Release Date: August 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Australian Clinical Labs Ltd (ASX:ACL, Financial) achieved revenue of $696 million and an EBIT of $62.6 million, in line with guidance.
- Non-COVID revenue increased by 5.4% to $646.7 million, demonstrating strong performance in core operations.
- The company declared a final fully franked dividend of $0.09 per share, totaling $0.12 per share for the full financial year, representing a 4.6% yield.
- Operational improvements and a focus on efficiency led to a 101% operating cash flow conversion from EBITDA.
- The company announced a 12-month on-market share buyback program of up to 20 million shares, aimed at enhancing shareholder value.
Negative Points
- The company faced significant challenges due to the transition from pandemic to endemic COVID-19, resulting in a 59% decline in COVID revenue.
- Labor costs were impacted by a 5.75% Modern Award increase, higher workers' compensation rates, and a superannuation increase.
- Rent expenses increased by 4% due to inflationary pressures, affecting overall cost management.
- The company incurred over $9 million in nonrecurring costs, primarily related to the Healius transaction.
- Despite improvements, the market has not yet returned to predictable growth, and volumes remain difficult to forecast.
Q & A Highlights
Q: What is stopping the strength seen in the second half of FY24 from continuing into the first half of FY25? Are there any particular cost pressures to note?
A: The forecast is based on the half one, half two skew from last year, which was abnormal. Cost pressures include state government-imposed levies and increased rents. The revenue for the first half will be a key determinant. (Melinda McGrath, CEO)
Q: What was the rent saving achieved by exiting 170 ACCs and replacing them with 165 ACCs? Should we expect the full year benefit of those savings into FY25?
A: Rent expense increased by 4%, which was part of those movements. The full year benefit of those savings should be expected into FY25. (Lana Hudson, Deputy CFO)
Q: What is the medium-term target gearing range now that the buyback has started?
A: If the full amount is utilized, the gearing would still be around 1 times. The Board has not finalized a position, but 1.5 times would be a good number to consider. (Melinda McGrath, CEO)
Q: What are your thoughts on the dividend policy going forward?
A: The policy has been 50% to 70% since listing. This will be reviewed this year based on capital requirements. (Melinda McGrath, CEO)
Q: How does the Victorian COVID tax levy affect the overall tax rate?
A: The tax rate remains around 30%. The COVID tax levy relates to payroll and employment taxes, not a separate tax. (Lana Hudson, Deputy CFO)
Q: How do you expect to hold and grow market share given the shake-up in collection centers?
A: The focus is on profitable growth rather than just market share. Every bit of revenue is evaluated for profitability. (Melinda McGrath, CEO)
Q: Are you rightsized in terms of labor costs, or is there more to go?
A: Labor is managed through process improvement and productivity enhancements. As volume grows, labor as a percentage of revenue is expected to reduce. (Melinda McGrath, CEO)
Q: What drove the better-than-expected performance, coming in above the lower end of the $60 million to $65 million range?
A: Improved volume over the last couple of months and into the first two months of the financial year, along with well-managed labor and rent costs. (Melinda McGrath, CEO)
Q: Could you explain the mix or price benefit in the revenue per working day being up 7.6% and volume up 5.9%?
A: The increase is due to collaborative efforts with doctors on ordering patterns and clinical guidelines, which impacts the average fee. (Melinda McGrath, CEO)
Q: What are the expectations for CapEx in FY25?
A: CapEx is expected to remain in the $8 million to $10 million range, consistent with previous years. (Melinda McGrath, CEO)
Q: Could you help unpack the revenue growth of 4% to 8% in terms of volume versus average fee increase?
A: Normally, the average fee increase is around 2% to 3%. The revenue patterns are a bit hard to predict, but the average fee is doing well. (Melinda McGrath, CEO)
Q: Do you expect COVID testing to grow with the rest of the non-COVID revenue going forward?
A: Yes, COVID testing is now part of the respiratory ladder and is expected to follow normal patterns. (Melinda McGrath, CEO)
Q: Is there any revenue guidance for the billing initiatives?
A: No, the billing initiatives are expected to impact FY26. Internal targets exist but are not included in the current guidance. (Melinda McGrath, CEO)
Q: Could you provide a sense of the magnitude and timing of the Lab of the Future investment?
A: The investment won't be in the next year or two. The focus is on downsizing the current footprint and upsizing in a highly automated mega lab environment. The CapEx is expected to be slightly more than normal but not significantly higher. (Melinda McGrath, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
