that ended up with some of the growth capital being a little higher than originally forecast. I'll now hand back to Ian, who'll take us through the rest of the presentation. That's it. Thank you very much, Craig. With regards to the regulatory environment in Australia, Medicare, on the first November 2022, deregulated MRI licenses to regional and rural areas. In this process, we gained three full licenses, two full licenses where we had non-rebatable machines, one an upgrade from a partial to a full license. For financial year 2023, Medicare announced a 3.6% increase, which applied from the July 1st 2023. All diagnostic imaging items, including MRI, excluding nuclear medicine items. There's a further indexation of 0.5%, which is expected to be applied on November 1 this year, 2023. Self-billing incentive on MRI reduced to 95% of MBS from 100% on the first of July 2022. Importantly, that only impacts MRIs that currently are self-billed to Medicare. From July 1, 2022, two new PET items were introduced for patients with prostate cancer. These are important additions for the patients and also important for the industry because the addressable market, the prostate cancer market, is a large one. New Zealand, there was limited price indexation in New Zealand. We're still negotiating what time is for indexation over the course of financial year 2023. The regulatory authorities in New Zealand determined that non-arm's length referral practices were acceptable. We diversified our referrer base in New Zealand accordingly. We now have a referrer base in New Zealand that closely approximates our Australia referrer base, with more GPs in New Zealand than we previously had. Historically, our New Zealand practices were very much specialist-oriented. Whereas now, even though they still have a large specialist orientation similar to IDX's Australia business, it's not... They now have GPs represented as well. Getting to our strategy and starting with our ESG, ESG strategy. IDX continues to implement and develop our ESG strategy aligned to our values. Our values line up well with the United Nations Sustainable Development Goals, as you can see on this page, particularly the good health and well-being SDG, which applies to every one of our values. Details of our ESG activities are going to be published in further detail in our financial year 2023 ESG report, which is due to be released prior to our AGM in November. Turning to the final slide of the presentation, the strategy slide. Medicine is still good business. The long-term industry fundamentals in Australia and New Zealand are strong and continue to underpin attractive, ongoing growth opportunities. Both countries have large and growing aging populations requiring greater healthcare support.... At the same time, community expectations for higher quality diagnosis and care continues to increase, while new imaging technologies improve efficiency to aid diagnosis and early detection of disease. Radiology plays an important role, both preventative as well as curative, non-invasive healthcare improvement. Our focus in financial year 2024 will be to drive organic earnings growth, including through cost management, effective price increases, and brownfield and greenfield investment opportunities. We will accelerate the use of teleradiology, digital, and AI technologies to drive quality and efficiency. To develop our environmental, social, and governance strategy, we'll continue to nurture and develop our culture and leadership across our people. We will once again consider acquisitions that represent strong clinical, cultural, and strategic fit. Financial year 2024, we expect our replacement and growth CapEx to be between AUD 35 million and AUD 45 million. I'll now hand over to you for questions. Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. The first question comes from David Stanton with Jefferies. Dave, go ahead. Good morning, team, and thanks very much for taking my questions. Firstly, I wonder if you could explain to us we continue to see so above-market growth in Australia. You know, how is this sort of occurring, please, and what should we think going forward? Thank you, David. Our above-market growth in Australia is driven by our investments in technologies where there is good growth. Technologies like, PET/CTs, that we saw with the introduction of PSMA for prostate scans in the first of July last year. A real needle mover being introduced, in terms of diagnostic modalities on offer and paid for by Medicare. We also invest in MRI and, and invest in subspecialty training for our radiologist workforce. That's very much oriented towards specialist referrers, which have been growing more than the GP referrers in recent times. So our orientation towards these high-value modalities, valuable to the patients and also more expensive, but worth it in terms of the tests that previously were applied and are no longer needed, when you undergo something like a PET/CT or an MRI, and get non-invasively a result that determines the prognosis a lot better and more efficiently and with less artifacts. So our orientation towards this specialist end of the market and towards these higher-end modalities has helped us grow market share quite nicely. And then we've also, once again, focused on growing individual clinics in high-growth areas that we serve. Understood. Thank you. And to Craig, and then I'll get back in the queue. We saw second half, you know, total expenses of about AUD 173 million bucks. You know, is that sort of run rate plus a couple of percent reasonable to think about in terms of total expenses for FY 2024, or will there be a material step up or step down, please? Thanks, David. Good morning. Look, I think certainly, I think you should look at our second half operating expenditure as a guide to the future. However, you know, the inflationary pressures haven't gone away, as you well know. You know, I think they are moderating, is a sense we have, but there's certainly still inflationary pressures there, both on the clinical and the corporate side. On the supply side, for some of our clinical staff, there has been some easing, but you know, we're still yet to sort of see that pressure come off completely. So I can't put a percentage on it for you. I don't want to give guidance on what the actual operating expenditure in the first half or for FY 2024 is going to be, but hopefully that gives you a sense of how to think about it. Understood. Final one from me. Again, it's about the finance costs, please. So finance costs in FY 2024, about AUD 10 million. You know, what we should be thinking sort of your, in terms of your base rates or your interest expense for FY 2024, please? Okay. So, so first of all, just, I'm not sure where you get the 10 million from, but maybe just, let me just talk, if you like, and unpack the, the, finance cost expense in the P&L. So for those of you who've, who've gone into the annual report, this is note 6 of the annual report. So we've got a total finance cost of AUD 18.4 million. The two main components in there are the, interest expense on the debt, which is around AUD 13 million. Then there is the AASB 16, right of use asset, which is around AUD 5.5 million for FY 2023. So that, that explains the, the, the bulk of the movement. There are a couple other small things in there, but they're immaterial in context. I think if we look forward to FY 2024, again, sort of think about the interest on the purchase debt and the AASB 16 adjustments. I think first of all, in terms of the AASB 16 adjustment, I think it'll be similar to FY 2023. You would probably expect that, given that we don't have any further acquisitions. We have a full year in there for Peloton Radiology, Horizon Radiology. We don't expect a lot of movement in the AASB 16 adjustment in FY 2024. Certainly, in terms of the interest on the bank debt, there are a few things to think about there. You know, if you look across FY 2023, the effective interest rate across the full year was up on 4.5%, and that's disclosed in the annual report. Obviously, what we've seen through FY 2023 is an increasing level of base rates. We also, because our leverage was over 3x at 31 December 2022, we went up 0.2% on the margin grid with the banks. So it's important to sort of unpack that and sort of look at the exit rate coming out of FY 2023 across the group. Probably looking at something around 6.5%. If you look at the blended cost between Australia and New Zealand, obviously the funding cost in New Zealand is higher. If you think about FY 2024, we're now into the looking at a crystal ball and obviously having to guess what the regulatory authorities around the world and the central banks are going to do. But directionally, we have certainly contemplated probably a couple of additional quarter of percent interest rate rises in Australia and New Zealand in FY 2024. So that will lift that interest expense if that comes to pass in FY 2024, relative to that sort of 6.5-ish spend I mentioned. Important to realize that, you know, interest rates in New Zealand are higher. So if you sort of look at it, I would expect in Australia, those assumptions about the rate rises come to pass. Combined with the fact that we will, because our leverage is now under 3x, we'll come back down the margin group by 0.2%. I think we'll be looking at interest expense in Australia of around 7-ish. Those assumptions come to pass, i.e., we have a few further rate rises. In New Zealand, we're probably looking at around... New Zealand's about 1.7-1.8% higher than Australia, so it's sort of 8.8% spend, I would be assuming, New Zealand. So there's some assumptions in there. Who knows what's going to happen on the rate rises, but that's directionally how we're thinking about it. Hopefully that helps. It does. Thank you very much. Sorry, I wasn't mistaken. I meant second half of 2023 at 1.8. Back in the queue. Thank you. The next question comes from David Low with JP Morgan. Please go ahead. Thanks very much. Just to start with New Zealand and the ruling on non-arm's length referring, just wondering what the implications are and what the expectations are now with New Zealand margin? So we think that the New Zealand margin, David, would have stabilized into the second half of the last financial year. We've not seen an ongoing impact on the non-arm's length growth in the second half. Most of the impact would have worked its way through the system in calendar year 2022. The second half becomes an unreasonable guide, at the very least, then? Yes. Yes. Yes. We've had questions on the operating expenses. You know, I've usually noticed that labor as a percentage of revenue, stripping out acquisitions, looked like it was more of a headwind in the second half than it was in the first half. I'm looking at 3.6% reported versus 2.7%. Just wondering if that's accurate and what the drivers are and what we should expect going forward in the later correspondence, please? Well, maybe I'll take that one. I think, first of all, I don't think that's correct, is that pressures were higher in the second half. If you actually look at it, we had revenue growth of 4.3%, labor growing at 3.8% in the second half. So labor actually grew slower than revenue in that second half. You know, I think, I would say that really, if you look across FY 2023, on the labor line, first half, second half was quite similar. I think that the only material variation on that labor line would relate to radiologist costs, where incentives are structured as a percent of revenue. So as revenue goes up, obviously those doctors have an incentive tied to that revenue, and obviously, if revenue comes down, it goes down. But those would be the comments I'd make around the shape of those second half numbers. No, that's helpful. Just one last one from me then. You spoke about the indexation, and it's obviously a whole lot better this year than last. Do you think that's, you know, consistent with where your operating cost inflation is likely to fall out? I think that, it's again, probably goes back to some comments I was making before. It's a little hard to see, to predict exactly where we're going to be, but I think you'd have to assume some CPI inflation in FY 2024, albeit at lower levels than what we saw in FY 2023. CPI is running ahead of indexation then, I take it? Yes, I would say that is true, but, you know, with the Medicare indexation, I think it's probably important to think, if we look at the different drivers of the revenue line, and we're talking obviously only Australia here. If you think about it, we've got a Medicare indexation of 3.6%. We're expecting another 0.5% effect of 1 November. That's yet to be legislated by the government, but we've been told that by the Department of Health. So that's, that's one component. Obviously, on the outside of Medicare, we have some annualization of price increases that we took in January 2023, particularly the ultrasound price increase we took in Queensland, that I mentioned before. We would expect that favorable mix impact as, as patient volumes move to the higher tech modalities of, CT, MRI, PET, which continue to drive revenue and, and obviously just underlying patient volume growth. I think all those things put together, we would certainly see revenue grow more strongly than costs in FY 2024. Okay. I think that answers my questions. I mean, so you're expecting margin expansion in 2024? Correct. Right. Thank you very much. The next question comes from Steve Wheen with Jarden. Please go ahead. Yeah. Good morning, Ian and Craig. Typically, these results should give some indication how you're trading in the current year. So just wondering, how July and perhaps even August might be looking relative to perhaps the most recent Medicare data? Steve, we have not called out July and August of this year. We didn't see a need to. We called out in our half year, we called out how January and February were trading, mainly because that was pretty different to what we had seen in the first six months of the year. Generally, we don't call out for the following year, you know, for the year that we're in, if we don't see any major differences. In the past, the Medicare numbers have been a good proxy for the, you know, for our results as well, which tend to trend in a similar direction, even though, yeah, you know, we do generally outperform Medicare as we did last year. Yeah. So, Ian, essentially, you're saying, because you're not seeing any major differences, you're continuing to outstrip the Medicare growth in the space that you're in. Is that a correct assumption? That would be, yeah, yeah. The trend would be correct. Yep. Okay, and then secondly, just back on the labor costs. Just wondering what sort of level of vacancies you continue to have, and whether or not we're going to see labor costs as a percentage of revenue continue to decline like it did second half versus first half. Mainly, is there, is there anything in the labor cost line that will assist that, or is it largely just your revenue is going to continue to go higher? Yeah. I think, Steve, I might just comment, and Ian might want to comment further, but generally, to the previous point, I think we're expecting that EBITDA margin should expand by 24 as the business continues to recover back to where it used to trade pre-COVID. So I think revenue will clearly be one driver, labor side, we've seen mostly moderating inflation in wages. You mentioned before, easing on the supply as the borders have reopened and started to get you know, some of the international medical graduates into place and so on. I do think that labor cost inflation should moderate. I think it'll be a combination of both revenue and labor that drives that margin expansion, and you know, that's our major cost, really, that determines where our margin sits. Yeah. The operating leverage in our business is strong, and that's very well demonstrated by the first half versus second half results... The patient volumes came back in the second half, so the margin improved. We really do better operating leverage. Yeah. So I guess, where I wanted to go with this is, from an OpEx perspective, we've got the three major lines that seem to be improving as a percentage of revenue, is labor, consumables, and other. Are they all going to, you know, is it, is it all of those that are contributing to that margin expansion going forward? Or is it, is there anything that you could call out that we might, that we should focus on? No, I don't. You know, the only comment I'd probably make is just in regards to other expenses. I called out that we saw higher insurance costs in FY 2023. Now, I think the cyber costs certainly don't go down. Now, I think the major driver, Steve, really is going to be labor. I think that operating leverage that Ian talked about, that's led to the, you know, the 1.7% improvement in our margin in the second half is probably the major driver. Yep. Understood. Last one for me. Just, you made a point when talking about your MRI funding, and the 95% reduction, or the 95% shift down to 95% of the bulk bill rate. Obviously, I'm wondering what proportion of your MRIs are bulk billing versus capitated? We don't have an actual percentage for you, Steve, but it would be very low, and it would be lower than where it was last year this time. If you look at our Queensland business as an example, on the Gold Coast, you'd be very hard-pressed to find a bulk bill MRI, either within our group or other groups on the Gold Coast. And similarly, on the Sunshine Coast, we see very few bulk bill services, MRI services being offered. So while I can't give you a percentage, I can definitely say it would be a lot lower than it was last year this time. There were bulk bill MRI services on offer on the Gold Coast and the Sunshine Coast. All right. That's understood. Thanks for the color. Your next question comes from Craig [audio distortion] from Bank of America. Please go ahead. Thanks, and good morning. My question is just on New Zealand. We saw the growth rate, the revenue growth rates improve in the second half. I was wondering if there was much benefit from expanding into the GP market, or is that increased referral base flow through in future periods? It will continue to flow through in future periods. The benefit of moving to the GP market is that the GP market is not as impacted by non-arm's length as relative to the orthopedic market, for instance. It also gives us a more balanced offering in New Zealand, similar to our offering in Australia. In terms of the scope of services being offered, it's always useful to have that GP entry point to the system, because that generates a much more high acuity studies down the line. In other words, patients referred by GP from an X-ray and a coronary ultrasound, invariably, if you do find something, they would need to come back for a CT or an MR. That's why it makes sense for us to broaden, diversify our market in New Zealand to GPs as well. So our referrals in New Zealand look a lot more similar to our referrals in Australia now. We're still more oriented towards the specialist market. We have more GPs in New Zealand than what we had a year ago, and certainly a lot more than we had two years ago. I'd just probably call out as well. I think what we saw in the first half was that, real impact of some of these, radiologists opening their own... Sorry, specialists opening their own radiology clinics. We saw more of that impact in the first half, the shift away from some of that higher margin musculoskeletal work. But that sort of normalized by the end of the first half, and we started to see some improvement in average revenue per exam in New Zealand in the second half. I think it feels like the market sort of stabilizing at the new normal. Could you quantify how much benefit you had from expanding your GP referrer base? No, we're not able. We, yeah, we would not call that out in any event. We, we know based on the numbers we've seen in the second half versus the first half, that our average fee improved nicely, because of the, you know, broadened and diversified referrer base we have. We expect that to continue to improve as we, you know, pick up on the patients that GPs refer to specialists. But, we, yeah, we don't call out the margin, the percentage margin improvement. New Zealand margins are still quite higher than the margins in Australia. Okay. I was more just referring to just like the kind of revenue growth impact that you had from the GP referral base increasing. But I can leave that. The next question, just on CapEx, the significant level of replacement CapEx that you had in FY 2023, has that backlog now been worked through, or can we expect that to remain fairly high going forward? You know, Craig, I think it has cleared. As I've mentioned earlier, you know, replacement CapEx was higher in FY 2023, reflecting a sort of catch up that didn't happen in FY 2022. But we certainly expect to see a, you know, higher level of replacement CapEx in FY 2024. There were different concessions provided by Medicare during COVID that allowed us to use our equipment for longer and still retain a full Medicare rebate. With COVID concessions, they were removed after COVID. Therefore, we needed to replace more equipment after COVID than we had to replace before. Okay, thank you. The next question comes from Saul Hadassin with Barrenjoey. Please go ahead. Thanks. Good morning, Ian and Craig. Maybe one for you. Just, obviously reading about the implications of payroll tax in Queensland for some medical practices, what's your contract with radiologists, whether that's an issue for you guys at some stage? Thanks. Thanks, Saul. Yeah, I did see that. I think as a business, I believe we've taken a, an appropriate and conservative approach to this issue of employees versus contractors. That's certainly one that that the company's been alive to for a long time. I think the debate, for those on the call who may not be aware of all the detail around the question, is that good contractors being classified as employees. But I think we go through, all of our arrangements with doctors, and at the end of the day, where a doctor is effectively, substantially working for IDX, then they are an employee, and we would classify them as such, pay payroll tax, pay the superannuation contribution. Where we do have contractors, then they would typically be working for us part-time, might be working for other providers, and we would seek to classify them appropriately as contractors. So I don't believe we have any material risk in that regard. Great, thank you. Just to clarify on the MRI licensing, the deregulation in regional areas. Overall, were you, was IDX a net beneficiary of that, or are you finding you're having to compete where you had licensed machines now facing some competitors that similarly now have machines that are fully licensed? Clearly, we gained three new MRI licenses. Two were not previously licensed, and one had great partial term. But also, in some of the areas where we operate, there were competitors who similarly gained. So we have additional competition, but we also have additional MRIs, we're able to bill Medicare. I think net-net, there was probably no, certainly no material change to our overall MRI revenues because of it. But in some markets, traditional competition may have taken some of the business away. But in other markets, we've definitely gained. To date, we've probably gained a little more than what we lost out of the process, and I don't expect that to change. Okay, great. Thanks. That's all I had. Next question comes from Andrew Payne with SLA. Please go ahead. Yeah, hi, thanks for taking my question. Just wanted to look at or give me an insight into the out-of-pocket contribution to growth in through FY 2023. You've obviously given us fee per exam, but wondering if you can split that out between mix indexation and out-of-pocket. Andrew, it's not a number that I can provide. I mean, I'll provide some comments just to put it into context. I think in FY 2023, the price increases we took were quite selective. So we look across all of our businesses in each state at the competitive market conditions in each of those markets, and take price increases where they're appropriate to try and obviously recover some of these inflationary pressures that we felt. The probably the price increase that would have contributed most would have been the one I called out earlier, which was the price increase we took on ultrasound in both the Gold Coast and Sunshine Coast from January 2023. So we'll see a full year benefit from that in FY 2024. We did take some out-of-pocket increase on MRI on the Gold Coast around July 2022, but they would have a pretty modest impact. You know, if you look at Australia overall, where we delivered the 5.7% increase, and the splits for the first half, second half that I mentioned, so 5.2% in the first half, 6.1% in the second half, you know, that difference between the 6.1% and the 5.7% is essentially mostly going to be the impact of those out-of-pocket cost increases. So that's probably as much as I can provide to you to give you a sense of the impact of them. Cool, thanks. And just thinking, you know, how do you see out-of-pocket developing across the industry? Just thinking about with bulk billing rates coming down and also, you know, the potential for legislation that patients will only have to pay the gap fee, if charged. I think that has been held up recently, but you know, how do you think that will help drive these trends in the future? Well, when that legislation passes, and we expect that it will at some point, because it is a good concession for patients to be able to pay the gap. And I think that there's good support for it. When that happens, that will support our ability to charge gaps without having as much an impact on patients. It has been important to charge gaps in the past year because of the differential, you know, the large differential between the MBS 1.6% and the inflation rate. This year, the differential is not as great, so I don't expect there to be as many new gap payments made across the industry. But for businesses that have started paying gaps and have put in the infrastructure to be able to do that, I would think that the gap payments are likely to continue, given the fact that even the 3.6%, the additional 0.5% that we receive in November, is still likely to be behind the annual CPI rate, although not by nearly as much. Okay, great. And just one last one, if you don't mind. Just circling back to the MRI bulk billing rebates, it sounds like that hasn't had that big an impact, those changes over the past 12 months, and then, you know, you're getting indexation to MRI. So, you know, it sounds like it'd be a net win for you in terms of funding for MRI. I think that's right. I don't expect it to have much of an impact across others in the industry either, just because, as I said earlier, there are fewer and fewer MRIs that are being bulk billed today. So if you're not going to be bulk billing, then you're not impacted by that 5% reduction in the bulk bill rate. Okay. That's great. That's all I had. Thanks. Next question comes from David Bailey with Macquarie Bank. Please go ahead. Thanks. Morning, Ian and Craig. Just coming back to some of the earlier questions around thinking about 2024. We're looking at indexation of 3.5, maybe volume of, you know, a bit above mid-single- digit. I'm just interested to understand the mix of fixed and variable costs in the operating lines, and then maybe get a broad estimate of what the inflationary number might be on those operating costs. If we do that, we can sort of back out, you know, operating leverage might look like for you guys. Yeah. David, so I think first your question around sort of fixed versus variable. I mean, we are generally a fixed cost business, and obviously, in a scenario where patient volumes are growing again, we're seeing some positive operating leverage, particularly in this second half just gone. So we expect that to continue. It's very difficult to put an absolute number on fixed versus variable, but I'd say it's around 75% fixed, 25% variable directionally. You know, in terms of inflation, you really just need to look at the sort of the external guidance on inflation rates for both Australia and New Zealand. New Zealand's obviously running a little higher. But we wouldn't expect cost growth to exceed that inflation rate, bearing in mind that that inflation is also coming down over time rather than going up. Yeah, that's what I'm sort of thinking about as well. Maybe just in terms of your exposures, you know, having regional exposure, just your observations in terms of recovery or growth rates in the more regional areas versus metropolitan, and also doctor availability in those regions versus what you might be seeing elsewhere. Thanks, David. It's improved a lot in regional areas during this calendar year, when the borders were opened up to international medical graduates. We were really hurt in the regional areas during the COVID years and the borders closed, no international medical graduates coming into the country, because the international graduates are required to work in regional areas for up to 10 years, and most of them for 10 years in those regional areas. What happened during COVID is that doctors, international graduates, are reaching that 10-year moratorium, moving into the cities, and there was no pipeline of new doctors coming back into the regional areas. Now that the pipeline has opened again, we've got new doctors coming to the regional areas. They refer to our clinics in the regional areas, because we do have a weighting towards more of the regional areas than I suppose the urban or metropolitan areas. But we tend to select those areas that are high growth areas for our target population, patients above the age of 65. Areas like Sunshine Coast and the Gold Coast, and western areas of Victoria, and southwest WA, are areas that attract, you know, growing retirement populations. And we do need doctors to service those populations, and depend a lot on international medical graduates who have to work in the regional areas before they're able to work in the cities. So I think for those reasons, you should see the regional areas catching up nicely as the international graduates begin to make a real difference. Okay, thanks, Ian and Craig. The next question comes from Daniel Downes with Goldman Sachs. Please go ahead. Yeah. Hi, Ian and Craig. Thanks for taking my questions. Just a quick one on the market for acquisitions in the current environment. Have you seen any shift in the sources of capital that you're competing in? What do the opportunities look like, and has pricing changed at all over the last six months? We were not active in the market, although we were still recipients of vendors that came to us to seek interest. We became more involved in the market again and started looking again towards the end of the financial year. And we will continue to be evaluating opportunities as we go into financial year 2024. Historically, we've been very disciplined around multiples that we would pay for acquisitions, and we would continue to be as disciplined. We've not seen the kind of multiple that was paid in November of last year. One of the Sydney-based businesses that received a very strong multiple from private equity. That was the last sort of big transaction we've seen in the industry, and we've not come across, even on the smaller radiology clinic side, we've not come across those kind of multiples again. And I don't expect we would. I think that was probably a bubble where the market was at that point. But when we look going forward, we'll be looking at markets that are of interest to us, high growth markets and markets where, you know, where if we do make acquisitions, they'd be made at a sensible kind of multiple. Okay, thanks. That's helpful. And then, just finally, your thoughts about the impact of AI into FY24 and maybe going forward. Are there any scenarios where there could be potential revenue benefits going forward, or is it more centered around improving efficiency of radiologists and the patient outcomes? Thanks for the question. AI for us is exciting on both of those fronts. But in regard to efficiency, there is no doubt, and even based on our own time and motion studies that we've done around the algorithms we have, we see efficiencies in terms of radiologists spending less time looking at scans, where there is an AI algorithm or another set of eyes, if you will, that has looked at the scan beforehand. But also in terms of being able to acquire business, what the AI algorithms do is they pick up incidental findings more often than what radiologists do, and a lot of those incidental findings do require additional workup. So we see, which is positive for the patients, I mean, it's pick up things that we would not ordinarily be looking for, but need to be worked up and followed up for the, for the benefit of the patient. So we do see AI making more and more of a difference in our industry over time. We've been steadily, slowly, but steadily increasing the number of algorithms and increasing the number of practices that we offer these algorithms to, and we'll continue to see this kind of growth in AI. Radiology lends itself very well to artificial intelligence because we're all digitized already. So the AI algorithms really work with, you know, digitized data set, which is, you know, very conducive to making solid differences in diagnosis and the kind of follow-up care that we can deliver. So I guess the short answer to your question is, yes, AI will help in terms of efficiency. We've seen some of that. It's not been nearly material to date, but it will be material going forward over the next few years. And we will also see AI pick up work where patients will be diagnosed earlier, because the AI algorithms will be picking up things that would not otherwise have been seen. Great. Thanks for taking my questions. Next question comes from Lyanne Harrison with Bank of America. Please go ahead. Hi, and good morning. Good morning, Craig. I was just gonna follow on from Daniel's question on your AI investments. You know, what sort of costs should we be thinking about in terms of 2024? Were you largely using or licensing third-party algorithms for that? ... Yeah, Yeah, thanks, Lyanne. We, we do use third-party algorithms. We, we don't develop our own AI software, but importantly, we integrate the software from these third-party providers into our systems, and that's where the real benefit to date has come from. So for instance, we have algorithms that detect cervical spine fractures or pulmonary emboli, or brain hemorrhages. If the software sees any abnormality that suggests any of these diagnoses, what it does is it takes that case and puts it right at the top. It moves it to the top of the radiologist's work list. It becomes the very next case that the radiologist looks at. We've had this in place now for a few years, for a couple of years, in some of our practices, and the system has saved lives because it's identified abnormalities that then are picked up a lot faster. And it has detected things that may have been missed, had we not had another set of eyes, the algorithm being that set of eyes, making a triaging beforehand. So we're very excited about the potential for AI, making a tremendous difference to our industry, to, you know, patient health and well-being, and to the ability to diagnose early over the next few years. These kind of changes usually take a little longer than expected. The kind of output you get from them are far greater than expected, and that is going to be true in terms of AI, AI's use in radiology. Thank you. We're looking forward to seeing more of what happens. But if I could move on to, I guess, costs and margin pressures. You mentioned that IDX is obviously focusing on reducing costs in 2024. Can you comment on what initiatives IDX is implementing? Is there any that might have a more material impact than others, that you can provide some color on? Yeah. What we do is we ensure that everyone is productively engaged every day. So we have systems in place where we track the revenue at each clinic each day, and we also look at what kind of cost base we have in that clinic, and we're tailoring the demand at that clinic according to the, or tailoring the supply of clinicians, radiologists, and other clinicians, according to how busy the clinic is or is expected to be. I think that's the, you know, staffing a lot more closely to demand makes, you know, a good positive difference to us. We've also implemented systems, IT systems in recent years that have, or in the most recent year or two, that have improved our ability to service patients more efficiently at lower cost than in the past. So, systems like a third-party system or a middleware system that we've implemented on top of the radiology information systems we have in several of our businesses. We're now able to read scans from different businesses without having to purchase the technology in each business to read the scan, because we have this middleware system in place that we're systematically rolling out across the rest of our company as well. Okay. Thank you. And just one last- Probably, yeah, and if I could just maybe add to Ian's comments, I mean, just to reinforce, obviously, I, I'll just call it labor productivity, whether it's clinical or corporate, you know, talk about doctor productivity, but it is productivity across the group as a way of driving sort of efficiencies and thoughtful that way we're adding headcount. The other one is, I mean, just to call out, we've mentioned the presentation that in the second half, we reduced our operating expenses, excluding labor by AUD 1.4 million. So, you know, we've had a really significant focus on everything from travel costs, so that they're closely monitored and approved. We review to sort of do our best to ensure that people are traveling appropriately, but it's for the good purpose and cost really needs to be incurred. So we are very focused on trying to contain cost by revenue, and obviously expand our margin going forward. Continue to expand margin going forward. Okay. Just one last question around that margins as well. Yeah, obviously a little bit weaker in 2023 because some of the fixed rate contracts that you mentioned earlier. Can you comment on, you know, what the renewal dates for these contracts are and, I guess, the expectations for price increases if those renewal dates occur in financial 2024? Yeah. You calling out the fixed rate contracts specifically, and I mean, there's probably... I'm not gonna mention what it is. I think it's commercially sensitive, but we do have a contract that it's not so much around the renewal, it's more around the way that the contract is structured. And effectively, if we achieve a certain metric, then we get a price increase on that contract, and we would effectively achieve that in FY 2023, that has a positive benefit in FY 2024. Okay. Thank you very much. I'll leave it there. Thanks. The next question comes from Matthew Shapiro. Please go ahead. Yes, good morning, Ian. Good morning, Craig. Thanks for taking my questions. My first one is just on EBITDA margins... Do you still expect that you can get back to the mid-20s over time? I think, Matthew, nothing's really changed, I think, in terms of our view on that. I think we've previously talked about getting back to mid-20s EBITDA margin on a post- FY 2016 basis, by around FY 2026. And, you know, I think the expectation is we're, we work our way back there. Just continuing to grow revenue, controlling costs in a hopefully slowing inflation environment, and seeing that operating leverage flow through to, to restore the margin. Yeah. And then maybe just one on M&A, if I may. I see you had a reassessment of contingent consideration, and that included... I know most of it is for Imaging Queensland, kind of done in the past, but you also had it for Horizon. I was just wondering how Peloton and Horizon are performing relative to- Sure. Your expectations. Thank you. Yeah, I mean, I think, you know, we've again called out in some of the materials that both Peloton and Horizon, when you look at how they performed relative to the regions they operate in, so Peloton Radiology in Sunshine Coast and Horizon in Auckland, both acquisitions have actually outperformed those regions. They're probably a little bit behind their original business cases. But that's really got nothing to do with, I think, how we're feeling about the acquisitions. We're happy with the acquisitions. It really is just a function of this slower recovery coming out of COVID and the higher inflation environment. And I think fair to say that both Peloton and Horizon, as we start FY 2024, are performing nicely. So we're looking for that, obviously, to continue. Thanks. Maybe just one-off, one final one, again, for you, Craig, on CapEx. How should we think about CapEx from FY25 onwards? For FY 2025? Well, look, we've provided guidance for FY 2024, AUD 35 million-AUD 45 million. We haven't provided guidance beyond that. But, you know, I think... So look, I, I can't, Matthew, I just can't give you a number. But, directionally, I think you should be thinking similar numbers to, to FY 2024. I think. Probably, and, and I'd also encourage you to probably think about that sort of number over time. So, you know, rather than think about it in terms of each financial year, just think about it as a sort of directional average per annum. Hopefully that helps. But obviously, as the business grows over time, you'd expect that number to grow, too. Excellent. Thank you so much. You're welcome. The next question comes from Dan Hurren with MST Marquee. Please go ahead. Good morning. I was going to ask about public hospital work, if there are any opportunities there with some pretty high, high-profile backlogs as the system comes away from COVID? I think that there are opportunities there. We're really doing a fair amount of public hospital work in Western Australia, in Victoria, and in Queensland. And we're doing more public hospital work in New Zealand than we did in the past. So we're growing our offering in the public hospital space. I think there are opportunities for us, too, in terms of teleradiology assistance to the public hospitals, and we're seeing more interest around public hospitals looking for teleradiology support to support the radiologists that they do have on site. And, you know, the IDXt business benefits nicely from that. Thanks, and apologies if I missed this, but could I ask you about the evolution of the modality mix across FY 2023, how it changed, and perhaps could you compare that to pre-COVID levels? So we continue to move towards the higher and more valuable modalities. CT is our most expensive modality on offer and the most, the most valuable in terms of the information it can provide to the patient, diagnostically and prognostically, has grown nicely over the course of last year. In fact, it's been a real needle mover for us and for the industry. Since Medicare introduced prostate PSMA on the first of July last year, 2022. MRIs also continued to grow, similar to trends that we see across the world, and similarly with high-speed CT for cardiac work, particularly. So we see that trend to continue. IDX has positioned itself nicely at the high acuity end of the scale, doing proportionately more tests, MRIs, and high-speed CTs than the industry does. We think that that positions us well going forward as we see the trends towards these high acuity procedures continue. I might just comment from a numbers perspective. And we called out that we saw average fees per exam in Australia go up 5.7%, right? So that normalizes out the volume piece. That 5.7% is then a function of both price and mix. We know that price for Medicare indexation was 1.6%. There were a few selective price increases, particularly those ultrasound ones I called out earlier in the second half. So you can see that, you know, out of that 5.7, 2-2.5 is price. Medicare plus the price increases, the balance is the favorable mix impact of the modalities. So that's in the order of around 3%. Great. Thanks so much. Thank you. There are no further questions at this time. I'll hand it back to Mr. Kadish for closing remarks. Thank you very much. We appreciate the interest that's been shown on the call and the questions that everyone has asked. Over the course of the next few weeks, Craig and I will be meeting with many of you and with investors in Australia and New Zealand, and we look forward to engaging with, with you and continuing the dialogue. Thank you very much for calling in.