Ramsay Health Care Ltd (RHC) Q4 2021 Earnings Call Transcript

Ramsay Health Care Ltd (ASX:RHC) Q4 2021 earnings call dated Aug. 25, 2021.

Corporate Participants:

Craig McNally — Managing Director and Chief Executive Officer

Martyn Roberts — Group Chief Financial Officer

Analysts:

Lyanne Harrison — Bank of America — Analyst

Andrew Goodsall — MST Marquee — Analyst

Gretel Janu — Credit Suisse — Analyst

Sean Laaman — Morgan Stanley — Analyst

David Bailey — Macquarie — Analyst

Saul Hadassin — Barrenjoey Capital — Analyst

Steve Wheen — Jarden — Analyst

David Low — JPMorgan — Analyst

David Stanton — Jefferies — Analyst

John Deakin-Bell — Citi — Analyst

Chris Cooper — Goldman Sachs — Analyst

Presentation:

Operator

Thank you for standing by, and welcome to the Ramsay Health Care Fiscal Year 2021 Results Conference Call. All participants are in a listen-only mode. There will be a presentation, followed by a question-and-answer session. [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.

Craig McNally — Managing Director and Chief Executive Officer

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.

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 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 and the regions. The efforts of our people and doctor partners have been well recognized, and our working relationships with our key stakeholders have been strengthened as a result.

I would 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 have reported today reflect the disruption caused by the pandemic. However, Ramsay’s response has adapted over the last 18 months as we have 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 remained 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 healthcare 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 healthcare 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.

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 non-surgical 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 [Technical Issues] the drop in non-surgical admissions and the higher proportion of lower 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 0.7 times, 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 healthcare 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 healthcare services.

The Board has determined a fully franked final dividend of AUD0.103 per share, taking the full dividend — full-year dividend to AUD0.1515 per share, a material increase on the COVID-impacted 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 result from Australia. It was a tail of two 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 non-surgical 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 AUD70 million and the impact of multiple lockdowns in the second half of the fiscal year is estimated at AUD13 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 AUD4 million to AUD5 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 AUD13 million, inclusive of the COVID-related costs. However, due to the introduction of surgical restrictions on 23rd of August at seven 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 AUD70 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 non-surgical 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 is 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 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 non-surgical admissions per workday. We had 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 non-surgical admissions in particular impacted by the lockdowns.

The chart in the bottom left highlights the effect of the pandemic on non-surgical 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, non-surgical 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 demonstrates that the absence of lockdowns in New South Wales for the 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 healthcare 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 five 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 achieved previously.

In addition to our development pipeline, the Western Australian and federal governments have committed to ADU256.7 million expansion of the Joondalup public hospital, which is expected to be completed in mid-2025. The expansion includes 90 inpatient beds, six new critical care beds, 30 new mental health beds, 12 additional emergency department patient bays, an additional operating theater, and a Behavioural Assessment Urgent Care Clinic. And we are looking at augmenting the development of the public hospital with an expansion of our co-located 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 cancelation of surgeries. We are, however, confident that as the rules stipulating isolation upon receipt of an app notification are rolled back, the 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 the private sector. The business continued to invest in building out its footprint with two 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 AUD8.7 million of transactions 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 to our European business. Ramsay Sante 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, 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 higher 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.

Martyn Roberts — Group Chief Financial Officer

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 out for our patients and 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 result 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 December this year.

The EBIT contribution includes a AUD24.2 million benefit — can everyone hear me?

Craig McNally — Managing Director and Chief Executive Officer

Yeah, go ahead.

Martyn Roberts — Group Chief Financial Officer

Yeah. Okay. Sorry. The EBIT contribution includes a AUD24.2 million benefit from the disposal of assets in Australia and Europe, including the German portfolio of assets — hospitals in the first half of the year. The contribution from the sale of the German assets of AUD26 million reported in the first half result has been offset in the second half by provisions for warranties and indemnities of AUD24 million in total.

The result also includes impairment and asset write-downs of AUD34.6 million, transaction and development costs of AUD23.7 million and a one-off tax credit of AUD12.8 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 AUD1.5 billion capital raising last year.

Investing cash flow movements reflect the AUD1.96 billion in funds drawn down and held in escrow at 30the 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 AUD674 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 the refinancing of the wholly-owned funding group bank debt due in October 2022 with a AUD1.5 billion multi-currency syndicated sustainability linked loan facility. The new facility comprises three AUD500 million tranches maturing in three, four and five years, respectively.

In April 2021, Ramsay Sante refinanced its entire EUR1.7 billion syndicated debt facility, which was due in October ’22 and October ’24. The new facility comprises two tranches; EUR900 million which matures in April ’26 and EUR750 million in April ’27. The refinancing was done at materially improved margins and is expected to drive interest cost savings in the order of EUR10 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 AUD2.4 billion and leverage was below 1 times.

Pleasingly during the year, we were ascribed an investment-grade rating of BBB Stable by Fitch.

I will now hand you back to Craig to talk about strategy and the outlook.

Craig McNally — Managing Director and Chief Executive Officer

Thanks, Martyn. As I mentioned earlier, while the last 18 months has presented many challenges, it has 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 healthcare provider of the future. The strategy balances the need of all our stakeholders taking into account the rapidly changing environment and the pressures that this places on global healthcare 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 healthcare environment.

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 have 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 healthcare 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 would 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.

We will now move to questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question is from Lyanne Harrison of Bank of America. Please state your question.

Lyanne Harrison — Bank of America — Analyst

Yeah. Good morning, Craig. Good morning, Martyn. And thank you to you and your team for all the work you’re doing on the frontline for COVID. Can we start with the New South Wales hospital situation? Obviously, lots going on there. Can you give us a sense for those seven 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 non-essential elective surgeries to be transferred to some of your other hospitals?

Craig McNally — Managing Director and Chief Executive Officer

Thanks, Lyanne. Look, it’s early days. The restrictions only came in place on Monday of this week. And so, sensibly, 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’m not sure it’s achieving what it needs to achieve. And so, it’s too early to determine the impact. It’s only been three days of activity and so lots of book work was still happening anyway. The length of the restrictions are unknown. So I can’t give you much more guidance than that unfortunately.

Lyanne Harrison — Bank of America — Analyst

Okay. Can you talk us through a little bit about the staff that are 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 are being transferred?

Craig McNally — Managing Director and Chief Executive Officer

Yeah, they are largely nursing staff. And as I 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, and 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 and it’s 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.

Lyanne Harrison — Bank of America — Analyst

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?

Craig McNally — Managing Director and Chief Executive Officer

Yes. Look, the dialog with Victoria is, I won’t say intense, but it’s quite regular at the moment, looking at what the options will be. Victoria’s 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. But we’re in constant communication with the Victorian government.

Lyanne Harrison — Bank of America — Analyst

Okay, great. Thank you very much.

Craig McNally — Managing Director and Chief Executive Officer

You’re welcome.

Operator

Your next question comes from Andrew Goodsall of MST Marquee. Please state your question.

Andrew Goodsall — MST Marquee — Analyst

Thanks very much for taking my questions. I was 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. What I’m trying to do here is I guess just understand if the U.K. is a vanguard for what Australia or other countries are going to look like sort of post-vax with a bit of COVID still in circulation.

Craig McNally — Managing Director and Chief Executive Officer

Yeah. 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 happened with the NHS is contract sort of app and 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.

It’s sort of gone into holidays and coming out of holidays. And so the anticipation is that with the relaxation, particularly around healthcare 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 I think as we called out earlier in the year, a bit of a bumpy start to the year was anticipated.

Andrew Goodsall — MST Marquee — Analyst

And if you had to sort of — I know it’s a bit crystal balling, but if you had to say, well, back from holidays, back to normal, are we talking 90% back to normal, 95%? Obviously, [Technical Issues].

Craig McNally — Managing Director and Chief Executive Officer

I won’t crystal ball, Andrew. But I think what we see is a lot of engagement with the NHS and government and the NHS is still looking at how it structured itself to deal with particularly the issue of the long-term reduction in the waiting lists. But the key to that — look, leading up to the current position, we saw faster growth back in private patients and self-pay patients, so [Technical Issues] patients and self-pay patients.

And so the key to 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 now we’re seeing, no question.

Andrew Goodsall — MST Marquee — Analyst

And I know you called out Victoria 90-day lockdown at AUD70 million hit. If you sort of think about where New South Wales is, what proportion of shutdown of surgery are we at relative to that one? Because that was a pretty much — I won’t say 100, but it was pretty much just Cat 1, wasn’t it?

Craig McNally — Managing Director and Chief Executive Officer

Yeah. Well, it was a bit more Cat 1 and urgent Cat 2. Remembering that — 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, etc. And so there’s a few sort of definitions that sit around those criteria, obviously.

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 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.

Andrew Goodsall — MST Marquee — Analyst

I’ll try and back solve[Phonetic], but I know we’re talking all big picture at the moment. And then the final one from me sort of is how you’re thinking about ’23? I know it is — there is some sort of — ’22’s clearly another transition and we’ve just got to get through it. But 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…

Craig McNally — Managing Director and Chief Executive Officer

No. It’s important to try and understand that. And I think as I’ve 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 in all of our countries, and Australia’s lagging a bit behind where we are in our European markets, for example, then 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.

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 — again, I’ve 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.

Andrew Goodsall — MST Marquee — Analyst

That’s great. Thank you very much. Appreciate it.

Operator

Your next question is from Gretel Janu of Credit Suisse. Please go ahead.

Gretel Janu — Credit Suisse — Analyst

Thanks. Good morning, everyone. 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 at the moment in New South Wales and Victoria, should we be expecting a very slow start to recovery as well? Just trying to understand what happened in Victoria last year and whether it potentially would be applied here.

Craig McNally — Managing Director and Chief Executive Officer

Yeah. And look, it’s — I mean, my view, as you’re probably all aware, has always been that that recovery is slower and longer than maybe people would have anticipated that it’ll 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 in that period, and then it sort of settled back down to a premium level of activity, but at a lower level than the peak, obviously. So, I think that’s the same sort of trend we’ll see as we come out of the lockdowns and restrictions that we’re in.

Gretel Janu — Credit Suisse — Analyst

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’ve moved out on that, what is 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 grow more organically into that private payer mix?

Craig McNally — Managing Director and Chief Executive Officer

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 Spire portfolio would have brought to us, we’ll continue to grow the private part of our business in the business that we currently have.

Gretel Janu — Credit Suisse — Analyst

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

Martyn Roberts — Group Chief Financial Officer

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

Gretel Janu — Credit Suisse — Analyst

Understood. Thanks very much.

Operator

Your next question is from Sean Laaman of Morgan Stanley. Please go ahead.

Sean Laaman — Morgan Stanley — Analyst

Thank you. Good morning, Craig. Good morning, Martyn. Hope you’re both 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 reshaped your thinking or has it reshaped your thinking on spending on brownfields in Australia, just to square that one away?

Craig McNally — Managing Director and Chief Executive Officer

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 nine months or 12 months in great detail. So we intended to do that regardless of the Spire acquisition.

Sean Laaman — Morgan Stanley — Analyst

Right. Thanks, Craig. And then just on some of the, I guess, certain non-surgical 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 a change of business practices associated with some of those services taking a little longer to spring back? Or do you just think it’s a matter of time?

Craig McNally — Managing Director and Chief Executive Officer

Look, I could say, I’m depressed, but I’m not. But there has been some changes in some of those clinical models. Not materially at the end of the day, but there’s certainly no question that some of the models of care have been tweaked, particularly when we’re looking at sort of day patients. We talk about — rehab’s always called out, that mobile, generally healthy, orthopaedic rehab cohort of patients has been declining for a number of years and it’s probably accelerated through COVID.

But I think most of it — and when we look at our non-surgical profile of activity, most of its come back and come back strongly. The exceptions would be the inpatient medical cohort and that’s directly a result of people being isolated and social distancing where respiratory infections haven’t been strong, no flu season as an example. So, that inpatient medical cohorts 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 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 non-surgical activity, we were pretty positive about where it was getting to.

Sean Laaman — Morgan Stanley — Analyst

Sure. Thanks, Craig. And if I could just get a comment, we know that — if you’re able to — we know that sort of Medibank is promoting this sort of — promoting might be the wrong word, this 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 Kew.

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.

Craig McNally — Managing Director and Chief Executive Officer

Look, I think you’ve got 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 27% market share in day surgery in Australia. The aggregate of all the standalone day surgery in Australia have 21%, and so there’s that relativity.

Our day surgical work has grown just about 13.5% to 14% in that period where the standalone day surgeries have grown at about — I think, they were about 10.7% or 10.9%. 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 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 where you see doctors who are interested in that model, and I’ll come back and circle around the out-of-pocket piece, there tend to be doctors who are relatively young and who are trying to establish their practices or they’re 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 a hundredfold 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 a Ramsay perspective as I said, but there’ll 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, a really strong position. Day surgery is about 62%, 63% of our procedural activity. That hasn’t changed much over the last five years or more. So I just don’t see it as material.

Sean Laaman — Morgan Stanley — Analyst

Great. I appreciate your answer, Craig. Take care. Thanks.

Operator

Your next question is from David Bailey of Macquarie. Please go ahead.

David Bailey — Macquarie — Analyst

Yeah, thanks very much. Morning, everyone. Just firstly on Capio, I was 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 Sante saying there was a bit of a beat in their result this morning.

Craig McNally — Managing Director and Chief Executive Officer

Yeah. No, we’re pretty pleased with the whole integration of Capio into the business. The synergy benefits that came through 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 much 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 and 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.

David Bailey — Macquarie — Analyst

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

Craig McNally — Managing Director and Chief Executive Officer

I can’t tell you that.

David Bailey — Macquarie — Analyst

Yeah, alright.

Craig McNally — Managing Director and Chief Executive Officer

But it is certainly much better than the EUR20 million as we forecast.

David Bailey — Macquarie — Analyst

Yeah 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 there?

Craig McNally — Managing Director and Chief Executive Officer

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’s got initiatives around outpatient rehab, home rehab, home care generally, integration — more integration of the pharmacy business. So they’re all important parts of the total integrated service, but as yet they’re not material compared to the hospital business itself except for Scandinavia.

David Bailey — Macquarie — Analyst

Yeah. Okay. And then 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 the premium rate. I mean, is there any loss to volumes in these sorts of lockdowns that we see in Australia? Do you think that people don’t come into the system that they would have otherwise? Or do you think the majority of the volumes do come back?

Craig McNally — Managing Director and Chief Executive Officer

I don’t see it any differently than I saw it last year really. A lot of the non-surgical 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 is really sure because we’ve 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 [Technical Issues] 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.

David Bailey — Macquarie — Analyst

That’s great. Thanks very much, Craig.

Operator

Your next question is from Saul Hadassin of Barrenjoey Capital. Please go ahead.

Saul Hadassin — Barrenjoey Capital — Analyst

Thanks. Good morning, Craig. Good morning, Martyn. Craig, can I just ask you, if I think about the key takeaway from this results, for me, it’s actually the guidance you’ve given on that significant uplift in capex and as you said over the medium to long term in your, I guess, confidence in the service delivery outlook.

Can you just talk to — can I just push you on, for example, if you look at the growth component 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 AUD150 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?

Craig McNally — Managing Director and Chief Executive Officer

It’s the same trend as we’ve had previously, Saul, just at a higher level. So again, the proportion shifts from that inpatient capacity to throughput, particularly around operating theaters, day surgery capacity. The investment in day surgery has continued — in our day surgery capacity has continued to climb over the last five years. It will continue to accelerate that way.

More investment in digital capabilities, as I mentioned. And that’s one to — there’s many lenses 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 were pursuing before. So there’s not one particular thing we’re saying, okay, well, let’s stick all our money there now.

Saul Hadassin — Barrenjoey Capital — Analyst

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 capacity at the same time and that’s driving it? Or how have you discovered some new opportunities by site in Australia?

Craig McNally — Managing Director and Chief Executive Officer

So timing, Saul, and I think part of that is a sort of a slower last couple of years in the quantum that’s 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 — investment in digital is more than the trend that was occurring before now. So day surgery capacity theaters still dominate the level of that investment.

Saul Hadassin — Barrenjoey Capital — Analyst

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

Martyn Roberts — Group Chief Financial Officer

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

Saul Hadassin — Barrenjoey Capital — Analyst

Great. Okay. Thank you very much guys.

Craig McNally — Managing Director and Chief Executive Officer

Thanks.

Operator

Your next question is from Steve Wheen of Jarden. Please go ahead.

Steve Wheen — Jarden — Analyst

Yeah. Good morning, Craig and Martyn. Can I just ask with regards to the Australian arrangements, in particular in New South Wales? 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?

Craig McNally — Managing Director and Chief Executive Officer

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

Steve Wheen — Jarden — Analyst

Yeah. The viability capacity guarantee that you’ve had operating previously, how does that work when they’ve separately identified only seven hospitals? And do you get some sort of payment or guarantee of costs for those hospitals where they’ve taken over your capacity?

Craig McNally — Managing Director and Chief Executive Officer

Martyn can answer this. But no, the reconciliation of the viability payment, if we indeed need to step into it, is in New South Wales by facility. So when you’re taking pieces out of the network, it’s hard to have the same arrangements we’ve done previously. So that’s the current understanding with New South Wales Health.

Martyn Roberts — Group Chief Financial Officer

Yes, I’ll also add as well is obviously the end date, we don’t know, but also we haven’t had clarity of the start date either. So whether it starts on August 23rd or whether they’re going to backdate it, so there’s quite a bit of uncertainty there. So it’s a little fluid, I’d say.

Steve Wheen — Jarden — Analyst

But your expectation would be that they would be covering the costs of those individual facilities at that point, is that correct?

Martyn Roberts — Group Chief Financial Officer

Correct, yes. But if you remember last time that the reconciliation worked on a quarterly basis, and so that kicked in at the end of March 2020. And we’d made losses in April. But to a large extent, they are offset by profits we made in May and June, and we ended up not claiming very much money from the state government in the end at all. In fact, in Queensland, we didn’t claim any monies. So it really — a lot of it does depend on the duration of the program as well.

Steve Wheen — Jarden — Analyst

Yeah, understood. Okay. And just with regards to the U.K., what’s your — the negotiations that you’re having with the government and the NHS, do you have any — when will they be finalizing sort of the allocation of funding to that clearing of the backlog? And do you have any sense as to how it will look, whether it will be spot contracts or an expansion of the Choose and Book program.

Craig McNally — Managing Director and Chief Executive Officer

I’m not being evasive, Steve, but I don’t know when those arrangements will be concluded. But I do anticipate what they’ll look like. And they’ll be a combination of expansion of Choose and Book and spot contracting. But in terms of when they actually formalize the arrangements around the move from the consultation process, I’ve got to say, I’m not being cynical, the consultation process has upped the ante a bit in terms of detail. But they still being — they still back the intention with the funding and so that still needs to flow.

Steve Wheen — Jarden — Analyst

Okay, great. And then just lastly, Martyn, you mentioned sort of the, I guess, the momentum around your strategic review has obviously slowed since Spire fell over. But as part of that process and considering the appetite for REITs to own healthcare assets, in particular hospitals, why wouldn’t you take advantage of, say, cap rates, which have just come down to extraordinary low levels than they have been historically? Is that an option across some of your more mature assets?

Martyn Roberts — Group Chief Financial Officer

It is an option for sure and it’s also an option to fund some of the step-up in capex forwards as well, which we’re reviewing. But I’d say two things on it though, is as you’d imagine with our portfolio, we’ve got a very low tax base in our portfolio. So we are mindful of the capital gains tax. So that’s one part of issue. And you’ve also got quite high levels of stamp duty in Queensland, for example. So, all of those things kind of come into our thinking. Clearly, we’ve got very low levels of gearing at the moment.

So yes, cap rates are low, but still more expensive than our debt. So all of those things come into consideration. But as I said, yes, we’re still reviewing it. We’re still assessing it as an opportunity, but there’s nothing imminent.

Steve Wheen — Jarden — Analyst

Right. Okay. But I mean, would you — I mean, the cap rates that were previously applied to say Healthscope’s assets, which was 5%, I mean, taking advantage of cap rates now at 3.75%, that has to be an extraordinary recognition of the value that sits or that is currently unrecognized on your balance sheet around your assets, right?

Martyn Roberts — Group Chief Financial Officer

We’re certainly aware of the attractiveness of our assets to put it that way. Yeah.

Steve Wheen — Jarden — Analyst

Yeah. Okay, great. Look forward to it.

Operator

Your next question is from David Low of JPMorgan. Please go ahead.

David Low — JPMorgan — Analyst

Thanks very much. I’m aware of the time, so I’ll try to keep it fairly brief. Martyn, could you talk a little bit to working capital and the French situation, if there’s anything worth saying there as to how we should think it’s likely to play out this year, please?

Martyn Roberts — Group Chief Financial Officer

Yeah. No, good question. So in the Sante release actually they’ve highlighted. So the amount that’s sitting there on the balance sheet payable to the French governments — governments across the various regions is EUR121 million. So that’s essentially the amount that probably would have to normalize over time. We thought that that would all be pretty much squared away by the time we came to this reporting period, but with the extension of revenue guarantee scheme and continuation of cash advances, that hasn’t really happened. So that’s the amount there at the end of June.

Will that reduce by end of December? Hard to say to be honest because each of the jurisdictions is treating it slightly differently, whether they’ve been offsetting their normal billings against the receivable or not. But that’s the amount that’s sitting there on balance sheet at the moment.

David Low — JPMorgan — Analyst

Okay, thanks. And then just I think back to Saul’s question, I mean I think as Saul said, their step-up in capex is probably the news in this result. And two questions from me on that. One, you talked about digitization. Are we talking electronic health records given how expensive they can be? And secondly, can I get you to talk a little bit to what’s happening in Europe because I think we understand the brownfields reasonably well, but I see the spending in Europe is going to be sort of matching up with the Aussie spending, according to that Slide 15?

Craig McNally — Managing Director and Chief Executive Officer

Okay. I’ll let Martyn talk about the amounts of money. In terms of the way we [Technical Issues] and just to add to the answer to Saul’s question, I guess as well. The opportunities in all the markets are there. We probably haven’t been as transparent in some of the European, Ramsay Sante investments in the past as we’re becoming now. But the ability for us to grow what we currently have — and that’s along the lines I was talking about — but also we’re a dominant provider of some key services where growth will be going forward, mental health, building out — sort of flagged in the presentation, building out the mental health service profile is important to us in a number of markets.

We’re the largest provider of oncology services. We’ve seen significant growth, particularly in France and in Australia around cancer services and we’ll continue to invest or increase the investment in that. And so whilst the brownfield program in Australia is probably the one we’ve spoken about more than others, there’s a brownfield program in the U.K. Principally — we’re going to say, the majority of that has been focused on increasing day surgery capacity.

In France, it’s not dissimilar to Australia in terms of making sure we’re better in sort of end-to-end cancer services, cardiovascular services. We’ve got some of the best facilities in the world in cardiology and cardiac surgery in France, particularly in Paris, making sure we build that out. We’re a massive provider of orthopaedic services. So that whole musculoskeletal service line, we continue to add to that. And it’s building out what we do, but also adding other services that are related to that that make it important. And so yeah, Martyn, you might want to add to that?

Martyn Roberts — Group Chief Financial Officer

No, I think you’ve covered it, Craig.

David Low — JPMorgan — Analyst

Sorry, just two last bits. I mean so the capex spend in Sante, that’s going to be funded equally by the partners? I mean it’s coming out of their debt.

Craig McNally — Managing Director and Chief Executive Officer

Yeah, it comes out of Sante as it should.

David Low — JPMorgan — Analyst

Yeah. And sorry, you talked about digitization, I’m a bit wary of how much has been spent on electronic healthcare towards hospitals. I’m just wanting some sense of…

Craig McNally — Managing Director and Chief Executive Officer

I didn’t mean to avoid answering the question. We’re not an advocate of those big box EMR solutions. I don’t want to name any of the ERP organizations that provide it, but we think they’re expensive. They’re high capital costs. They’re really restrictive in terms of the way you can operate. They dictate the way you operate rather than vice versa. So we’re looking in a digital strategy, the sort of digitization of clinical data is important going forward.

And so the way we will tackle that is not necessarily a big bang solution. For the U.K., we’ve been rolling out sort of an EMR system there, which is not a big bang solution. And we’ll finish that rollout in November this year. So we’ve got lots of lessons to learn from that and positives. France has got sort of some digital medical record or clinical data in particular areas.

Australia, we don’t have the intention to rollout a full-scale EMR, but we’ll look at the opportunity for those lower cost, more agile solutions to that. But it is important that we sort of digitize a lot of our data.

We sit on an enormous amount of data. And so there’s a long-term opportunity for us to be able to leverage that data in terms of developing new clinical models, research activities and we’re uniquely placed in the global sense, in terms of the diversification of markets we have and diversification and access to patients and sort of digitizing or having a digital strategy address that as part of the rationale.

David Low — JPMorgan — Analyst

Great. Thanks very much.

Operator

Your next question is from David Stanton of Jefferies. Please go ahead.

David Stanton — Jefferies — Analyst

Good morning, team, and thanks very much for taking my questions. Just a couple of sort of more shorter-term questions, and then one longer-term question. Look, just put simplistically, you called out the cost of — 90-day lockdown cost in Victoria or EBIT impact in Victoria was about AUD70 million. If the lockdown in Sydney continues for three months, and you said Sydney is double Victoria, should we just think AUD140 million potential impact? And what are the puts and takes on doubling the EBIT number seen in Victoria, please?

Craig McNally — Managing Director and Chief Executive Officer

Martyn?

Martyn Roberts — Group Chief Financial Officer

Yeah. I can answer that. Look, I mean we’re not giving a forecast, that’s clear. We’re just trying to be helpful to sort of reference people back to what it costs. I mean the variables of puts and takes on it, as I said earlier, are what’s the start date and what’s the end date. And then also does it actually end up being just on a facility-by-facility basis. That’s what we think it’s going to be at this stage.

But clearly, the risk if the New South Wales governments were to move to take over more hospitals, or it was progressed across the state, then that would be bigger obviously. I mean, those seven hospitals are bigger than Victoria just in themselves and the whole state is double. So we’re just trying to give a few reference points, but I’m afraid you’re going to have to draw your own conclusions on that front.

David Stanton — Jefferies — Analyst

No, understood. Sorry, I’ve missed this, but the whole state is double New South Wales and Greater Sydney is around the same size of Victoria.

Martyn Roberts — Group Chief Financial Officer

Those seven hospitals by themselves are a little bit bigger than Victoria. I think [Speech Overlap].

David Stanton — Jefferies — Analyst

Understood. Thank you. That’s clear. And then just if we talk to France and U.K. again very quickly because I’m conscious of time. But it sounds like in France you’ve got the revenue guarantee and ongoing Nordic — well, in terms of Capio, the ongoing Nordic growth, they sound reasonably positive for 2022. What are the negatives — potential negatives we should be thinking about?

Martyn Roberts — Group Chief Financial Officer

Well, I think the risk in France is — assuming we do get the revenue guarantee to December, that’s our expectation, but there’s been no decree issued yet. But if you recall, the last one didn’t get issued until April for the January to June period. Assuming that happens, the biggest unknown for us then is what does any transition agreement out of that look like.

So if you recall, in the U.K., there was actually quite a good transitional agreement that ran from January to March that kind of saw us through the period of getting off those government contracts onto normal trading. We don’t know what that’s going to look like in France. So that will be a near-term risk I would say.

And the Nordics, look, they’ve been trading very well. One thing I would highlight is in our segment reporting, the provision that we took against the German sale is in the Nordic segment. So the result is actually given the fact we don’t have non-core items anymore is a bit misleading when you look at that, so you have to back that out. But the Nordics has been trading very well. The governments have given us, I would say, more ad-hoc support over there for what’s happened. So it’s very hard to say what that looks like going forward. But if things continue to go the way they are, then we’re quite confident with our business in the Nordics now going forward.

David Stanton — Jefferies — Analyst

Okay. And would it be fair to say that in the U.K. the negatives for ’22, ongoing COVID impact and no compensation from the NHS, the positives might be gross in privately insured patients coming in?

Martyn Roberts — Group Chief Financial Officer

And also self-pay. We already saw quite a big increase in self-pay customers as well on top of private, so yeah.

David Stanton — Jefferies — Analyst

Okay. And then finally, we noticed your step-up in my favorite topic, brownfield operating theaters going forward. Can you talk to the competitive dynamic here in terms of other Australian operators opening — potentially opening over the near- to medium-term brownfield operating theaters as well? I’d just like to understand whether you guys think you’ll pick up market share in operating theaters going forward, please.

Craig McNally — Managing Director and Chief Executive Officer

We’re certainly probably better placed than competitors in terms of our financial capacity. So that could certainly indicate that. And we’re not doing it to capitalize on that necessarily, David. We think as we look at our portfolio and continue to strengthen the key hospitals in the portfolio, those magnet hospitals where doctors and patients and staff want to be keep generating demand. So we’ve got to put that capacity in place. Now we always argue that our portfolio of hospitals is the superior portfolio in the country and that provides opportunity.

David Stanton — Jefferies — Analyst

Understood. Thank you.

Operator

Your next question is from John Deakin-Bell of Citi. Please go ahead.

John Deakin-Bell — Citi — Analyst

Thanks, Craig. Again, conscious of the time, I have two very quick questions. One is just around the rebound in the U.K., for example, and obviously there’s plenty of demand. But how do you get the doctors or the surgeons to work materially more hours to clear that? I mean I’m just trying to understand what do you think a realistic increase over a one- or two-year period might be in terms of procedures?

Craig McNally — Managing Director and Chief Executive Officer

Look, I mean part of the reason I’ve always espoused the theory that the premium levels will be lower and longer. And I don’t think the U.K. is a one- or two-year recovery. I think, we’re three, four, five years of that. And so you can only work within the capacity — the workforce capacity that you have putting aside the physical capacity, and you don’t want to burn them out too quickly.

So it’s not dissimilar in the U.K. than it is in Australia. I think a difference is the private sector where it’s a fee-for-service arrangement rather than the work they do in the public sector, where their salary drives more efficiency and more volume. And so there is a financial incentive for doctors to work in the private sector if the volume is there. But I think it is a longer-term recovery rather than a short, sharp, get it all done.

John Deakin-Bell — Citi — Analyst

Yeah. Thank you. And then just secondly, back on Australia and the question of sale and leaseback. I mean it’s obvious that interest rates where they are, that there’s no problem with getting someone to buy the assets. But can you just explain to us your view on the strategic imperative of owning your key assets and then having the ability like you’re doing now stepping up brownfields when you want to, rather than having to deal with a land [Technical Issues]?

Craig McNally — Managing Director and Chief Executive Officer

Yeah, I’ll start on the philosophical perspective, I guess, as much as anything else. I mean, we have a mix of leasehold and freehold businesses. Australia is predominantly freehold. Europe is predominantly leasehold. And it all depends on the lease document about how much flexibility you’ve got, but the hospitals are dynamic buildings. They’re not office blocks. So the bigger and more complex the campus, the more flexibility ideally you want.

When you’ve got a smaller — let’s say it’s a one or two theater standalone day surgery facility, it’s probably not going to add a lot of change over a medium period of time. So you’re probably not as concerned about what the ownership structure of the real estate is there as you would be on a green slopes, for example, where you know you’re going to continue to invest. You’re not precluded from it being a leasehold business, but you get more flexibility when you own the freehold obviously. So that’s the philosophical position.

And so where you want to have that balance — I mean, we have leasehold assets in Australia and we continue to invest in those. And sometimes the arrangements are — we’re footing, the bill or others, the landlord is footing the bill and it’s rentalized. And that’s the way it is in Europe as well.

So we don’t have an aversion to it because we have a lot of our hospitals around the world that are in that structure. It’s just, one, whether you need to do it, and two, what you’re giving up to do it. And what you’re giving up, not just short term, but it’s really long term. And you’ve seen different organizations getting into difficulties about that if they haven’t got it structured properly.

John Deakin-Bell — Citi — Analyst

Great. Thanks very much, Craig.

Operator

Your next question is from Chris Cooper of Goldman Sachs. Please go ahead.

Chris Cooper — Goldman Sachs — Analyst

Thanks, Craig and Martyn. Three clarification questions which hopefully should be quite quick. So Craig, on the resilience of the backlog, you said today you’re not seeing any change to your prior expectations. I just wanted to confirm that means you’re still seeing north of 80% of procedures sort of ultimately coming back at some point. I mean, obviously not tomorrow, but maybe in the next sort of two or three years. Sorry to come down on your number, but obviously sort of rangy point to it in the past and I appreciate you’ve probably got a lot more data points through the year so far.

Craig McNally — Managing Director and Chief Executive Officer

Look, just as a principal, I see no change to that going forward. And that’s [Technical Issues] Well, we’re not really sure about what that number is, but…

Chris Cooper — Goldman Sachs — Analyst

And day patients, I mean it’s good that this discussion is moving forward a lot more. You pointed to a 63%, I believe you said of activity in Australia is done in day patients for your operations here. Presumably less in value terms, but as you say, it also grows quicker. So I’m just curious to hear how you’re thinking about capex in the context of some big investment plans over the coming years here. Are you spending more or less than 63%, your day patient mix, on incremental capital expenditure in Australia?

Craig McNally — Managing Director and Chief Executive Officer

I’m going to say it’s less because that 62% is the proportion of procedural volume. So it’s not 62% of our activity, rather[Phonetic] our total activity is day case work. And so when we invest in mental health capacity and services, that’s not related to day surgery. So I wouldn’t line it up that way.

Chris Cooper — Goldman Sachs — Analyst

Okay. If I was to roughly assume 50/50 between day and more traditional settings, would that be rough ballpark?

Craig McNally — Managing Director and Chief Executive Officer

Not necessarily. And I’m just thinking about how to give you an answer that gives you some guidance. No, look, in any single component of the investment, day surgery capacity and theater capacity are the largest components, but it’s broad now. There’s consulting suite developments in that to lock doctors in. There’s investment in digital technology, etc. So I just wouldn’t proportion it that way.

Chris Cooper — Goldman Sachs — Analyst

Okay. And the monthly — I believe, they’re termed COVID-related costs of AUD4 million to AUD5 million now. So you talked a lot about, I guess, the importance of vaccine rollout today. Can I just ask whether that AUD4 million to AUD5 million is sensitive to vaccines in any way? Or would you advise that we just assume that run rate continues through to the start of fiscal ’23?

Martyn Roberts — Group Chief Financial Officer

I think the latter is the best assumption, Chris. It does fluctuate from month to month. I mean, when we are not in lockdown situations, we can sort of — we don’t need to have the screen at the front of the hospitals, taking temperatures, etc. But then as soon as there is any kind of activity around, we have to put those people back on again. So it does jump around a bit, but I think that’s the kind of the run rate that we anticipate certainly for the foreseeable future.

Chris Cooper — Goldman Sachs — Analyst

Understood. Thanks very much.

Operator

Your next question is from David Bailey of Macquarie. Please go ahead.

David Bailey — Macquarie — Analyst

Sorry, just one quick follow up. Payout ratio is nearly 80% in the fiscal ’21 result. How should we think about the dividend and dividend payout ratio going forward?

Martyn Roberts — Group Chief Financial Officer

Not necessarily that amount. So, as Craig said in his speech, this was really a particular dividend where we wanted to recognize our loyal shareholders that have been with us over the pandemic. And it’s a pandemic-impacted result, so we wanted to pay a dividend back to FY ’19 levels. It will all depend on what the activity and what our profit looks like in FY ’22. So the Board will make those deliberations as normal, but you shouldn’t necessarily just extrapolate the 79% payout ratio going forward.

Craig McNally — Managing Director and Chief Executive Officer

Yeah, absolutely not.

David Bailey — Macquarie — Analyst

Thanks, guys.

Operator

There are no further questions at this time. I’ll now hand the call back to Mr. McNally for closing remarks.

Craig McNally — Managing Director and Chief Executive Officer

Okay. Thanks everybody for taking the time to listen. So, have a good day. Bye.

Operator

[Operator Closing Remarks]