Ramsay Health Care Limited (RHC) Earnings Call Transcript

Thank you for standing by, and welcome to the Ramsay Health Care Fiscal Year 2021 Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Craig McNally, Managing Director and CEO of Ramsay Health Care. Please go ahead.

Thank you, and good morning, everyone, and thanks for joining us for our FY '21 results presentation webcast. My name is Craig McNally. I'm the Managing Director and CEO of Ramsay Health Care. And I'm joined by Martyn Roberts, our Group Chief Financial Officer, although I'm not really joined by him because we are both working from our respective houses. Today, we'll provide an overview of our group performance for the 12-month period, a breakdown of our performance by region, an update on our group financials and an overview of our strategy before covering off on the outlook for the group. So this time last year, despite Victoria being in lockdown, we were hoping that the worst effects of the pandemic were behind us. However, as the year has progressed and we've moved into the northern hemisphere winter, with new variants of the virus emerging, it was clear that this was not to be the case. Our people and doctors have, again, been working in incredibly demanding environments to support the public health system and the community. Even as recently as this month, 300-or-so Ramsay employees have been assisting New South Wales Health with various activities across Greater Sydney in the regions. The efforts of our people and our doctor partners have been well recognized. And our working relationships with our key stakeholders have been strengthened as a result. I'd like to take this opportunity to thank our teams around the world for again living the values of The Ramsay Way and embodying Paul Ramsay's original vision of People Caring for People, always putting patients first, delivering the best of care to people often facing the worst of circumstances. The results we've reported today reflect the disruption caused by the pandemic. However, Ramsay's response has adapted over the last 18 months as we worked through the issues thrown up by the challenging environment. We remain focused on further optimization of business processes to mitigate the impact to margins of the pandemic. Our balance sheet and cash flow remains strong and will support ongoing investment in the business. We have a significant pipeline of growth opportunities, and we continue to explore strategic options to invest, to build scale or move into new or adjacent health care services, all the while remaining focused on maintaining our financial discipline as we look to improve returns across the business. We remain well positioned to continue to benefit from the pent-up demand for both private and publicly funded health care services as restrictions on the operating environment ease. Improving vaccination rates in each of our regions and government funding to address case backlogs will remain key to our performance in FY '22. So turning to the results in more detail. The solid growth in earnings reflects the strong growth in surgical admissions across our regions when lockdown restrictions were not in place across the year. However, our results continued to be impacted by surgical operating restrictions and the flow on impact of social distancing and lockdowns on demand for nonsurgical services. Earnings include revenue and cost support from governments in Europe and the U.K. for the use of our facilities and services. The result also includes the impact of higher costs associated with operating in a COVID environment, although these did decline over the year, and margins reflect both the drop in nonsurgical admissions and the higher proportion of lower activity (sic) [ acuity ] surgical services in the catch-up volume. Our strong balance sheet has been maintained with leverage at the wholly owned funding group level on a pro forma basis, declining to 0.7x, driving lower financing costs over the year. The balance sheet places us in a strong position to deliver on our strategy to be a patient-centric integrated health care provider. We have developed an expanded pipeline of development opportunities across all our regions, but most particularly in Australia. And this will drive growth over the medium term as we leverage the underlying strength in demand for health care services. The Board determined a fully franked final dividend of $1.03 per share, taking the full dividend -- full year dividend to $1.515 per share, a material increase on the COVID impact FY '20 result and flat on the pre-COVID FY '19 full year dividend. The higher-than-normal payout ratio of 79% reflects the Board's confidence in the strength of the business and in recognition of those shareholders who have supported the company through the pandemic. Turning to the results from Australia. It was a tail of 2 halves with the first half benefiting from strong surgical volumes as the country emerged out of the first wave of COVID, offset to an extent by the extended lockdown in Victoria. In the second half of the year, we saw a good recovery in volumes in both surgical and nonsurgical services, in between the disruption of snap lockdowns across all states. The EBIT impact of the Victorian lockdown in the first half was estimated to be about $70 million, and the impact multiple lockdowns in the second half of the fiscal year is estimated at $13 million. Margins were impacted by the costs of operating in a COVID environment, including higher PPE and personnel costs. These costs came down materially in the second half of the year. However, given the likelihood of ongoing lockdowns in Australia, at least until we reach higher levels of vaccination, these costs are expected to remain around the $4 million to $5 million per month on average for the first half of FY '22. Moving on to the outlook for FY '22. The impact of lockdowns on Ramsay depends on the state, the duration and whether there are elective surgical restrictions imposed on private hospitals. While lockdowns in recent months have not necessarily imposed surgical restrictions, they have driven cancellations and disruption to schedules, in particular where staff have been sent into isolation due to contact with COVID cases. This has created significant difficulties managing staffing levels. Consistent with The Ramsay Way culture of People Caring for People, we have continued to elect to prioritize the welfare of our people and patients. The EBIT impact of lockdowns in July is estimated at $13 million, inclusive of the COVID-related costs. However, due to the introduction of surgical restrictions on the 23rd of August at 7 of Ramsay's hospitals in Greater Sydney, the EBIT impact in FY '22 is forecast to be significantly more material and will depend on the duration of the restrictions. So by way of reference, the EBIT impact of an approximately 90-day restriction on elective surgeries in Victoria in 2020 was estimated to be $70 million. And our business in New South Wales is approximately twice the size of Victoria. If vaccination rates rise to a level where lockdowns are not necessary, we expect to continue to experience good growth in admissions as the backlog of surgeries caused by the pandemic is gradually addressed and nonsurgical admissions return as the environment normalizes. We have a strong pipeline of maternity bookings across a number of states in the first half of FY '22. And whether this is a medium-term trend, it's difficult to predict. Carmel Monaghan has now been in the role as CEO of Australia for almost 12 months and has completed a restructure of her management team with all the positions now filled. The new team is structured to ensure the focus on expanding and modernizing our hospital footprint continues while allowing for greater attention to be placed on growing our out-of-hospital presence and moving into adjacent services. The business will also further develop its digital strategy to support both the hospital and out-of-hospital strategies. So moving to look at trends in admissions in more detail. Given the impact of snap lockdowns in the second half of FY '21 and the first wave of the pandemic in the fourth quarter of FY '20, comparisons with private years (sic) [ prior years ] are difficult. However, here, we have shown both comparisons with FY '20 and with the second half of FY '19 for both surgical and nonsurgical admissions per workday. We have excluded Mildura Public Hospital from the metrics given the operation of the facility was handed back to the Victorian Government in September 2020. So you can see that when states are not in lockdown, activity levels do pick up, with nonsurgical admissions in particular impacted by the lockdowns. The chart in the bottom left highlights the effect of the pandemic on nonsurgical admissions, in particular those impacted by social distancing, being rehab and day psych services. Admission trends for inpatient psych, day rehab and maternity recovered strongly in the fourth quarter compared to FY '19, and day medical also performed reasonably well versus FY '19 for most of the year. However, generally, nonsurgical admissions continue to be impacted by COVID outbreaks. The bottom right chart shows revenue by state compared to FY '20 and FY '19. Revenue numbers are impacted by case mix and payer mix, but it does demonstrate that the absence of lockdown in New South Wales for most of the second half drove a stronger recovery in admissions. Following a deep dive into the group's long-term strategic direction with the Board at the end of last year, the Australian business has accelerated its pipeline of opportunities to ensure we are well placed to leverage our existing position in the market to the demographic changes in the next decade and position ourselves for the evolution in the delivery of health care services. Australia's investment pipeline is focused on: Firstly, fast-tracking brownfield developments, including the development of day surgery capacity, the development of select greenfield sites in strategic growth corridors and acquisitions and joint ventures in adjacent services that support our existing campuses. Secondly, building out our mental health offering as well as expanding into new adjacencies that support the broader patient journey and strengthens the integrated care model. And lastly, continuing to focus on cancer care, building on our position as one of the largest deliverers of cancer care services in Australia. We have significantly expanded our cancer care services over the last 5 years with the development of integrated cancer centers across our network. We have 14 clinical trial sites and have introduced cancer care navigators across our network. The demographics support ongoing investment in this area, including new ways to deliver care. Having increased our investment in the development pipeline, it is expected to continue to be at elevated levels over the next few years. Returns from this investment over the medium term are expected to be in line with what Ramsay has previously achieved. In addition to our development pipeline, the Western Australian and Federal Government have committed to a $256.7 million expansion of the Joondalup Public Hospital, which is expected to be completed in mid-2025. The expansion includes 90 inpatient beds, 6 new critical care beds, 30 new mental health beds, 12 additional emergency department patient bays, an additional operating theater and a Behavioral Assessment Urgent Care Clinic. And we are looking at augmenting the development of the public hospital with an expansion of our colocated private hospital on the Joondalup campus. Moving to the U.K. result. Ramsay -- the revenue was impacted heavily by capacity restrictions and peak COVID surge arrangements with the NHS that saw capacity at 14 of our hospitals utilized by the NHS in January and February this year. As stay-at-home restrictions were eased in the fourth quarter, both private health insurance and self-funded admissions came back strongly. Unfortunately, July and August have been impacted by snap 10-day isolation orders notified by the U.K. Government's COVID tracing app. This has resulted in employees, doctors and patients being forced to isolate at short notice, driving the cancellation of surgeries. We are, however, confident that as the rules stipulating isolation upon receipt of an app notification are rolled back, recovery in admissions will continue. In April, we moved back to operating under normal arrangements with the NHS. However, public sector volume has recovered more slowly than private sector. The business continued to invest in building out its footprint with 2 new facilities opened in the 12-month period and another new facility opening recently. The business has also increased its investment in capabilities and in clinical excellence as it seeks to attract a higher share of private sector patients and doctors. The result includes $8.7 million of transaction costs associated with the proposed Spire Healthcare scheme of arrangement, which was disappointingly voted down by some Spire shareholders in July. We will continue to look for both organic growth options and acquisitions to leverage our existing footprint and strong clinical and government relationships. We are working closely with the Government and the NHS to assist in establishing a framework to address the backlog in elective surgeries over the next few years. And now moving on to our European business. Ramsay Santé continued to assist governments across its regions, in particular in France, to treat COVID patients. The business continued to operate under revenue guarantee arrangements with the French Government and was also provided with financial compensation in relation to the costs associated with operating in a COVID environment. Across the Nordic regions, we were also provided with financial payments in return for our services. The Nordics' strong result reflects the different nature of services provided being more focused on primary care and the capitation model of payment in Sweden, combined with the lesser impact of COVID in some parts of the region. During the 12-month period, the business continued to focus on its portfolio of facilities and disposed of a number of assets as well as investing in its existing footprint. In France, as lockdowns have gradually eased, admissions have started to improve as doctors have been looking to address backlogs. However, staffing does remain a significant issue as fatigued nurses and other clinical employees take extended leave following the stressful experiences at the peak of the COVID cases earlier this year. In France, after a slow start, vaccination rates are starting to climb and that's particularly subsequent to the -- President Macron's determination for mandatory vaccinations as well. After falling significantly, COVID cases in July and August have started to rise again though. And vaccination rates will be the key to keeping down COVID hospitalizations as we move back into the northern hemisphere winter. Most of the countries in our Nordic region business managed to reduce COVID case numbers and increase vaccination rates. And we'll continue to look for bolt-on acquisitions in the region to grow the footprint. Moving to our Asian joint venture. Our hospitals in Indonesia and Malaysia have had an extremely difficult time in the last few months, in particular, in Indonesia, as case numbers have spiraled out of control and our hospitals have been overwhelmed by COVID patients. The lower elective surgery volumes have been offset by high diagnostic pathology services in both Malaysia and Indonesia as they conduct PCR testing for both private and public patients. The equity contribution was impacted by an impairment taken against the Hong Kong business and a significantly higher tax rate due to a lower investment tax allowance. The outlook for the region in the short term will be dictated by vaccination rates, which at the moment are low. And both the Malaysian and Indonesian businesses will continue to assist the Government with capacity and PCR testing services. And I should note that we did acquire a new hospital during the year in Malaysia. I'll now hand over to Martyn to take us through the financials.

Thanks so much, Craig, and good morning, everyone. Can I also extend my sincere thanks to our team around the world, who have worked in extremely difficult circumstances to deliver this result today? I'd like to also thank our team for continuing to live The Ramsay Way of People Caring for People by looking after our patients and the communities in which we operate. As Craig has highlighted, the operating environment over the last 18 months, including the government agreements we operated under during the period, has made interpreting our results extremely challenging and true comparisons with prior periods are difficult. The payments made by governments in the U.K. and Europe for access to our facilities and services to support the public health system has assisted in offsetting the impact of capacity restrictions and higher costs associated with operating safely in a COVID environment. We expect at this stage, the revenue guarantee support in France will continue through to 31st of December this year. EBIT contribution includes a $24.2 million benefit. Can everyone hear me?

Yes. Go ahead.

Yes. Okay. Sorry. The EBIT contribution includes a $24.2 million benefit from the disposal of assets in Australia and Europe, including the German portfolio of assets -- of hospitals in the first half of the year. The contribution from the sale of the German asset of $26 million reported in the first half result has been offset in the second half by provisions for warranties and indemnities of $24 million in total. The result also includes impairment and asset write-downs of $34.6 million, transaction and development costs of $23.7 million and a one-off tax credit of $12.8 million associated with the impact of the change in the U.K. company tax rate enacted this year on the value of deferred tax assets. Moving to cash flow. The 2020 change in working capital reflected the impact of cash advances received from the French Government in relation to the revenue guarantee scheme. So far, the payments have not been settled to the extent anticipated resulting in only a small change in working capital in 2021. Financing costs benefited from lower base rates and lower net debt levels following the $1.5 billion capital raising last year. Investing cash flow movements reflect the $1.96 billion in funds drawn down and held in escrow at 30th of June in relation to the proposed acquisition of Spire in the U.K. Funds were repaid following some Spire shareholders voting against the transaction in July. CapEx. As Craig has indicated, capital expenditure in FY '22 will be significantly above the $674 million spent in FY '21 across the regions. The majority of the increase is being driven by the Australian development pipeline along with higher investment in digital and growth strategies in the U.K. and Europe. We will continue to apply a disciplined return lens to this investment. Moving on to our balance sheet. As I mentioned, at 30th of June, we were in the middle of the proposed scheme of arrangement with Spire with funds for the transaction drawn down and held in escrow. These funds were not able to be treated as liquid assets at year-end. In June 2021, Ramsay announced a refinancing of the wholly owned funding group bank debt due in October 2022 with a $1.5 billion multicurrency syndicated sustainability-linked loan facility. The new facility comprises 3 $500 million tranches maturing in 3, 4 and 5 years, respectively. In April 2021, Ramsay Santé refinanced its entire EUR 1.7 billion syndicated debt facility, which was due in October '22 and October '24. The new facility comprises 2 tranches, EUR 900 million which matures in April '26 and EUR 750 million in April '27. The refinancing was done at materially improved margins and is expected to drive interest cost savings in the order of EUR 10 million in FY '22. Moving on to Slide 17, and we have provided leverage, net debt and return metrics on a pro forma basis assuming that the Spire transaction was not in process at 30th of June. On that basis, under our wholly owned funding group, our undrawn debt capacity and cash headroom was $2.4 billion and leverage was below 1x. And pleasingly, during the year, we were ascribed an investment-grade rating of BBB, Stable by Fitch. I'll now hand you back to Craig to talk about strategy and the outlook.

Thanks, Martyn. As I mentioned earlier, while the last 18 months has presented many challenges, it's also been one of the catalysts to do a deeper dive into our strategic direction, looking at where Ramsay wants to be in 2030 and therefore, what we need to do now to get there. Our overarching vision is to leverage our global platform to be a patient-centric, integrated health care provider of the future. The strategy balances the needs of all of our stakeholders, taking into account the rapidly changing environment and the pressures that this places on global health care systems. We are focused on delivering shareholder value and improving returns by: Growing, modernizing and leveraging our world-class hospital network through both organic growth opportunities and strategic acquisitions, where the financial metrics make sense for the business longer term. And also continuing to move into new and adjacent services that enhance the existing business and create a more integrated experience for the patient. Once again, this could potentially be through acquisitions, but also leveraging the current business platform. And we will continue to focus on operational excellence using our scale and global network. And we will continue to strengthen the organizational foundations of the business, including increased investment in our digital capabilities, creating a more sustainable business platform that can respond to the changing health care environment. So now turning to the outlook for the group. Our FY '22 results will be impacted by the ongoing global response to the COVID pandemic, including the effectiveness of global vaccination programs in reducing the number and severity of COVID cases. As I've said, lockdowns and the general disruption caused by the COVID environment will continue to have an impact on FY '22 earnings. However, as regions emerge from lockdowns, we are well positioned for growth, addressing the backlog in demand for health care services in both the public and private systems in all of our regions and benefiting from the underlying growth drivers in the systems anyway. Our strong balance sheet and cash flows position us well to deliver on our long-term strategy. And we will continue to remain disciplined in our approach to investment. I'd like to close by once again thanking our team, not just for the vital work they've been carrying out over the last 18 months, but for their ongoing support of both the private and public health systems and the community more broadly in the regions -- in all the regions in which we operate, continuing to embody The Ramsay Way of People Caring for People. So we'll now move on to questions.

[Operator Instructions] Our first question is from Lyanne Harrison of Bank of America.

Thank you to you and your team for all the work you're doing on the front line for COVID. Can we start with the New South Wales hospital situation? Obviously, lots going on there. Can you give us a sense of -- for those 7 Greater Sydney hospitals, what you're seeing in terms of surgical activity that's currently being permitted under current restrictions? And then also, is there any possibility for some of those restricted elective surgeries or nonessential elective surgeries to be transferred to some of your other hospitals?

Thanks, Lyanne. Yes, look, it's early days. The restrictions only came in, in place on Monday this week. And so essentially, the restrictions are getting back to where we were last year with only the sort of category 1 and category 2 urgent procedures to be undertaken across what is 20-odd hospitals across Sydney are under those restrictions. There's a few exceptions, so you're still allowed to do colonoscopy. And so the intent of it is to create capacity that might be required by the broader system and to make staff available. Now we've made staff available to New South Wales Health for the past couple of months anyway, so I will say it's a bit frustrating because I am not sure it's achieving what it needs to achieve. And so it's early -- too early to determine the impact. It's only been 3 days of activity, and so lots of book work was still happening anyway. The length of the restrictions are unknown. So yes, look, I can't give you much more guidance than that, unfortunately.

Okay. Can you talk us through a little bit about the staff that is supporting or being transferred to support the New South Wales Government on this? What proportion of your staff are assisting? And at what sort of levels are they largely nursing staff that have been transferred?

Yes, they are largely nursing staff. And as I've said in the speech, about 300 staff so far have been seconded to New South Wales Health, principally around vaccination. So the Homebush vaccination hub, there's quite a number of staff in it. They're all nursing staff. Quite a number of staff seconded there. And we'll continue to support the vaccination drive in not just New South Wales but across the country where we can. So it's important to -- a clear message that everyone is sending, but I'll send it as well, vaccination is critical. And so we'll support that as much as we possibly can.

Okay. And just one final question from me is with the Victorian cases increasing, what conversations are you having with the Victorian State Government, I guess, in preparation for a New South Wales-like situation?

Oh, yes. Look, the dialogue with the Victoria is -- I won't say intense, but it's quite regular at the moment, looking at what the options will be. Victoria has taken the view at the moment that they don't see a need to put surgical restrictions in place, but that's obviously a fluid situation depending on case numbers of COVID patients. So -- but we're in constant communication with the Victorian Government.

Your next question comes from Andrew Goodsall of MST Marquee.

I'm just interested in the U.K. And besides the times where you've had those isolation events, I'm wondering whether you've seen any periods in the U.K. where you've just been able to operate as normal. And what I'm trying to do here is -- I guess, is understand if the U.K. is a vanguard for what Australia or other countries are going to look like sort of postvax, with a bit of COVID still in circulation.

Yes. I think the interesting thing for the U.K. -- so they had Freedom Day a month or so ago. But what -- as I pointed out in the speech, what subsequently has happened with the NHS contract, sort of the app and the -- what was colloquially called the pingdemic, with people having to go into isolation if they were pinged. You didn't really get a normal response then in the business through July, and so going into holidays and coming out of holidays. And so the anticipation is that with the relaxation, particularly around health care staff on the 10-day isolation issue, capacity will be there, and we'll start to see volumes flowing back into the system again. So again, it's a longer-term perspective on what the growth in the U.K. will be. But some -- I think as we called out earlier in the year, sort of a bumpy start to the year was anticipated.

And if you had to sort of -- I know it's a bit crystal balling, but if you had to sort of say, well, back from holidays, back to normal, are we talking 90% back to normal? 95%? Just obviously...

My crystal ball in this -- but I think what we see, I mean, is a lot of engagement with the NHS and Government. And the NHS is sort of looking at how it structured itself to deal with the -- particularly the issue of the long-term reduction in the waiting lists. But the key to that -- and so leading up to the current position, yes, we saw faster growth back in private patients and self-pay patients, so in public patients and self-pay patients. And so the key to -- for the NHS volume increasing and getting back to whatever number that will be is just the mechanisms to get that money flowing because the demand we see in that question.

And I know you called out Victoria 90-day lockdown at a $70 million hit. If you sort of think about where New South Wales is, what proportion of sort of shutdown of surgery are we at relative to that one? Is -- because that was a pretty much -- I won't say 100, but it was pretty much just cat 1, wasn't it?

Yes. It was a bit more cat 1 and urgent cat. So remembering that -- I mean, without getting into semantics about this, the private hospital system doesn't use the categorization system of the public hospital. So it's effectively urgent work, work that patients will deteriorate if they're not treated within 30 days, et cetera. So there's a few sort of definitions that sit around those criteria, obviously. So Victoria, in that period, in the 90-day lockdown, it was a similar situation to the original restrictions that we saw generally across the country in the first half of calendar '20. And so I don't have in my mind clearly what that percentage of surgical work was. But in my -- if it's consistent, it would be in the range of -- you're getting 30% to 40% of your surgical activity through that cat 1 and urgent cat 2 category.

Yes. I'll try and [ back sail ], but I know we're talking about big picture at the moment. And then the final one for me. Sort of what -- how are you thinking about '23? I know we're still sort of -- because '22 is clearly another transition, and we just got to get through it. But is it -- are you sort of feeling just generally there's potential of [ more clear air ] by '23, just the way things are tracking? I know it's a big picture one, but...

I know, it's important to try and understand that. And I think as I called out a few times that vaccination rates will be important to getting back to some sort of sense of normality, just not for our business, but for the country in general, but it applies equally to our business. So on the assumption that vaccination rates are in all of our countries and Australia is lagging a bit behind where we are in our European markets, for example, then the -- we're certainly optimistic about what '23 and beyond holds. And you see that reflected in the investments we're making in Australia, for example. So clearly, we've upped the level of investment that we're making into the Australian business from what it has been historically over the last decade, and we see that level as, again, I pointed out in the presentation that we see that increased level of investment being sustained for a number of years. And so that's just an indication of our optimism for what we see post the COVID consequences.

Your next question is from Gretel Janu of Credit Suisse.

So firstly, just on Australia. Look, it's clear that Victoria took a long time to catch up to the other states post its extended lockdown last year. I guess as we look towards what's happening in the moment in New South Wales and Victoria, should we be expecting a very slow start of recovery as well? Just trying to understand what happened in Victoria last year and when it potentially would be applied here.

Yes. Look, it's -- I mean, my view, as you're probably all aware, it has always been that, that recovery is slower and longer than maybe people would have anticipated it will come back quickly. I mean what we saw last time when we go back to July '20, really, you see a peak once restrictions are lifted. So a quick peak and that was for a month of that period -- in that period. And then it sort of settles back down to a premium level of activity, but at a lower level than the peak, obviously. So I think that's the same with sort of the trend we'll see as we come out of the lockdowns and restrictions that we're in.

Understood. And then just moving on to the U.K. So with the Spire acquisition, you wanted to gain greater mix towards the private business. So now that you missed out on that, I guess what's the strategy here to try to improve that mix towards more private? Is that part of the reason for the increased CapEx in the U.K., is to kind of grow more organically into that private payer mix?

When -- irrespective of Spire -- and certainly, we were disappointed when the shareholder vote from a couple of the shareholders didn't go for us. But irrespective of that, the strategy in the U.K. has been growing the private insurance and self-pay business itself. And so we've got things in place, and we saw accelerated growth in the private over the last year anyway. So even without the capacity that the Spire portfolio would have brought to us, and we'll continue to grow the private part of our business in the business that we currently have.

Understood. And then at the time of the Spire acquisition as well was announced, you mentioned that you were doing a strategic review, potentially looking at sale and leaseback, sale of joint venture assets. Is this still on the cards? And should we be expecting any further announcements on this?

Martyn?

Yes, I can answer that, Gretel. So yes, look, I mean, we obviously can -- we did do that review and continue to look at all of our investments wherever they are. But clearly, the urgency probably not there, given the Spire transaction hasn't happened, but we'll continue reviewing where we're invested. We've been reviewing our property portfolio to see what opportunities that are there. There's nothing imminent, but it's continually under review.

Your next question is from Sean Laaman of Morgan Stanley.

Well, first thing to say, just thanks for the increased disclosures. It really helps us a lot. With respect to the leverage within the business overall, I was just wondering, since the Spire deal sort of didn't proceed, is that what has sort of reshaped your thinking? Or has it reshaped your thinking on spending on brownfields in Australia just to square that one away?

The investment profile for Australia didn't come about as a result of the Spire transaction not happening. It's been worked through for the last 9 or 12 months in great detail. So we intended to do that regardless of the Spire acquisition.

Right. And then just on some of the, I guess, some nonsurgical pieces like psych, rehab and the like, is there a view that some of those might remain more sort of permanently depressed as a result of COVID? So has there been sort of a change of business practices associated with some of those services taking a little longer to spring back? Or did you just think it's a matter of time?

Look, I could say I'm depressed, but I'm not. But there has been some changes in some of those, the clinical models, not materially at the end of the day, but there's certainly no question that some of the models of care had been tweaked, particularly when we're looking at sort of day patients. We talked about rehabs always called out. That mobile, generally healthy, orthopedic rehab cohort of patients has been declining for a number of years. It's probably accelerated through COVID. But I think most of it -- and when we look at our nonsurgical profile of activity, most of it's come back and come back strongly. The exceptions would be the inpatient medical cohort, and that's directly a result of people being isolated in social distancing where respiratory infections haven't been strong, no flu season as an example. So that inpatient medical cohort has been slow. And day psych has been slower to recover as well, and that's a partly social distancing issue. But other than that, whilst the rate of recovery had -- is certainly slower than surgical work, it has recovered. And so leading up to the end of the year, when we look at the last quarter and look at that nonsurgical activity, we're pretty positive about where it was getting to.

Sure. And if I could just get a comment, we know that -- if you're able to. We know that sort of Medibank's promoting this sort of -- promoting might be the wrong word. Are these short-stay, no gap joint replacement surgery, and they talked yesterday, how they've signed a bunch of contracts with hospitals, they're developing a short-stay facility in queue. We understand some of the insurers are thinking down the same lines. I'm wondering if I could just get your very high-level thoughts on that as an opportunity.

Look, I think you have to put it in context. So on day surgery, you'll cut through the APRA numbers and you saw the growth in day surgery activity over the last 12 months. We've got about 20% -- 27% market share in day surgery in Australia. The aggregate of all the stand-alone day surgery in Australia had 21%. And so there's that relativity. Our day surgical work has grown at -- it's about 13.5% to 14% in that period where the stand-alone day surgeries have grown at about -- I think about 10.7% to 10.9%. And so in terms of any material issue, it's not going to be significant on us. I think the bigger issue in that vertical integration model is really about where it heads in terms of a managed care issue. And yes, this -- that's a whole different issue. Not a great direct impact on us. We're big enough and ugly enough to look after ourselves in that respect. But I think when you -- the way you see doctors who are interested in that model, and I'll come back and circle around the out-of-pocket piece, they tended to be doctors who are relatively young and who are trying to establish their practices or at the end of their career and looking at some sort of equity bonus at the end of that in participating in those models. The vast majority, I'm going to say, it's 100-fold more than the people that are interested. The vast majority have a real concern about the model, and that it's just the thin end of the wedge in terms of clinical decisions being made for financial reasons rather than clinical reasons. And so when I look at the big picture of it, I'm certainly not concerned from out that -- Ramsay perspective, as I said. But there will be a lot to play out, particularly from the doctor community, not so much in the hospitals in the way that will be effective. But again, back in context, we currently have 27% of the day surgery market in Australia, really strong position. Day surgery is about 62%, 63% of our procedural activity. That hasn't changed much over the last 5 years or more. So I don't -- I just don't see it as material.

Your next question is from David Bailey of Macquarie.

Just firstly on Capio. Just wondering if you can quantify where those synergies ended up. And any details as to where the additional benefits came from? I saw the commentary from Santé saying there was a bit of a beat in their results this morning.

Yes -- no, we're pretty pleased with the whole integration of Capio into the business. The synergy benefits that came through were -- have been much better than we thought. They were a bit delayed, as we said, last year because of the impact of COVID on volumes and some of those synergy benefits are obviously volume-related when you particularly look at procurement. But they're across the board, to be honest. Procurement benefits are certainly part of that. More efficiencies, some alignment of practice has enabled us to get additional benefits. So without breaking it down into its great detail, it is across the board.

In terms of the magnitude of the dollar or the euro amount?

I can't tell you that, mate.

Yes. All right.

But it is certainly much better than the $20 million we report -- EUR 20 million we forecast.

Yes. Okay. Some comments in the presentation as well, just about moving into JVs and new services and also adjacent services. Is there anything of -- any specific areas of focus or any regions you might be able to highlight or expand upon that?

It's a longer-term strategy for us and across all regions, the regions are looking at how they can supplement the hospital business with sort of out-of-hospital services. And that applies in every region, I'm going to say. We've talked previously about the Scandinavian model being a lot more out of hospital than hospital based. But when we look at France, France have got some initiatives around primary care. Australia has got initiatives around outpatient rehab, home rehab, home care generally, integration, more integration of the pharmacy business. So they're all important parts of a total integrated service. But as yet, they're not material compared to the hospital business itself, except for Scandinavia.

Yes, yes. Okay. And just -- one just quick -- one quick final one. You mentioned once restrictions get eased, you see a bit of a surge of activity then growth at a premium rate. I mean is there any lost volumes in these sorts of lockdowns that we see in Australia? Do you think there's -- people don't come into the system that they would have otherwise? Or do you think the majority of the volumes do come back?

I don't see any differently than I saw it last year really, but a lot of the nonsurgical volume doesn't come back, but the vast majority of the surgical volume comes back, and it's still unclear about where that level is. Is it 80% or 90%? No one's really sure because we still got people avoiding accessing the system in the first place. So that premium volume that we've seen in surgical activity outside of lockdowns and restrictions is a combination of the backlog, but also we're not really sure what component of the normal activity hasn't entered the system yet either. So it's a hard one to predict. But again, I emphasize our view is that we just see that premium activity to deal with the backlog of work in the system coming at a lower premium and over a longer period of time.

Your next question is from Saul Hadassin of Barrenjoey Capital.

Craig, can I just ask you -- if I think about the key takeaway from these results, for me, it's actually the guidance you've given on that significant uplift in CapEx and over -- as you said, over the medium to long term and your, I guess, confidence in the service delivery outlook. Can you just talk -- can I just push you on -- for example, if you look at the growth components of spend into FY '22, can you just give us some sense or better sense strategically of what you are planning to invest that circa $150 million in across those regions? I know you were asked before, but in terms of specific service delivery types of models, what are you targeting with that spend?

It's the same trend as we've had -- previously saw, just at a higher level. So again, the proportion shifts from that inpatient capacity to throughput, particularly around operating theaters, day surgery capacity. There will be -- the investment in day surgery has continued -- and our day surgery capacity has continued to climb over the last 5 years. It will continue to accelerate that way. More investment in digital capabilities, as I mentioned, and that's one to -- there's many levers you could have put on a digital strategy, but one of those is operational efficiency. And so we expect to get some benefits out of that investment in the medium term. So nothing -- I'm going to say nothing is materially different in terms of the direction that we're pursuing before. So there's not one particular thing we're saying, "Okay, well, it's stick all our money there now."

Sure. And Craig, just on the brownfield side then and particularly in Australia, I guess, has anything changed in terms of why the step-up is so material into sort of '22 and beyond by site? Is it just a timing thing that a lot of facilities are reaching sort of capacity at the same time and that's driving it? Or how have you discovered some of new opportunities by site in Australia?

It's timing, Saul. And I think part of that is a -- sort of a slower last couple of years in the quantum that's had a little bit of catch-up on that. But it's also looking at what the broader strategy needs in terms of investment to be able to execute on that strategy and deliver that strategy. And so there's an acceleration of some things that we might have thought were a bit further down the track and maybe that acceleration has been driven by sort of COVID influences, to a certain extent. But it's really saying, "Okay, well, this is what we saw heading into the future. And so let's bring as much of that forward as is reasonable to do." And when I said there was no specific other things, I mean, the digital -- the investment in digital is more than the trend that was occurring before now. So day surgery, capacity of theater still dominate the level of that investment.

And just last one for Martyn on the CapEx side of this -- the business. Martyn, Ramsay historically had targeted 15% EBIT return on invested capital for -- specifically for brownfields. Does that metric still hold? And if not, what do you estimate could be that medium-term return on the -- both the brownfield and, I guess, considering the growth CapEx step-up as well?

Yes. I mean as Craig said in his speech, our expectation of returns on that CapEx is for us to get similar returns on what we've had in the past. So that 15% EBIT return on capital, it still applies. Now some projects might be year 4 rather than year 3, depending on the strategic nature of them or the ramp-up, but that is pretty much the right rule of thumb.

Your next question is from Steve Wheen of Jarden.

Can I just ask with regards to the Australian arrangements, in particular in New South Wales, what the -- or what does the viability for capacity guarantee look like today? Is that being addressed more specifically around some of these hospitals that have been identified by the Government to take over the capacity?

I'm not sure I got the gist of that, Steve. Can you say that again?