Joe Garon (National Marketing Director): [unclear] of the land on which we meet today. Today, I'm joining you from Brisbane on the lands of the Turrbal, Yuggera, and Jagera peoples.

We acknowledge the traditional custodians of country throughout Australia, and the places from which our participants join us on this webinar, and their connections to land, sea, and community. We pay our respects to their elders, past and present, and extend that respect to Aboriginal and Torres Strait Islander peoples here today.

Welcome to the investor webinar for Australian Clinical Labs full year financial results. My name's Joe Geran and I'm the National Marketing Director at ACL.

I'm joined today on this webinar by our Group CEO and Executive Director, Melinda McGrath, our incoming Group CEO, Greg Horan, and our CFO, Matt Cordingley. Today's webinar will run for approximately 1 hour and will be recorded.

A copy of the recording will be made available on ACL's website after the event. By choosing to attend, you are providing your consent to participating in the recording.

If you'd like more information, a copy of our privacy policy can be found on the website. During the webinar, you'll hear presentations from Melinda, Greg, and from Matt, and then we'll have time for Q&A.

To ask your question, you may raise your hand if you'd like to ask your question live during the webinar. Or if you'd prefer to submit a written question, which I will then read out, you can type it into the Q&A function that you'll see at the bottom of your screen.

Once we move to Q&A, we will focus on the more frequently asked questions and we'll try to get through as many as possible in the time available. I'd like to hand you over to our Group CEO, Melinda McGrath.

Thanks, Joe. On to slide 4, thanks, Joe.

Good morning, everyone. Welcome to our results presentation for the full year of financial year 2026.

The results presented today again show improved underlying margins achieved in an environment of significant industry change, unexpected inflationary costs, and low market volume. Against this backdrop, we've improved our EBIT and margin to above the top end of guidance, improved our return on invested capital, our earnings per share, and we've returned $47 million to shareholders in the form of dividends and share buybacks.

In late 2025, in anticipation of patient fee cuts imposed by the federal government, which commenced in July 2026, we redesigned our operations. Importantly, we wanted to enhance our control over our future, and in doing so, we implemented several projects that have paid off in this financial year, which underpin our outlook.

We've delivered earnings growth in an unprecedented low-growth pathology market since the pandemic, which has included large fee cuts. The Clinical Labs team's flexibility and ability to innovate at all levels are on show in these results, aided by our strategic initiatives, our resilience, and our flexible business design.

We've responded to the challenging external environment by optimizing our collection center portfolio, focusing on profitable contract management, and operationally, we've seen the positive impact of our AI and automation projects on the digitalization of our billing practice and some back-end functions. Importantly, we've set up our systems to enable enhanced billing into the future.

The footprint redesign will allow leverage as volumes return. The Lab of the Future is progressing well and will further refine our laboratory and logistics efficiencies, and the work we've done on billing will enable more price control levers over non-Medicare-reimbursed tests.

These results show a run rate on business redesign activities that will mitigate industry headwinds this year and support margin improvements as we go into 2028. The progress achieved provides a strong foundation for sustainable earnings growth, which will be enhanced when volumes improve towards the long-term average.

Our results are: revenue of $736 million, which is down on the prior corresponding period in a low-growth market; underlying EBIT is $69.2 million, which represents a 9.4% margin and is up 1.7% on 2025. Noting, as in previous years, we see a skew between half 1 and half 2, the second half margin was 11% in line with our guidance.

Underlying NPAT was $35.5 million, up 4.3% on financial year '25, with underlying earnings per share of 18.3 cents, up 8.5% on financial year 2025. Reported NPAT was $24 million, and Matt will explain the reason for the variance.

Dividend per share announced today is 9.25 cents per share, which takes the full year to 13 cents per share, which is a 5.5% yield and a 69% payout ratio. Free cash flow of $64.7 million is down on financial year '25, which again Matt will talk to.

Our return on invested capital is 25.2%, which is up on financial year '25. This is also consistent with previous years and is above the 75th percentile of the ASX 300.

Capital returns were $47 million, which is equivalent to around 10.7% of current market cap. With a strong balance sheet and confidence in our strategy, we'll continue to buy back shares into 2027.

Our core strategy remains focused on driving margin-accretive top-line growth through disciplined network and contract expansion, investment in strategic new business, including non-Medicare-funded pathology and adjacencies, and implementation of revenue and billing enhancements to recover fees for tests currently provided for free. We are also targeting growth in specialized diagnostics.

Overlaying this, we'll continue to invest in and apply innovation to our operations. Slide 5, thanks, Joe.

This slide shows the major components that have contributed to performance this financial year to provide insight into the impact of our responses to the external environment. In 2026, revenue was impacted by large Medicare cuts to vitamin B12 and urine testing and the sluggish GP consultation market.

In addition, there has been significant market-wide drop-off in respiratory and HPV testing. Slow GP-referred market volumes have been caused by a reduction in attendance at GP practices, though the yield per attendance has improved compared to previous periods.

This has had the greatest revenue impact. Like any business, not all growth or service and product lines are profitable.

We've restructured our collection center and contracts portfolio to focus on profitable revenue. As fee cuts were implemented, part of our network became unprofitable, and if we weren't able to negotiate better conditions, we exited.

We also closed some regional labs and collection centers. This led to a short-term decrease in revenue, but an increase in overall EBIT and margin.

I'm pleased to say that in 2027, we have a strong pipeline of new ACCs at more appropriate arrangements. In addition, some public hospitals in Victoria insourced their pathology under government direction.

The fee cut for active B12 and other testing was offset to a small degree by part indexation, and we've made most of this back from our other activities, including upfront patient billing. For us, this deficit, including the upside of indexation, was circa $14 million EBIT impact.

Our growth rate would have been higher, but earnings lower if we hadn't made these changes. Now on to costs.

The result includes the initial cost of the Fair Work Commission ruling relating to gender undervaluation of $1.8 million, the annual inflationary impacts on labor costs where the Fair Work Commission increased wages under modern awards by 3.5% plus the 0.5% increase to superannuation on the 1st of July 2025. You can see that we've made labor efficiency changes, which have more than offset these cost imposts.

Note, we were able to keep our labor as a percentage of revenue at 43.5%, despite the large revenue impacts I have just talked to. We also saw higher than normal broad inflationary pressure across our cost base on rent and other costs.

We've managed this well as part of our footprint redesign with rent costs remaining stable as a percentage of revenue, despite the softer top line, yielding a better margin. The operations teams have done an excellent job with consumables in both contract and inventory management, and we expect actions targeted for this year to have further ongoing positive impact.

As a result, we believe the business is well positioned to deal with this year's headwinds and to capitalize on any increase in volumes as they return to trend. On to slide 6, thanks, Joe.

Now presenting some operational highlights. In addition to our outcomes-driven culture, the work we've completed over several years integrating disparate systems into a single operating platform is our major competitive advantage.

We are the only national pathology provider with a single laboratory information system, or LIS. Having the same system across the country reduces duplication, drives cost efficiencies, enhances customer service, and facilitates best practice being adopted across the country.

As we've shown this year, the LIS ensures that we are uniquely positioned to capitalize on opportunities or challenges due to the underlying structural design of the business. This couldn't happen if the people and culture did not support the ready adoption of best practice and proactive change.

The LIS enables first-to-market bolt-on technology and sustainable continuous improvement and has enabled our billing strategy to be effective and implemented nationwide. If we had several versions of the lab system, we would have had to program and test each one, noting there are thousands of test combinations and algorithms that need to match the billing system, and there's a clinical risk in any reprogramming activity.

The billing project took more than 18 months to get right, even with only one LIS. On this slide, we've set out the growth initiatives and operating efficiency gains that underpin our 20 basis point increase in EBIT margin.

I point out that around 20% of our revenue is now non-Medicare; it's B2B or B2C. Key strategy has been to enable cost control over more pricing points and recovering fees for tests we currently complete for free.

We've invested in digitalization linked to our LIS and are benefiting from the ability this gives us to unlock other sources of revenue. We see this as being a real source of benefit into the future, and it will allow more price control.

The digital upfront billing projects enable us to address four buckets of activity: health fund contracts and other related increases, price increases for non-Medicare-funded and contracted tests, upfront billing of overseas patients and students, and upfront billing of unfunded tests, namely those we currently do without payment that become debtors or write-offs. These are not the coning tests; they are tests that due to Medicare restrictors are not eligible for reimbursement by Medicare.

Generally, these are time-based or clinical-condition-based restrictors. In addition, we increased oncological genomic and reproductive health testing, and we've seen a growth in our outpatient specialist referrals of 4%.

From a cost point of view this year, despite the revenue drop and the inflationary impact of wage increases, labor as a percentage of revenue remains strong at 43.5%. Lab operational efficiency increased more than 10%, and we also increased our logistics efficiency by 13%.

GPS route optimization allowed almost 1 million less kilometers than last year, and any short-term petrol price changes were totally insignificant. We continue to control rent well, as I mentioned, despite the low volume growth, and have a pipeline of new profitable ACCs into 2027.

We also have several AI projects underway to enhance back office and other functions that will produce benefits in 2027 and beyond. We've maintained an industry-leading patient NPS score of positive 80.

All of this has supported our financial year '26 result, underpins our 2027 guidance, and provides further runway for upside on performance in future periods. This is my last results presentation for Australian Clinical Labs.

I've been with the company since it was founded in 2015. Before handing over to Matt and Greg, I would like to thank our pathologists and scientists for their expertise, advice, and commitment to quality, and acknowledge the dedication of our teams across Clinical Labs who care for our patients every day.

Their work is inspiring, helping to save and improve the lives of tens of thousands of Australians every day. From my commentary today, you can see that we have a culture of innovative and driven leadership.

I want to recognize and thank our leaders and teams across our laboratories, collection centers, the courier network, technology functions, and professional services. Their collaboration and relentless focus on improvement continue to redefine what best in class looks like.

As these results demonstrate, this leadership aligns with the interests of our doctors, patients, people, and shareholders, and it is a strength we value greatly. We have a very talented and experienced management team that is innovative and strong at execution, who are specialists in what they do.

Most of them have been on the ACL journey from the start. Those who have joined since have added extra dimensions and different ways of thinking.

In that time, we've acquired and integrated five pathology businesses, made complex technological enhancements to create our competitive advantage, completed an IPO, and managed through the ups and downs of a pandemic and its aftermath. I'd like to thank them and acknowledge their hard work and support.

It has been a privilege working with them. Thanks to Stephen for his leadership and the board for their commitment and insights.

I wish them and Greg well as they continue to grow the business. I would also like to thank our shareholders, many of whom have been with us since the IPO, for their confidence in us.

I'll hand over to you now. Thanks, Matt.

Thanks, Melinda. Let me start with the shape of the year rather than the numbers themselves.

FY '26 was a year where the top line went mildly backwards for reasons that Melinda has already covered. However, we grew underlying net profit after tax by 4.3% and earnings per share by 8.5%.

That combination doesn't happen by accident. It happens because, amongst other initiatives, we made deliberate choices about the revenue we were willing to carry, which would benefit the bottom line.

In terms of revenue, ACL's MBS outlays declined by 0.3% versus market growth of 1% in FY '26. When you look at the second half only, ACL's MBS outlays grew by 0.6% compared to the market growth of only 0.3%.

We called this out in our half-year results where some of the revenue decline was a result of conscious management decision-making. Fee changes and new conditions imposed on old contracts meant they fell below our return hurdles, and so we withdrew.

Then we also walked away from collection centers that weren't earning minimum contribution margin. As Melinda said, there was some public hospital work that was taken back by the states, and we would have preferred to keep that.

When you strip those out, our underlying revenue line grew by 1.1% on FY '25. To reiterate, the revenue we elected to let go of was not aligned to our return profile.

We have always held the view that a strong and sustainable margin and profitable revenue growth is what delivers value to shareholders. Now, as Melinda covered in explaining the FY '25 to FY '26 EBIT bridge, it should not be lost sight of that we absorbed roughly $14 million of net Medicare fee cuts from the B12 and urine tests, offset by a small cushion from indexation on around a third of the schedule.

We made it back. We also absorbed the customary annual modern award wage increases and $1.8 million of gender undervaluation costs in the second half.

Yet underlying EBIT still grew 1.7%, and the offset came primarily from three places: first, labor costs, where continued vigilance in matching worked hours to actual volumes was achieved using our automated tools and processes; second, operational efficiency in our labs; and third, from our procurement focus that has driven down our consumable costs. Now, it's important that I emphasize that these are all structural changes to the cost base; they are not one-off savings.

Conversely, the gap you see between our statutory, or reported, EBIT and underlying EBIT are very much comprised of one-offs: the $6.2 million OAIC settlement and the $4.2 million non-cash prepayment writeback. Both of these trace back to the historical Medlab acquisition in 2022.

There's a full reconciliation set out in the appendix. Turning now to slide 9.

It's our cash flow where you can really see the quality of these earnings. We converted 119.2% of cash EBITDA into operating cash flow.

Again, that's above 100% and it's consistent with our track record. ACL has continually flowed its earnings into cash flow, and 2026 was no exception.

Free cash flow of $64.7 million was down on last year with the reduction in revenues, but our underlying profit-to-cash conversion engine, it remains unchanged. Two things drove the working capital improvement: firstly, the benefits from the billing digitalization work, where upfront billing of private-paying patients means we collect closer to the point of service; and secondly, the unwind of the historical Medlab prepayment, which is a one-off.

Our billing initiatives are not one-off, though, and they will provide more benefits as they extend further into tests that are not funded by Medicare into FY '27 and beyond. Maintenance capex stayed within its historical $8 to $10 million band, and I'd just like to highlight again the efficiency gains that Melinda outlined: the 10.4% lift in panels per FTE and the investment in AI and automation that were all delivered inside that envelope.

It's not a capital-hungry transformation that we're pursuing, which is why we have an enviable and market-leading return on invested capital of 25.2%. We've returned $47.1 million to shareholders through dividends and buybacks, around 11% of our market capitalization.

Some of this was funded from debt, but we view this as sensible capital management given where the share price has been trading. We are conservatively leveraged with financial flexibility.

Slide 10 is our balance sheet, and I'll provide some commentary on the capital allocation logic behind it. We closed the year at $37.4 million in net debt, which is 0.5 times underlying EBITDA on a pre-AASB 16 cash basis, which is after returning $47 million to shareholders this year, plus settling the OAIC matter.

As I mentioned, we are conservatively geared by any measure, comfortably within our debt covenants, and our facilities run to September 2027. We're targeting a renewal or refinancing of those by December this year.

The final dividend takes the full year distribution to 13 cents, a payout ratio of just under 70% of underlying NPAT, again at the top end of our board-approved target range. We've delivered that increase on top of buying back $21.8 million of our shares, which, as I just mentioned, we undertook simply because we saw value in doing that for our shareholders.

Addressing our debt levels, we think ACL's modest level of gearing is appropriate given where we are in a challenging operating environment, which we believe will course correct over time. Nevertheless, this lends our capital management policy to favor capacity, not leverage.

When volumes turn, the operating leverage based on the design of the business along with our single national LIS platform is significant, and we will have even greater flexibility to fund accretive investments. Wrapping up, in summary, ACL's financial position is characterized by high quality earnings, sustainable margins, strong and repeatable cash flow conversion, and a balance sheet with flexibility and capacity to fund accretive growth and dividends for our shareholders.

I'll hand over now to our new incoming CEO, Greg.

Thanks, Matt. Good morning, everyone.

For those I've not yet met, I'm Greg Horan. I joined ACL on the 1st of June as incoming Group CEO, and I step into the Group CEO role on the 31st of August.

After 10 years, Melinda is handing over a leading operator in our sector and has been very generous with her time through the transition, which I'm grateful for. I've spent 25 years in operating roles across different industries, but most recently ran Healthscope, where I was responsible for 43 hospitals, approximately 20,000 staff, and 5,000 visiting medical officers.

The dynamics of the industry and its key participants are very familiar to me. Two things really drew me to ACL.

The first is the nature of the business. Pathology is essential healthcare.

It sits behind a very large share of the clinical decisions made in this country, and demand is supported by an aging population and rising chronic disease. That demand does not turn off with the economic cycle.

The second is the platform. ACL is one of a small number of genuinely national operators with real scale and strong clinical presence.

Over several years, ACL has built a single national operating platform underpinned by a single laboratory information system. That is more than an IT point.

It is a structural advantage, as Melinda and Matt have outlined. It reduces duplication, supports efficiency, allows national deployment of technology and billing initiatives, and gives the business operating leverage as volumes improve.

I've spent my first months visiting laboratories and collection centers and meeting our people. The clinical capability across the business and the pride in our teams taken in the work both stand out to me.

ACL has shown it can manage through a difficult market, absorb cost pressure, make disciplined portfolio decisions, and still improve profitability. The opportunity from here is to leverage the platform more deliberately, increase profitable market participation, convert productivity into cash, and continue to allocate capital with discipline.

That is how I see the next chapter: disciplined value creation from a resilient national platform. Slide 12 outlines our industry outlook, and diagnostics remain structurally important to healthcare.

Over time, demand is supported by primary care activity, an aging population, chronic disease, and the growing role of diagnostics and clinical decision-making. The near-term market, however, has been challenging.

GP attendances and pathology episodes remain below long-term trend. However, pathology yield per GP consult has continued to improve with each visit to a GP generating more diagnostic work than it did, meaning when attendances recover, the volume benefit to us will be amplified.

In addition, the GP bulk billing incentive has seen strong uptake since the incentive was expanded in November, alongside broader government measures aimed at improving access to primary care. I do not want the investment case to rest on a rapid market snapback.

We are positioned to benefit as activity improves, and the plan is built on ACL can control: service reliability, referrer engagement, disciplined account management, better billing, improved revenue capture, labor productivity, and capital discipline. This slide brings together the two parts of our investment case: operational improvement and disciplined growth.

On the revenue side, we are not pursuing volume for volume's sake. We are focused on profitable revenue: better billing, private non-funded test recovery where appropriate, indexation support, disciplined ACC expansion and optimization, and SunDoctors opportunities where pathology synergies and earnings appreciation are clear.

On the operational side, the focus is equally disciplined. We are leveraging the national platform through Lab of the Future, the National Skin Lab, digital workflow, AI, procurement benefits, and route optimization.

These are not separate ideas; each one uses scale, process discipline, and technology to improve our cost to serve. The important point is that these levers sit largely within our control.

The external environment remains challenging, but we are not standing still. We are using ACL's platform to improve productivity, protect margin, grow profitably, and build a more scalable operating model.

That is why we have confidence in the stability of our margin and the longer-term outlook. On slide 14, the growth strategy is consistent with what you've seen before.

What changes under my leadership is not the direction of travel, but the intensity of execution and the clarity of accountability behind each pillar. The single laboratory information system is the foundation.

It allows us to build once and deploy nationally. That matters for billing, automation, AI, workflow quality, laboratory productivity, and post-acquisition integration.

Rather than walk the five pillars one by one, I think of them as four themes, and each one already has evidence behind it. The first is growing only where we earn a return.

That is why we exited collection centers and contracts that could not be repriced profitably, and why the ones that we're opening now are on better terms. The second is reducing our dependence on a single payer.

Roughly a fifth of our revenue now sits outside Medicare, and the mix is moving in the right direction: commercial contract revenue up 17%, genetics and non-MBS up over 7%. SunDoctors and melanoma commercialization belong to the same theme: adjacencies that use laboratory capability we already own rather than capability we have to go and buy.

The third is being paid properly for the work we already do: digitized billing on the national system, upfront billing for overseas patients, recovery of tests Medicare does not fund for a particular patient, and continued advocacy on indexation. None of that requires one extra episode to walk through the door.

The fourth is using the single platform to take cost out, which we've demonstrated with industry-leading labor productivity and significant procurement improvements. The Lab of the Future will handle more than half of our routine work at a 20% efficiency gain.

The National Skin Lab will operate at a 20% lower cost per case. The row along the bottom is the part I would focus on.

Every pillar has an outcome will be measured against: margin, revenue diversification, scale and synergies, revenue quality, and cost per test. Moving on to slide 16, this brings me to our FY '27 guidance.

The business has a track record of delivering through significant headwinds, and the FY '26 result is further evidence of this. My objective is to ensure the market sees continued evidence of delivery.

That means disciplined growth, accountable execution, and continued focus on earnings quality, cash generation, and capital allocation. The guidance reflects a measured view of the market and a disciplined view of what we can control.

We are targeting revenue of $745 million to $765 million, underlying EBIT of $67 to $73 million, and an implied EBIT margin of 9 to 9.5%. The range does not assume a rapid market recovery.

It reflects expected modest market growth, continued wage pressure, and the impact of known industry funding settings, with the exception of the final stage of gender undervaluation for pathology collectors. We will communicate that impact at the FY '27 interim result once the work is complete.

It also reflects the benefits of initiatives underway: upfront episode billing, price increases on non-MBS-funded tests, Lab of the Future, AI initiatives, and workforce alignment to activity. Share buybacks remain part of the strategy, subject to ongoing review of funding requirements, strategic investments, and standard business capital expenditure.

The FY '27 message is clear: we are maintaining margin stability through known headwinds, continuing to execute controllable initiatives, and pursuing sustainable growth drivers. With that, I'll hand back to Joe.

Thanks, Greg. We now have a number of people with their hand up to ask questions.

I'll start with Andrew Goodsall. Andrew, you're unmuted, right to go.

Oh, thanks very much. Congrats to you, Melinda, on your retirement.

Welcome, Greg. On the Fair Work Commission wage impact, I guess they're not going to clarify healthcare worker qualifications assessment, I guess, at this stage to clarify that we're still thinking phlebotomist pay increases for the full year would be in the order of about 5.

I think that was the conversation last time.

Happy

to take that, Melinda? There's a bit of back—

Sorry. Joe, I think we can hear you talking.

Or somebody's unmuted. It's very hard to hear.

Yes. Sorry, Matt.

Can you go ahead?

I think there's a bit of background noise in Andrew's dealing room, but anyway, the $5 million of impact for the phlebotomists, Andrew, is correct. That's right.

That is embedded into guidance. We made the comments that there is also another more modest increase that'll come in on the 1st of January when Fair Work updates their rate card.

That's not for all phlebotomists; it depends on how much they're actually paid and how much that increase was, but it'll be less than that impact. We will be working to offset that within the guidance range that we provided.

Just a quick one on two other items quickly. You mentioned a buyback.

Any other colour you can sort of bring to that when you might start, size, anything like that? Oh,

not at the moment, Andrew. We'll get through results and we'll speak to investors.

There's been a lot of changes in respect of tax legislation and so forth. We've got a lot of flexibility.

There are some projects that we're working on this year, Lab of the Future and the consolidated skin lab project. The buyback will be subject to other investment priorities for the business, but we'll probably have more to say on that later.

Just finally on your copay, self-funded, etc. You've talked to that obviously extensively, but just trying to understand where you are in that journey.

We just getting started? Where's the sort of consumer tapped out, do you sort of think, or we could have a few years?

Sorry, Andrew. I think I couldn't really understand that.

Was that about the billing project?

That's right.

Just how much upside? How much upside?

Yeah. No, we find this really exciting.

It's been a tough project because we had to actually program the lab information system from the customer end, also look up Medicare system, but also the billing at the back end needed to match it, and we've cracked it. There's some in this year, but not that much.

We see into the next years, it's a recurring benefit that we're really excited about. The patient walkout rate when we give them informed consent is very low.

We are targeting high-volume tests, it's a flow-through to the bottom line. Obviously, we'll be able to put some kind of price increase over those tests, we'll get benefit into future years.

It's quite an untapped opportunity for the business, and we've got the system set up now, and we see further upside into future years. Greg might want to comment a bit on that?

Yeah. No, look, I completely agree with Melinda.

Very excited by the billing initiatives, and it will continue to give us compounding returns into the future. I think Melinda really covered it quite well.

All right. Next we've got Sacha Krien from E&P.

Good morning, and congrats, Melinda, and hi Matt and Greg. Look, I guess first question for me, just be keen to understand what MBS growth assumption sits behind your sort of 1 to 4% revenue growth guidance into FY '27?

Matt can do that one for

us. Sure, Melinda.

We've had pretty modest MBS growth, Sacha, through '26, as you know. I called out earlier that our growth outpaced the MBS outlays in the second half, we did see some benefit or some upside coming into the end of the year.

We expect it to be largely in line with 2026, but obviously hopeful towards the top end of the range that it starts to pick up in terms of volume and GP attendances. I won't put a specific number on it.

Yep. Do you get a bit of a benefit from cycling that vitamin B12 change that came in July '26?

We will. We'll get some of that.

Yep. Just in terms of your non-Medicare revenue exposure, I'm just wondering if you can make some comments on the ability to sort of keep taking price there.

I know you say sort of in the early stages of that, but what's the sort of demand elasticity response been in response to either introducing upfront billing or price increases?

I'll grab this one, Sacha. We're very cognizant of that.

We don't want to shoot ourselves in the foot, we're not billing willy-nilly. We're targeting very carefully, piloting, measuring patient walkouts, measuring price elasticity, and adjusting the programs as we see a negative impact from anything.

The walkout rates probably, I think it's about 8%, is quite low. Those people would have been not paid anyway.

They would have had their test done for free and then they wouldn't have paid us, we don't mind. They won't be funded next door at a competitor either.

We're targeting high-volume tests to start with, there is quite a good benefit. Obviously, that's going to go to the bottom line.

It is a very targeted program. Because the business has such high volume of the very common tests, it has got a good impact.

As I said, that's going to go into the future, have a compounding effect.

Okay. Just had one more quick one if I can, just for Matt.

Just wanted to clarify in the labor cost growth into FY '27. You said you reiterated the 4.8 for pathology collectors, there's a modest increase coming in Jan.

Are you able to provide any sort of parameters around that? Then secondly, if you could give us some indication about what you're including for health professionals in FY '27?

I'll take the end of the question first. The combined impact of collectors and health professionals in terms of impact from gender undervaluation is about $7 million in FY '27, so that's health professionals and collectors, or the first stage of the collectors.

Sacha, there is a second rate card that's yet to be put out by Fair Work due to come out on the 1st of January, which is why I'm just resisting giving you a number. We've looked at it obviously.

We think it's very modest and we think we can offset it within the band of guidance that we've given you.

Yep. That's helpful.

Thank you.

Thanks, Sacha. Next we've got Shane Ponraj from Macquarie.

Can you hear us, Shane?

Shane on mute.

Hi, good morning. Can you hear me?

Yes.

Great. Thanks for taking my questions.

Firstly, you mentioned previously that you're targeting $8 million of savings in fiscal '27. Is that also included in the guidance, and could you maybe break that number up into the key initiatives?

Greg, do you want to take that one? Oh,

yeah. Shane, yes, it is included in the guidance for FY '27.

We will be expecting those to continue to compound into '28 and beyond. In terms of the breakup of the initiatives, Matt, do you want to elaborate a little more on that for me, please?

We don't really break up the initiatives. They come from two places: they come from operational initiatives like Lab of the Future, consolidated skin lab project, the projects around AI OCR and other automation initiatives, and then there's the revenue initiatives, which are called out in the presentation.

We haven't before and we don't break them down piece by piece, but they are embedded in the guidance this year and they're expected to endure into FY '28.

Great. Thank you.

It's also good to hear that yield per GP appointment is increasing. Keen to hear if you're seeing yield in telehealth increasing on digital referral systems and how that compares to face-to-face appointments going forward?

The telehealth has been pretty flat around 20% and hasn't changed much since post-COVID, we're not seeing much of a difference.

Great. Thank you.

All right. Thanks, Shane.

Next question we have is from Craig Wong-Pan. You there, Craig?

Yes. Firstly, Melinda, look, want to say thanks for all your help over the years and all the best for the future.

My first question is just on the sub-economic contracts, that $14 million impact you had in FY '26. What's the annualized impact that will come through in FY '27?

Matt, that's a you question.

The annualized impact. It will be similar to that number, but it's not all $14 million in terms of contracts, Craig.

It's broken up into collection centers; it's broken up into contracts that we no longer have. The breakup in there is embedded in the guidance for '27.

Okay. Then on the consumables, a good outcome there.

If I look at that ratio of cost to sales, it was 16% in the second half, quite a low percentage. Just wanted to better understand what drove that down, and is that kind of level sustainable into FY '27?

Yep, I'll grab that one. Most of it is we've got a really strong focus on both contract management and inventory management.

The guys are doing a really good job on driving that price per test, if you want to call it that, down, and also the usage down. In addition, there's a little bit of a mix change that's had a little bit of an impact as well, but the majority of it is deliberate procurement changes.

It could vary if respiratory and HPV increase, but then revenue will increase as well. There'll be a trade-off on consumable costs versus the average fee will increase.

Matt, did you want to add anything to that?

No, I think that's a pretty good summary. There are some key contracts which we worked pretty hard to offset, where we're going across really all of our spend under influence to look to drive that down further, Craig.

I think your question is, is it sustainable? In my view, yes, it is.

Okay. Thank you.

Then just last question. Looking at kind of depreciation and interest costs in the second half, those did tick up.

Just wanted to understand if those were kind of a good run rate that we should think of into FY '27?

AASB 16 D&A will be a bit higher in '27, Craig, the result of we had a big lump of contracts with one particular counterparty that renewed in the second half, with two counterparties in fact. That was all reset at new rent, so that lifted the AASB 16 balances.

You'll see that run rate into '27.

Okay. Thank you.

Next person we've got with their hand up is Dayvan Pillayathan.

Hi, morning, Melinda, Greg, and Matt. Thanks for the opportunity.

I just want to, I guess, start off with the consumables bit. Clearly you've had some decent savings there from a year-on-year perspective.

If I think about that as a percentage of revenue, I heard your thoughts and comments about that being largely driven by better cost outcomes with suppliers. I just want to, I guess, understand a bit about your billings initiatives as well.

If I understand this right, a lot of the work on billings is to effectively get paid for tests that you weren't previously getting paid for. Shouldn't that also be helping the consumables leverage?

Probably, yes. It probably would be.

We haven't quantified that, though, but it probably would be. It's price increases over non-Medicare-funded testing or health fund testing, so that includes contracts, health funds, tests that we haven't been paid for, which is a smaller proportion at the moment, but we expect to be increasing.

There will be a benefit of that in there, but we haven't quantified that.

Yeah. Okay.

I guess somewhat related is just to understand the performance of the business over that second half '26 period. If I look at your revenue performance and the EBIT performance, you met the bottom end of your revenue guide, but you did really well from an EBIT perspective.

If I think about when you set your guidance about sort of late Feb and how the results trended in June, could you give us a sense of what changed in those months relative to expectations, please?

I think. Look, the market is really sluggish.

As I mentioned, GP attendances are just really really sluggish. We anticipated that that would continue.

It got a little bit better, but not greatly. The most benefit is from all of the projects that we've implemented, and I think we've got some of that, we've got a page on it, but there's quite a lot of projects that are going to have a really good run rate into the future, and that's why we're confident that they're going to keep improving.

The efficiency projects, we never do cost-cutting projects; they're all sustainable process changes through different ways of thinking: automation, AI, offshoring, changing the way we do things. The revenue ones are hard to think through, hard to program into the computer system, but we have done that into the lab information system, and so they will have a run rate into the future as well.

Those ones we can put a price increase over the top of, which we have really not been able to do before. We really decided we're going to really put a lot of effort into this to try and get control of a bit bigger part of our revenue, pricing on our revenue.

We're really pleased that that's started to pay off into the last 3 months of the financial year. One of the reasons for the guidance as it is into 2027 is that there are big labor cost increases imposed by the Fair Work Commission.

I think Matt help me, but I think it's 4.75 just on the basic, and then we've got gender undervaluation. There's quite a big impost that isn't abnormal this year from July the 1st that needed to be covered.

Then into the 2027 financial year, I think we'll start seeing some of the projects really starting to ramp up, the run rate going into 2028 would be really good. You don't want to hear from me from 20 about 2027, 2028.

I'll throw over to Greg. Oh,

look. Thanks, Melinda.

I agree. In terms of 2027, 2028, we expect to see, and you can see in the pipeline, that we've got a number of initiatives that are going to hit, particularly Lab of the Future, National Skin Lab.

The private billing that Melinda's been talking about will continue to grow, and we'll get also the benefit of some price increase ability from '28 onwards as well for some of those things. I think the pipeline that we have in place puts us in really good stead for continued margin expansion from '28 and beyond.

Great. Thanks, Melinda.

Thanks, Greg.

Thank you. We've got a couple of written-in questions.

One from Leanne Harrison: "Operating efficiencies: congratulations on delivering material operational efficiencies against an inflationary backdrop. The FY '27 guidance implies a 9% to 9.5% EBIT margin, which is at the top end of the modest EBIT margin expansion versus FY '26.

Can you provide more colour on margin expansion potential, including one, is strategic cost-out initiatives becoming incrementally more difficult? Two, are you expected inflationary pressure to accelerate into FY '27, particularly labor?"

You want to grab that, Greg?

Thanks, Melinda. As we've sort of just talked about, we can see from the pipeline of initiatives, again reiterating Lab of the Future, National Skin Lab, those improved billing initiatives, which will drop straight to the bottom line.

I wouldn't say we've got a strategic cost-out initiative issue, or becoming incrementally harder. I think we've got a very solid pipeline and a demonstrated track record.

I think FY '26 is an excellent marker for the business and demonstrates how resilient and disciplined the business has been. I think we're looking quite good into the future on that front.

Thanks, Greg. Another question online from Raveen Kahundas: "Could you please elaborate on the 13.4 million of labor FTE efficiencies achieved in FY '26?

How targeted are these cost cuts to the exited contract versus general capacity decisions? Also, could you share any detail on the providers who took over these contracts and how they could be profitable for them, e.g.

greater local density versus pricing rationality?"

I'll do the last one and then hand over to Matt for the first one. That's a good question, and I don't think that those contracts would be profitable to anybody else, otherwise we would have kept them.

I'll hand over to Matt on the FTE question.

I think the question is really around sort of how targeted with the FTE reductions around the closures and versus other capacity to reduce labor costs throughout the business. The truth is, we don't leave any stone unturned when it comes to looking at efficiency of our business, especially in labor.

They weren't specifically targeted from the closures of the ACCs. ACCs, we look at it a holistic sense; we review them consistently throughout the year, and if they fall below our threshold, then we make decisions in respect of either trying to improve them or keep them.

The other cost benefits come from laboratory efficiency, and I called that out during the presentation around matching labor hours to the volume. We've got a flexible workforce, and whether it's looking to de-casualize our workforce or balance that casualization to manage it against the volumes, that's what we do.

We also have a shared services office, which is based in Malaysia. We use that very efficiently to manage our labor costs as well.

It's across the board; it's targeted everywhere, that's the truth.

Thanks, Matt. Just one or two final questions.

Daniel Booren: "When did the benefits of upfront billing start to hit the P&L, and is there more incremental benefit likely in FY '27, or is that largely in the base now?"

Greg, do you want to grab that one?

Again, I would say we're starting to see incremental benefit the FY '27 P&L, and will continue to grow through FY '28 and beyond.

Joe? Thanks, Greg.

Final quick question from Chris Richards: "While it's immaterial, is there any update on the PCP performance of the veterinary laboratories?"

I would say, look, the veterinary business is performing well this year. Obviously, it's been involved in the response to the bird flu, and so we've seen a bit of an uptick in volume for the vet business year to date.

Thanks, Greg. I think we've managed to answer most of your questions in the allotted time.

If there are any questions you would like to raise, please email them to us at [email protected]. You'll find that email address on our ASX releases, and we will answer where appropriate to do so.

Thank you, Greg, Melinda, and Matt for your presentations, and thank you to our participants for attending and showing such interest in ACL. We hope to see you at our next investor webinar later in the year.

Goodbye.

Thank you.

Thank you.

Thank you.