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Introduction

Giri Tenneti, Senior Manager, Listed Company Services, ASX, spoke to Melinda McGrath, CEO of Australian Clinical Labs.

 

Giri Tenneti: Good morning, Melinda. Thanks for joining us at On the Board at ASX. By way of introduction, Australian Clinical Labs successfully listed on ASX back in May 2021, having raised just over $400 million, which gave you a market capitalisation at the issue price of around $800 million. You've had a good run to date, with your market cap over a billion dollars, so congratulations on that.

Melinda McGrath: Thank you.

 

Giri Tenneti: First of all, could you give us an overview of the business and what it looks like today?

Melinda McGrath: Of course. Australian Clinical Labs is the only pure-play pathology provider on ASX. We are the combination of five pathology organisations that we've integrated on to a technological platform that is unified across the country. 

What that means is we get operating leverage and market advantage from working as one integrated company. All the pathologists and scientists’ work, the instruments, the automation, machine learning and laboratory information systems … all interlink and work across the country. And then interface with the hospitals and medical practices we serve.

We are able to get operating leverage from operating nationally. If you think about it, it's a bit like having five banks. If you chose not to integrate them, you wouldn't get the benefits from a market or an operating point of view that you would if you did integrate them. 

From our point of view, for our peers to catch up to us, there are significant structural barriers because they have revenue risk, clinical risk, and operational risk. So, we see a significant advantage from the operating system.

 

Giri Tenneti: Could you tell us a little bit about why you chose to list and what the key considerations were around listing?

Melinda McGrath: We came from a private equity background. The initial investment was in Healthscope Pathology, which was pulled out of the Healthscope Pathology business that was listed at the time. 

We have a fantastic relationship with the PE (private equity) guys, but we outgrew their mandate, and listing provided us with access to capital and also liquidity. So those were the key considerations.

The PE company remains a major shareholder in the business, and we have shared vision, values, goals and mutual respect. We continue to work with them, but it [the ASX listing] enabled us to operate on a grander scale than we could have before.

 

Giri Tenneti: So, what you're saying about the private equity influence over the past listing is that you just outgrew the private equity space?

Melinda McGrath: The listing provided us with the ability to work on a grander scale, and we haven't really changed the way we work. We are very entrepreneurial and agile and strive for efficiency and effectiveness. We focus on our customers and that's all we did before we listed. And we've demonstrated excellent stewardship of our investors' money. So, really, we haven't changed a lot. We've just changed our ability to grow at the rate we want to grow.

 

Giri Tenneti: It certainly helps, I suppose, that you have beaten prospective forecasts. What would your advice be if you were speaking to founders or even CEOs from private equity portfolio companies like yours if they were considering a listing?

Melinda McGrath: Well, I wouldn't really give advice to other CEOs because every situation is different. But from our point of view, it's a lot about consistency and trust and doing what you say you are going to do. That's the same in any management environment. It's just on a more public scale.

Before listing, there's a lot of work in gaining the trust of investors and there's a lot of work for the finance people. Post-listing, everyone tells you it's a lot of work. It's a bit different, but it's not this amazing change people tell you about beforehand. 

From my point of view, there is this need to focus on explaining our vision, explaining our plans, getting people to understand the business, and then executing well. And from that, people have confidence and trust in you, and you get further backing from them. That's probably just my observation rather than advice.

 

Giri Tenneti: And having said that, you are focusing on explaining that vision. Would you be able to share a little bit of that with us, your long-term strategy and where you see your business going?

Melinda McGrath: Well, firstly, the underlying growth in the industry in normal times is 4% to 6%. So, organic growth is very strong on a normal basis. 

Having right-sized our footprint, managed our costs well, and integrated the business – the revenue that grows, and we have seen this during the pandemic – we are getting great operating leverage from that. So, that 4% to 6% is normally there.

Then we've made acquisitions post-listing in the last year, and we'll grow above market in the key eastern states, we believe. We've entered Queensland and are now a national provider except for Tasmania. 

We believe we will have access to national tenders because we have a seamless technology system that national providers want. So, we think we'll grow there. 

And, of course, as we have such experience at acquisitions and integrating and getting benefit from them, we'll be looking to grow via acquisitions, both onshore and potentially offshore.

 

Giri Tenneti: It sounds like you are well on your way to keep succeeding. So, Melinda, I'd like to thank you for coming on to On the Board and wish you all the best for ACL.

Melinda McGrath: Thanks very much.