EBOS Group Limited (EBO) Earnings Call Transcript

Thank you for standing by, and welcome to the EBOS Group Limited FY '25 Full Year Results Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, the 27th of August 2025. I would now like to hand the conference over to your speaker today, Mr. Adam Hall, CEO, EBOS Group. Please go ahead, Adam.

[Foreign Language] and good morning, everyone. Thank you for joining us for the EBOS Group's FY '25 Results Presentation. I'm Adam Hall, the Chief Executive Officer of EBOS Group, and I'm joined today by Alistair Gray, our Chief Financial Officer; and Martin Krauskopf, our Chief Strategy and Corporate Development Officer. I'd like to say it's an honor to lead the EBOS team, and I've taken the opportunity to get to visit many of our businesses in Australia, New Zealand and Southeast Asia since joining last month. I'm excited for how EBOS' capabilities are well suited for the opportunities ahead. Turning to the results. FY '25 was another solid year for EBOS, reflecting the quality, scale and leadership positions we hold across the various businesses within the portfolio. We delivered solid organic growth which was supported by new customer wins in pharmacy wholesale where we added over 320 stores nationally, particularly across both New South Wales and Victoria; continued expansion of our pharmacy store network with 34 net new TWC stores added. We also expanded our medical technology business, including adding the Pacific Surgical team in the Philippines. We also saw steady performance from our Pet Brands business despite a softer market. We also maintained a sharp focus on cost management, delivering a 20 basis point reduction in operating expenditure through labor productivity, procurement savings and animal care ingredient costs. By the end of FY '26, we will have concluded our distribution center renewal program, which will deliver eight new sites and enhance existing systems over 4 years. These facilities enable us to serve more customers more efficiently. Alistair will talk about the benefits this program has brought later in the presentation. Our bolt-on acquisition strategy also continues. In July 2025, we purchased Next Generation Pet Foods, which enhances our manufacturing capability and expands our route to market through the exciting channels of hardware and club retail. Our ongoing growth prospects remain strong with advantaged positions in each of our major divisions, community and hospital pharmacy wholesale, retail pharmacy, medical technology and animal care. The stage is set for growth. But first, how does this translate into the 2025 results? Turning to Slide 4 and the financial performance. On an underlying basis, excluding the Chemist Warehouse Australia contract, revenue grew by 12% to AUD 12.3 billion, and underlying EBITDA increased by 7.5% to AUD 585 million. This is within the guidance reaffirmed in April 2025 of between AUD 575 million and AUD 600 million in EBITDA. On a half-by-half basis, our second half was slightly ahead of the first half at AUD 294 million versus AUD 291 million. This growth was achieved in a pharmacy wholesale market that has been highly competitive since the CWA contract transition and also has seen softening discretionary consumer spend within animal care. Underlying EPS was AUD 1.313 per share, and we declared a final dividend of AUD 0.615 per share, bringing total dividends for FY '25 to AUD 1.185 per share, unchanged from the last year and reflecting the Board's continuing confidence in the future growth of the group. Our leverage ratio remains well within our target range at 1.9x, and our ROCE was marginally down 20 basis points to 13%. This reflects a period of significant investment in long-lived DC assets, and this program will continue in 2026. As we flagged before on a statutory basis, our results are down on the prior corresponding period, reflecting the loss of the CWA contract. It is important to note that the commentary this morning is predominantly based on our underlying results, excluding the impact of the CWA contract in the prior year. We have included a reconciliation between statutory and underlying numbers in the appendix of the presentation. Now turning to the performance of the divisions, I'd like to start on Slide 5 with an overview of the highlights. First, within the Community Pharmacy, we are pleased with the new wholesale customer wins, which equate to approximately AUD 540 million of revenue on an annualized basis, and that the continued store rollout of TWC -- of the TWC network led us to 626 stores. In addition, the outcome of the First Pharmacy Wholesaler Agreement, together with the new CSO accord, will provide better medication availability to all Australians and provide far more sustainable industry funding. Secondly, Institutional Healthcare again a major growth driver for the group. Hospital medicines, particularly oncology products and the Southeast Asian Medical Technology business, maintained their growth momentum from the first half. This growth was also supplemented by several strategic acquisitions, as previously announced. Alistair will expand on these later. Thirdly, Contract Logistics delivered customer growth across both New Zealand and Australia, enabled by our new warehouse capacity completed in this area last year. These new warehouses were timely with the additional refrigeration capacity supporting increased GLP-1 prescriptions. Please note that the New Zealand business also saw a decrease in earnings as certain COVID era programs ramped down. And finally, in Animal Care, our branded products delivered ongoing growth supported by new product developments. We also completed two acquisitions with SVS establishing a leading position in the New Zealand vet wholesale sector and Next Generation Pet Foods providing an entry point for new high-growth, high value products, including air dried treats. In the second half, in particular, Animal Care continued to face headwinds from consumers under cost of living pressure choosing to delay or downside premium discretionary purchases, including puppy purchases. The team did a terrific job to offset part of this trend by continuing to grow our branded revenue through share gains. Now turning to Page 6. I'd like to provide an update on the near-term growth objectives that were established in FY '25. I'm pleased to report that the team have achieved all the interim objectives, specifically, they have delivered base business growth within both the Animal Care and Healthcare segments; we won approximately AUD 540 million of annualized sales from new pharmacy wholesale customers; we achieved cost savings of AUD 30 million against our target of AUD 25 million to AUD 50 million per annum by FY '26; and we also executed five strategic investments across Medical Technology and Animal Care, deploying capital to strengthen our segment positions and diversify earnings. This slide completes our report out on these 4 initiatives. On the next slide, we have an overview of our ESG commitments. I'm pleased the group continues to make sound progress on its ESG program. During the year, the group advanced several environmental initiatives that focused on improving renewable energy generation, offsetting our carbon footprint and transitioning grocery brand packaging to recyclable materials. EBOS also enhanced its safety status to high-risk activities. Our efforts have reflected our commitment to improving health outcomes and supporting our communities. I'd also like to add that I have found the EBOS team to be focused on safety. There's always more to be done, but my experiences with our front-line colleagues demonstrate their commitment to keeping themselves and their teammates safe at work. Now I'd like to move to how our individual business has performed. I'm first going to share healthcare and then within healthcare, the highlights of Community Pharmacy, TWC, Institutional Healthcare and Contract Logistics, then I'll move to our second reporting segment, Animal Care. Turning to Slide 9 in our Healthcare segment. Our Healthcare segment delivered a solid performance with revenue growth of 11.8% and EBITDA growth of 6.9%, again, excluding the CWA contract. You'll notice that EBITDA growth was lower than revenue growth, driven by two factors: First, a rise in the proportion of high-value medicines, which are profitable for us but come with lower percentage margins. For example, an increasingly popular oncology drug has a sale price of approximately AUD 3,700, but effective profit margin of around 1.5%. And secondly, with recent CWA changes, the competition for pharmacy wholesale customers is strong. We expect the tighter margins that we have seen in pharmacy wholesale in 2025 to continue through FY '26 as wholesale providers and customers realign. Healthcare's performance was well supported by a Community Pharmacy TerryWhite Chemmart and the Institutional Healthcare business. But turning to a geographic perspective, our underlying Australian Healthcare business grew revenues and EBITDA by 12.9% and 5.9%, respectively, whereas our New Zealand and Southeast Asia business grew revenue and EBITDA by an impressive 8.1% and 10.8%, respectively, driven by a strong year from Transmedic in Southeast Asia. Now drilling down within health care, how did Community Pharmacy perform? On Slide 10, you can see that the business has responded well to the changes in industry dynamics, achieving meaningful share gains and benefiting from continued demand for high-value medicines such as GLP-1s. Cumulatively, this has seen the underlying business grow both revenue and GOR by 15.8% and 7%. As I mentioned earlier, 2025 saw both an increase in high-value medicines and a period of tighter EBITDA margins as the market went through a period of heightened competition. This industry went through a similar process in 2019 when EBOS won the CWA contract. We expect this to be the last period of such competition as the largest single retailer has backward-integrated into the wholesale pharmacy chain. I'm very proud of the way that the EBOS team has very methodically prepared for this transition from the physical challenge of overnight restocking when the contract ended to the cash conversion challenge of ensuring working capital release to the commercial challenge of securing alternate customer base. Our business has managed this transition well. The GOR margin improved by 40 basis points to 9.1%, reflecting a positive shift in both product and customer mix, new business wins and enhanced service revenue. The increased CSO funding relating to the first pharmacy wholesaler agreement commenced in the second half of 2025, and we expect a further step-up in FY '27. Now one part of the Community Pharmacy business that's worth further expanding on is TerryWhite Chemmart, which is Australia's leading health service-focused -- excuse me, leading health-focused pharmacy network. On Slide 11, you can see two key dynamics for TWC. First, network size increased. During the year, 34 net new stores joined the network, rolling out total to over 620 locations nationwide. These stores are frequently existing TWC pharmacy customers, so we understand their performance well and are happy to have them on board. We expected net store growth to moderate in FY '26. Next, network performance also improved. Here, we delivered AUD 2.6 billion in sales, representing total sales growth of 10.2% or 8.5% on a same-store basis. I'm delighted that our CareClinic service continued to scale, delivering approximately 976,000 vaccinations administered across the network through the year. Our understanding is that's more vaccinations administered than anyone in Australia, but I'd be glad to be corrected. Clearly, our customers want to be engaged with their TerryWhite Chemmart pharmacist on health. Not only that, but they want to keep that engagement going online. Over 1.2 million prescription transactions were placed online in FY '25 through the MyTWC app, reflecting strong customer engagement and digital adoption, generally initiated from an in-store interaction with our knowledgeable TWC team. There's more to come in this space, but what about Institutional Healthcare? Turning to Slide 12. Our Institutional Healthcare business was again a significant growth driver for the group. This division delivered revenue and GOR growth of 8.4% and 11.4%, respectively. This positive operational leverage was driven by particularly strong growth across Southeast Asia and also in allografts and oncology. Our Symbion Hospital business maintained its growth momentum, largely due to the ongoing demand for high-value oncology medicines. Growth in medical consumables was partly offset by a normalization in vaccine activity post COVID. Transmedic performance was particularly pleasing, and I was glad to meet some of our team in Indonesia and Singapore. The improvement of GOR margin by 40 basis points to 15.7% reflects the ongoing expansion of the medical technology business within Institutional Healthcare, which is higher margin. Looking beyond Community and Institutional Healthcare, what about Contract Logistics? On Slide 13, you can see our Contract Logistics business deliver a solid overall performance with GOR of AUD 154 million in the period, up 3.3%. Both the Australian and New Zealand businesses were able to grow their customer base with Australian GOR up 15.3% as the new warehouse capacity was completed in FY '24. The New Zealand business was down overall, as we had previously flagged, which is due to the result of the progressive ramp down of the COVID-19-related contract. We are continuing to invest in our footprint systems with a new facility in Perth expected to open in FY '26 and further cold storage expansion in Sydney, which will support continued demand growth for GLP-1 and other specialty medicines, and Alistair will talk more about this shortly. Beyond Healthcare, we had a wonderful second reporting segment, Animal Care. And how did that perform in FY '25? On Slide 15, we can see Animal Care revenue and EBITDA increased by 16.3% and 10.4%, respectively. This was due to the resilient performance of the branded business and the acquisition of SVS. The performance of the branded business reflects the leadership positions of our flagship Black Hawk and VitaPet brands as well as investments in new partnerships and new product development. Consumers have been affected by cost of living pressures. And we saw a flattening of the Australian puppy cohort, particularly in the last 6 months of the year as consumers deferred adding a companion pet to their family. I'm pleased that this has been partially offset by share gains for EBOS brands. In the affordable premium space, in the specialty channel, we've seen consumers trade into the Black Hawk brand. And some -- and in New Zealand, we've seen some consumers trade into our value-focused but high-quality, Chunky and Possyum dog roll brands. The vet wholesale business also grew significantly, largely due to the acquisition of SVS in April of this year. I'm pleased to report that the acquisition has performed in line with our expectations and reflects our disciplined approach to capital allocation. The SVS team are great additions to the EBOS team, and we look forward to continuing to build opportunities together. Due to the acquisition of this lower-margin wholesale business, the GOR margin for the segment was down 170 basis points to 32%. However, excluding SVS, GOR margin was up 90 basis points on the prior period. In addition to the SVS acquisition, on July 1, 2025, we purchased Next Generation Pet Foods, and on Slide 16, you can see details of the business, including photos of the two dedicated facilities focused on manufacturing and packing of premium pet products. This acquisition is a strategic expansion of our pet brand business into new high-growth, high-value products, including air dried treats. It also gives us an entry into the club retail and hardware channels through the Evolution brand. That's what you can see in the photos, by the way. The air dryer is in the top right and allows us to introduce new Black Hawk air dried treats, which you can see on the bottom left. The transaction was fully funded from our balance sheet, and we expect that the transaction will be marginally EPS accretive in its first full year. With that, I'll now hand over to Alistair to take you through the group's financial performance in more detail.

Thank you, Adam. As Adam has mentioned, on an underlying basis, the group delivered a solid financial performance for the year, despite the significant loss of volume associated with the CWA contract. Revenue was up AUD 12.3 billion, up 12% on an underlying basis, supported by both of our segments. Underlying EBITDA was AUD 585 million, an increase of 7.5%, with group EBITDA margins improving to 4.8%. This result reflects the successful delivery of all our near-term growth objectives and disciplined capital allocation. Our depreciation and amortization costs increased to AUD 120 million. This reflects the ongoing capital investment in the DC renewal program. I will talk further to this shortly. Finance costs were up AUD 12 million due primarily to higher lease interest costs associated with the same program. Now turning to cash flow. The group generated strong cash flows with underlying cash flow before CapEx of AUD 448 million, up AUD 81 million compared to the prior corresponding period. Net working capital reduced compared to the prior year, and cash realization was strong at 109%. The strong cash generation supported our organic and inorganic growth investments and distributions to shareholders. Capital expenditure was AUD 146 million for the period, up AUD 27 million on FY '24. Turning to Slide 20. Over the past several years, EBOS has made substantial investments in our health care infrastructure to support long-term growth and improve operational efficiency over the next 10 to 15 years. From FY '23 to the end of FY '26, we have invested approximately AUD 360 million in our distribution network and systems across both Australia and New Zealand. At completion, this program will have delivered eight new sites, representing a 20% net increase in our network capacity. The DC renewal program has already delivered additional refrigeration storage, supporting the significant growth in GLP-1 and other temperature-sensitive medicines, expanded automation, driving productivity and lowering our cost to serve; and enhance system integration with customers, improving service delivery and scalability. We expect that the organic capital program will conclude in FY '26 following commissioning of the remaining three sites. From FY '27 onwards, annual capital expenditure is expected to reduce approximately 30% on a like-for-like basis, reflecting the completion of that strategic program. Now moving to inorganic investments in the period. Consistent with our strategy, acquisitions have continued to deliver value to the group. We completed five acquisitions across both the Medical Technology and Animal Care businesses. Collectively, these accounted for approximately AUD 210 million of capital with the investments being small to medium in size. We expect that each investment will be EPS accretive immediately and will support return on capital employed expansion in the short to medium term. Now turning to Slide 22. The group balance sheet and liquidity remain strong. Net debt reduced to AUD 918 million following the successful capital raise in April this year. The leverage ratio of 1.92x is consistent with the prior year, remaining conservative and within our target range. This provides significant capacity to fund further growth investments. Earlier this year, our debt facilities were successfully refinanced, and our weighted average debt maturity is now 2.9 years. Moving on to shareholder returns and earnings growth. Underlying earnings per share were AUD 1.313, down AUD 0.266 when compared to the prior corresponding period, reflecting growth of the underlying business partially offsetting the conclusion of the Chemist Warehouse Australia contract. Reflecting the Board's confidence in the future growth prospects of the group, the Board have declared a final dividend of NZD 0.615 per share, bringing the full year dividend to NZD 1.185 per share. This represents an underlying payout ratio of 83.8% and will be imputed to 25% for New Zealand tax resident shareholders and fully franked for Australian tax resident shareholders. The group's dividend reinvestment plan, which has been strongly supported by shareholders previously, will be available for the FY '25 final dividend. Shareholders can elect to take shares in lieu of dividends at a discount of 2.5% to the volume weighted average share price. I will now hand back to Adam to conclude today's presentation.

Thank you very much, Alistair. On Slide 25, you can see our outlook for FY '26. I'd like to share this for the year ahead before we open the call up to Q&A. I believe EBOS is exceptionally well positioned for long-term growth. We continue to benefit from positive industry tailwinds across both Healthcare and Animal Care sectors, supported by increased spending, demographic shifts and evolving customer preferences. However, we remain mindful of near-term macroeconomic pressures in FY '26. The wholesale pharmacy environment remains highly competitive. Hospital capital expenditures have softened, and discretionary categories are being impacted by subdued customer sentiment. With this context, the group is targeting underlying EBITDA of AUD 615 million to AUD 635 million in FY '26, representing a 7% uplift on FY '25 at the midpoint. We expect growth in both the Healthcare and Animal Care segment. This rate of growth would be broadly consistent with FY '25. It will also be based on similar drivers to the FY '25 results, continued focus on winning new customers in pharmacy wholesale, and driving animal care sales, while also taking full advantage of our new distribution centers across New Zealand and Australia. As I noted earlier in the presentation, FY '26 will also mark the end of our major distribution center renewal program. We anticipate CapEx of AUD 130 million to AUD 140 million this year, which is a small step down from the AUD 146 million of CapEx in FY '25. Future annual CapEx should reduce by approximately 30% on a like-for-like basis. Our G&A expense is expected to be approximately AUD 140 million to AUD 150 million in FY '26, reflecting these recent capital investments. Our balance sheet remains strong with leverage to remain in our targeted range and ample headroom to support future growth through existing liquidity and financing capacity. FY '26 net finance costs are expected to be about -- excuse me, approximately AUD 110 million to AUD 120 million, which assumes there are no additional debt funding requirements and in addition, the effective tax rate to be approximately 28%. Finally, we are planning to host an Investor Day in Q4, where we will provide deeper insights on our strategic priorities and long-term growth drivers and our capital management framework. We will share further details in due course. Thank you for listening this morning. I will now hand back to the operator for Q&A.

Thank you. [Operator Instructions] First question comes from the line of Saul Hadassin from Barrenjoey.

Can you hear me?

Yes, we can.

Great. Maybe just the first one. It seemed like operating costs was the surprise in the second half '25. A couple of the cost lines stepped up pretty materially in growth versus the previous period and also as a percentage of revenues. And I'm thinking here, other -- what's booked as other expenses in the profit and loss, we don't get a lot of detail. Can you talk, Adam, maybe to what you're seeing in terms of those operating costs that potentially presented as more of a challenge in the second half and how we should think about growth in operating costs into FY '26, please?

I'm going to let Alistair start and then I'll add a comment at the end.

Yes. Thanks for the question. So I recognize that it is fairly difficult to interpret given the number of moving parts in the result. We touched, as part of the presentation, on delivering the savings of AUD 30 million. It's worth recognizing that AUD 22 million of that was in OpEx and AUD 8 million of that was in GOR. On a like-for-like basis, excluding CWA, costs as a percentage of sales have decreased by 20 basis points, which is probably the cleanest read in terms of the cost performance in both the half and the full year. On the same basis, dollar -- cost dollars have increased with the growth in the base business. It's worth recognizing that CWA was a low cost to serve customer given both the scale and the medicines-only nature of that contract. So reported costs have increased as a consequence of the change in the customer mix there. By and large, the sort of bridge in terms of costs are really these three simple things. It really is the base growth in the revenue of 12% contributing to the cost base; the savings performance across the business; and then the exit of the CWA costs. What I would say is that the FY '25 cost transition is probably representative of the go-forward position, recognizing the fact that we still remain focused on optimizing the cost base. There has been a tremendous amount of change to the operations of the business in FY '25. And as we've mentioned through this call, we are continuing to progress with the strategically important DC renewal program, which again operationally creates challenges and change across the business. I think it would be fair to say once we have landed that program through FY '26, we feel really positive about the productivity benefits that we expect to unlock as part of that program. And as I've said, we remain focused on costs as an organization.

Yes. I just want to echo Alistair's comments on the DC renewal program. So in the go forward, a number of the projects are in commissioning at the moment. As they come online, as the team gets 6 to 12 months of running those DCs under their belt, they'll be able to choreograph activities in an ever more optimal way and shore some costs up at the margin. Saul, did that answer your question?

Yes, it did. Maybe just then as a follow-up, Adam, you've flagged some sort of softening in some of the end markets. You called out animal care and also that competition in Community Pharmacy. I think as you look -- again, as you look into FY '26, cognizant that your guidance is EBITDA below. But I guess from a revenue perspective, can you give us sort of any thoughts on how you see revenue progressing into '26 across the two key segments, both Healthcare and Animal Care?

I think the way I'd characterize it would be we see the trends of the second half of 2025 broadly continuing through FY '26. I don't see at this point any material change. Obviously, we'll update you at the half, if not before, on that.

Next question comes from Adrian Allbon from Jarden.

I was just wondering if I could come back to, I guess, the delivery of the full year EBITDA. Because I guess when we look at the growth objectives that were achieved on Slide 6 and particularly even if you go back to the first half, they look like the business was kind of achieving ahead of kind of the initial plan. And then you sort of add in the SVS acquisition, which I'm assuming is sort of maybe AUD 4 million or AUD 5 million of EBITDA. And like I'm just sort of wondering what would have been required to sort of hit the top end of that range, if you can sort of phrase, it back to us in that sense?

Yes. I think the themes that were pointed to in the half 1 call, we reaffirmed the guidance of AUD 575 million to AUD 600 million, I think, in part because we are seeing the competition of -- in pharmacy wholesale, and that has transpired. Alistair, in terms of a breakdown of the range, did we provide any guidance on that in the -- between the AUD 575 million and the AUD 600 million?

No, we didn't necessarily break that down. But Adrian, just to sort of pick up the explanation. I think the themes that Adam touched on in the call really are the driver of that second half performance. We did see the Animal Care market softened within the second half, which while we feel really pleased with our ability to grow share through that period. The reality is that has subdued growth in the second half. We've obviously started to see some green shoots in terms of the easing of monetary policy flowing through consumer confidence as to how quickly they manifest in a more buoyant market remains to be seen. We remain sort of cautious about that, but equally confident about our ability to perform well in that kind of environment. We have also seen some capital sales slowing within the ANZ business. It's probably a less material factor in truth, but they're probably the contributing factors.

Okay. I wonder if I could ask a slightly different question, maybe this is for you, Alistair. Just in terms of -- I know -- like in terms of the outlook, like the net interest costs are stepping up quite materially like to the tune of AUD 30 million. Can you sort of explain -- and it doesn't feel like the debt is necessarily moving a lot year-on-year. Can you explain the drivers in that?

Yes. No, thanks for the question, Adrian. By and large, the financing cost growth into FY '26 is driven almost exclusively by lease interest costs as a consequence of the continued implementation of the DC renewal program. We are actually expecting -- subject, of course, to acquisitions and net debt movements as a consequence, we are actually expecting the bank financing costs to remain broadly consistent year-on-year. So it really is the contribution of the DC renewal program, which I'd kind of go back to -- I mean, that is a long-dated series of investments that we've made that will support growth over the next 10 to 15 years. But in the short term, that will be our impost in both interest and depreciation. Does that answer your question, Adrian?

Okay. Yes. So sorry, just to go back. So like your net interest cost or net finance cost was sort of AUD 82 million for this year. They're going up to sort of midpoint AUD 115 million, I think it is in the guidance statement. So you're saying all of that bridge is pretty much in the higher lease costs, the actual bank side of...

Yes. No, sorry, Adrian, just to pick up, I think we may have potentially confused you. The net financing costs is AUD 106 million in the year. So the AUD 82 million you referenced is simply the bank financing. So that excludes lease interest costs. So it's moving from AUD 106 million up to AUD 110 million to AUD 120 million, and that movement is driven by lease interest costs.

Does that help, Adrian?

Okay. Yes, that's good. And then -- sorry, just finally, just in terms of like, I guess, the stay in business with BAU CapEx once you roll off '26 seems, I guess, higher than history, I suppose. Is that a consequence of inflation plus it's a bit more sophisticated in terms of maintaining these facilities?

I think you've hit the nail on the head there and the sophistication of the facilities and the efficiency gains are what we -- is what drove much of the investment. So again, the pressure will be on the team to really put those to work and drive the highest productivity from each of those facilities.

Next, we have Matt Montgomerie from Forsyth Barr.

Just want to pick up on pharmacy, if that's okay. I mean you're clearly, I guess, calling out pressure on margins. Just interested if you could, I guess, provide a bit more detail behind what you're factoring in, in FY '26 in terms of pharmacy GOR margins. It sort of feels like they need to be coming down somewhat notably lower to get to your guidance. And then maybe any comments you can provide on sort of EBITDA margins within pharmacy, what's happened in FY '25 and then sort of what's incorporated into guidance?

Sure. Thanks for that question, Matt. So firstly, in terms of the industry dynamics, we've seen this movie before. So back in 2019, when EBOS picked up the CWA contract from another player, we saw a period of around 18 to 24 months following that transition where there was a realignment of that spare capacity in the competitor that was created with the market demand. We're seeing that again now, and this will be the last time because, of course, there's now integration between CW and another player. And the -- and again, we're seeing that take that 18 probably to 24 months after the changeover. So we would expect that period to continue all the way through 2024. In terms of the overall margins, with the increase in high-cost medicines, that has an impact on pharmacy wholesale margins. You heard me mention that on the call. Alistair, I think it would be fair to say that the goal, we would expect to be at roughly the same level in '26 as '25 in terms of percentage.

Yes. No, that's absolutely right. Like we've seen both in community pharmacy and institutional health care sales being supported by the growth in the high-value medicines. And as Adam outlined, I mean, these are a material contribution to the top line growth. And as such, they're having impact on the shape of the P&L because higher sales, same GOR, same EBITDA. So the margins are being compressed naturally. We have seen that trend, this isn't something new, as I'm sure you would appreciate, Matt. We have seen that trend continue. At present, we don't see that trend abating. Certainly, our expectation is that, that will continue into FY '25. So I'd expect the shape and growth within that segment to remain broadly consistent with what we've seen in the half, recognizing Adam's comment about heightened competition.

And Matt, maybe just a place to end there. In terms of GLP-1s, the prior rational regime has come to an end in Australia. And in New Zealand, the launch of GLP-1s only happened on the 1st of July. So there is still future runway in high-priced medicines across both Australia and New Zealand.

Okay. That makes sense. And then just if we step back from your guidance a little bit more. The first question is, is it fair to assume that organic growth within your guidance is about 4% year-on-year, acknowledging SVS plus presumably the small Next Gen contribution. And then I suppose, I think some more color would be appreciated as to divisional drivers behind that. I mean I know you don't typically give color, but I'm just cognizant that there's some reasonable downgrades likely to consensus here and that organic growth rate is lower than what you would have typically delivered over the last 5, 10 years. So I think it would be appreciated just a little bit more color if we could step through your divisional comments a bit more.

Yes. I think -- so let's go back to FY '25 as the starting point. So in FY '25, it was 7.5% growth, and we're guiding to 7% growth in '26. So I guess that's 50 basis points up.

Yes. So I'm just more meaning organically, like if we strip out the impact of acquisitions, it looks like your guidance for '26 is for 4% organic growth, which is lower than what you've typically delivered historically. So just -- I think I'm just looking for color on more divisional comments behind that.

I think you're broadly accurate. And -- but in the -- given the headwinds that we've outlined, including the increased competition and the currently soft animal care market, I think that's to be expected.

And is there anything else you'd want to call out in, say, Institutional Healthcare or Contract Logistics?

Look, as Alistair mentioned, there's probably a slightly soft hospital capital expenditure outlook. That's -- we've seen that through '25. That probably impacts our Southeast Asian business more than our Australian business, but the -- that remains a sort of third driver, but the top two would be pharmacy wholesale competition and discretionary spend in Animal Care.

Next, we have David Low from JPMorgan.

Just with the lease costs, I mean, clearly, I've missed how much they're going to lift. I was just wondering, Alistair, if you could give us some rules of thumb because obviously, there's other DCs coming on and three yet to come on. How do we think about converting the CapEx spend to likely lease costs as I think beyond FY '26?

Yes. No, that's a great question. Thank you. And I would say -- start by saying I recognize that it's been challenging to predict given the step-up investment that we've made. It's really why we've been deliberate about being transparent about the guidance into FY '26 for both depreciation and financing costs. We wanted to provide that clarity as we go through. Clearly, as we continue to invest in FY '26, I would expect that there would be a less material increase in D&A and financing costs into FY '27. I won't get into the permutations. The longer we get out, the more subjective that becomes. But really, what I'd point you to is the guidance we've given in '26 that will then be a reasonable base to go off, we are -- and Adam noted that in his overview, like we would expect the CapEx to materially reset down post completion of this DC renewal program in '26. And then I would expect these levers to move in a more consistent format to what we've seen previously.

Does that help, David?

Yes. No, it does. I mean it would be nice to have some rules of thumb in terms of the CapEx and the timing of openings. But look, we can talk about it offline when I've done a bit more review of my numbers.

No problem. Thank you, David.

Next, we have Stephen Ridgewell from Craigs Investment Partners.

Just a couple of questions on the divisional results and outlook. First of all, on the Medical Technologies business, you don't sort of split it out, but back of the envelope, I think spending of the GOR margins may be around 55%. Just on the result you've delivered, it might have softened a little bit. Just given the strength of revenue growth in Southeast Asia, are you able to talk to the GOR margin for the Medical Technologies business in that market? Does it tend to be a little bit lower than Australia? Or was that sort of business mix and acquisitions perhaps driving that?

Look, Stephen, I'm very sorry, we don't provide any additional color on that because it is commercially sensitive. We have to be in the market winning partners, selling products every day. So we don't provide additional guidance on that. What I can say is that we were really pleased with the Transmedic performance in the second half. I think they did a great job. And other than potentially some slight softness in hospital sales just at the very back end of the year in Southeast Asia, the rest of the half was a strong half for that business.

Sure. I appreciate you sort of you don't split it out specifically. But at a high level, is that market typically a lower margin market for the industry than perhaps what's achieved in Australia? And then -- because I guess the consideration is the growth is a lot faster in Southeast Asia going forward, and we've obviously seen that the year just gone, it might be that the market needs to think about some dilution of core margins going forward from that segment.

I appreciate you coming through. I think you can assume it's broadly similar. And then if it ends up growing in a different direction, we'll let you know. But at the moment, a broadly similar assumption with that one.

And the only point I'd make, obviously, we grew MedTech within the Institutional Healthcare segment, and you would have noted that the core margin has expanded at a healthier rate in the full year. That really talks to the pleasing growth that we've seen in the Transmedic business, in particular, in the second half, which is obviously, as you rightly noted, margin accretive to the rest of the portfolio.

Okay. All right. We'll move on. And then just in terms of Animal Care, Adam, you kind of called out in terms of the outlook, consumers are trading down. I understand that EBOS has access to scan data, which gives you a pretty good sense of market share. Are you just able to confirm just to provide a bit of comfort that the EBOS branded products aren't losing share sort of year-to-date into FY '26 and you're not assuming share loss. I guess that's -- because there is a new trend. It's been a strong performer. And obviously, the like-for-like is a little bit softer, organic a little bit softer at the moment.

Oh my gosh, Stephen. So it's been such a great performance by the team. So the puppy cohort is definitely flat. But the Black Hawk share of that cohort has definitely increased at the margin. And so if you think about what the team had to do, the team had to make sure that every consumer in Australia that's trying to take care of their -- furry member of their household has seen Black Hawk as the affordable premium option for that member of their family. And it's worked. So it's -- their share is up. And our understanding is that it's been a great partner to the channel as well, and the channel enjoys bringing Black Hawk to market. Don't want to forget the different position but still share up in dog roll in New Zealand at the margin, again, just at the margin, but seeing strong performance in the Chunky and Possyum brands, which are just a high-quality product, but at a very reasonable price for the consumer. And New Zealand consumers are feeling the cost of living pressure at the moment, seeing those -- both those brands as great options. So I'm glad you asked the question. I'm sorry if we weren't clear before, but the branded products within the Animal Care portfolio are doing well, and we expect that to continue in '26.

Okay. No, that is helpful. And then I guess just in terms of the market move, which you've called out, which is consumers trading down a little bit to lower value brands in the prepared remarks. I guess from an EBOS perspective, is there a different margin structure between the premium brands and the more value brands in the mix that we should keep in mind?

I don't believe so. I think we're very comfortable that obviously, the cost base adjusts with the price and that overall, the margin -- I wouldn't -- I can see what your question is, Steve, and you're concerned about it, if the value brands were to surge, does that mean a change in the margin percentage? I wouldn't see that at the moment.

Okay. And maybe just one last one for me on the -- again, on the guide. Just -- so beyond the factors you've called out, there are also BAU cost pressures that are elevated in terms of what you're expecting for FY '26, for example, wage cost pressures or freight pressures, for example, that sort of you take into consideration with the outlook statements that perhaps haven't been called out yet.

I'll let Alistair comment in just a moment. But in general, we expect inflationary pressures on our cost base every year. I think it is comparably visible that we have 3% to 5% sort of cost growth baked into EBAs and so on. We expect the teams to offset that every year as well through productivity or through other means to protect the margin. Alistair, do you have any comment on that?

I've got nothing to add to that. That's a good summary.