COMPUMEDICS LIMITED — Annual Report 2018

Oct 8, 2018

Sleep Diagnostics & Treatment - Neuro Diagnostics - Brain Research - Ultrasonic Blood Flow Monitoring1

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Who is Compumedics?

A leading global, innovative developer and manufacturer of medical devices for:

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Monitoring Ultrasonic monitoring neurological disorders Diagnosing Highly sophisticated of blood flow through including long-term sleep disorders brain research the brain (Transcranial epilepsy monitoring Doppler [TCD]) (LTEM) A technological leader in its chosen markets: #3 USA sleep #1 China sleep diagnostic device #1 Australian sleep & #1Japan sleep diagnostic device supplier and emerging neuro diagnostics diagnostics device supplier to premier #3 supplier for device supplier supplier facilities & #1 TCD neurological device supplier monitoring devices FY18 revenues $37.0m, FY17 EBITDA $4.2m. FY18 Guidance revenues $40m to $42m, EBITDA $5.5m to $6.5m.

A technological leader in its chosen markets:

130 employees across four locations, Melbourne, Australia (Head Office), Charlotte, NC, USA, Hamburg and Singen, Germany.

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Compumedics listed ASX Dec 21, 2000. CMP has market capital of around $90m.

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All $ = A$ unless otherwise specified

2

FY2018 – Performance Review

▪ FY17 Revenue (reported) $37.0m, EBITDA (reported) $4.2m, NPAT (reported) $2.8m

	FY18	FY17	Variance	Comment
Revenue - reported	$37.0m	$34.4m	8%	Sales growth across key international markets for the core business, including China, Europe, DWL and US. Partial booking of first MEG sale.
EBITDA - reported	$4.2m	$2.8m	55%	Profitability grows as a result of the growth in sales and also on-going operational improvements and efficiency gains. Margins improve 2% over the pcp to 57%.
NPAT-reported	$2.8m	$1.3m	113%	Strong growth in NPAT despite $0.7m charge to tax expense as tax losses continue to be utilised as reflected by the decline in the deferred tax asset.

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3

FY2018 – Performance Review

• Core: US business grows 8%, albeit at slower rates than expected. Europe and DWL also grow in FY18, compared to FY17

• Core: Asia business and China in particular strong with 28% lift in sales over pcp.

• Core: Profitability grows as a result of the overall growth in sales, including the partial invoicing of the first MEG sale. The selective outsourcing of production, along with other efficiency gains also contributes to growth in profitability at the EBITDA and NPAT lines

• MEG growth initiative: First sale to Barrow Neurological Institute in Phoenix, AZ, USA, is currently being installed with completion expected before the end of H1 FY19. Further MEG opportunities identified with 3 identified sales in the advanced stages of negotiation.

• –

• eHealth growth initiative 16 sites, with over 123 beds in US secured for Nexus 360 (professional application), which generated $285k (USD220k) of sales in FY18.

• Somfit (consumer application) detailed third party discussions continue in relation to the proposed China based JV and other opportunities..

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4

Sales Bridge Chart – FY17 versus FY18

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40
35
30
25
20
15
10
5
0
Sales FY17 USA Aust Asia Europe Sales FY18
Fall Rise
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5

EBITDA movement – FY17 versus FY18

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6
5
4
3
2
1
0
EBITDA FY17 Sales Margin Expenses Other FX EBITDA FY18
Revenues
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Fall Rise

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6

Revenue Composition at $37.0m 30 June 2018

By geographic region

By product/market

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Europe,
21% USA,
32%
Asia,
Aust,
33%
14%
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Tech.
Supply
Service,
Items, 9%
Brain 9%
Blood
Flow,
17% Sleep,
33%
Brain Res,
18%
Neuro,
14%
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Software upgrades 5 to 10% of system sales

Compumedics sells directly to end-user customers in Australia, USA and Germany and through its network of more than 50 distributors to all other parts of the world

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7

Growth Platform – Core and Step-Out

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Sales – schematic only
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FY18F FY19F FY20F FY21F FY22F
Core - Base Core - Sleep/Neuro (Mid Market) Neuro - MEG Sleep - eHealth (Nexus360 & Somfit)
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• Step-out - NEURO – BRAIN IMAGING – Installation at Barrow Neurological Institute in Phoenix, AZ, USA is continuing and is scheduled for completion H1 FY19. It confirms that we can transition from a USD30k software sale to a USD4.0m complete system sale. 2[nd] and third sales opportunities being actively pursued.

• Step-out - SLEEP - CLOUD GROWTH – Nexus 360 cloud-based professional sleep diagnostic solution sold to 16 sites and generated sales of $285k in FY18. Other sites in the US being pursued, with an exit run-rate on revenues for FY19 or about $1m. China Somfit JV negotiations continue.

• Core - SLEEP & NEURO – DIAGNOSTIC GROWTH – Mid-market devices released and expansion in China is moving ahead at expected rates whilst the US expansion is occurring, albeit at a slower rate than expected. A further boost in sales in Europe and specifically Germany will follow as a specific focus

• *MEG = Magnetoencephalography

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8

Core Business – Premium Focus

	Sleep Diagnostics	Neuro Diagnostics – Clinic	Neuro Diagnostics - Research	Brain Blood Flow Diagnostics
Global market – USD pa	250m	1,300m	20m	15m
Compumedics
market share	6%	<1%	30%	35%
(approximate)
Compumedics market position	Aust – 1 USA – 3 China - 1	Aust – 1 USA – 3 China - 1	Aust – 1 USA – 1 China – 1	Aust – 1 USA – 2 China – 1 Germany – 1
Business and product type	Capital equip – hardware and software	Capital equip – hardware and software	Capital equip – hardware and software	Capital equip – hardware and software
Annuity revenues –
~ % of total –	15%	10%	5%	5%
supplies & support

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9

Core Business – Growing revenues and profits

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40,000 6,000
35,000 5,000
30,000 4,000
25,000 3,000
20,000 2,000
15,000 1,000
10,000 -
5,000 -1,000
- -2,000
2012 2013 2014 2015 2016 2017 2018
Revenues EBITDA
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1.2000 AUD/USD exchange rate
1.0324 1.0271
1.0000 0.9188
0.8386
0.7751
0.7426 0.7424
0.8000
0.6000
0.4000
0.2000
0.0000
2012 2013 2014 2015 2016 2017 2018
AUD/USD Exchange rate
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10

Core Business – Net Cash Position maintained

$m	FY12	FY13	FY14	FY15	FY16	FY17	FY18
Cash	1.1	1.3	1.1	2.2	3.1	4.1	3.9
Trade receivables	8.7	8.1	8.6	9.8	11.9	13.1	18.3
Inventories	5.3	5.5	6.1	5.7	6.5	7.4	7.6
Prod. dev’t	4.0	3.5	2.9	2.7	2.4	2.4	4.0
Tax asset	0.0	0.0	0.0	0.0	0.5	0.8	0.1
PP&E	0.8	0.7	0.7	0.8	0.8	0.7	0.7
Other	0.0	0.0	0.2	0.5	0.9	0.7	0.0
Assets	19.9	19.1	19.5	21.7	26.1	29.2	34.7
Trade cred.	5.0	4.7	4.7	4.4	4.1	4.2	5.1
Borrowings	2.1	2.3	2.0	2.0	2.6	0.7	1.9
Def. payment	1.4	1.4	1.4	1.6	2.0	1.6	1.7
Other	2.1	2.2	2.3	2.5	2.8	2.7	2.7
Total Liabilities	10.7	10.7	10.4	10.4	11.5	9.2	11.5
Net Assets	9.2	8.4	9.2	11.3	14.6	20.1	23.2
Debt/Equity	11%	13%	11%	-2%	-3%	-17%	-9%

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11

Core Business – Adding Mid-Tier Range

Product	Used for	Bought by	Average selling price
Grael family	Sleep and neurology, high end and price sensitive models	Hospitals, doctors and service providers	USD11,500 to USD17,500
Somte PSG	Sleep	Hospitals, doctors and service providers	USD10,000
Siesta	Sleep and neurology	Hospitals, doctors and service providers	USD18,000
Neuvo LTM	Neurology	Hospitals, doctors and service providers	USD35,000
Synamps RT	Brain Research	Universities and teaching hospitals	USD38,000
CURRY	Brain research and neurology	Universities, teaching and regular hospitals	USD20,000

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Next Generation Growth – Core and Step-out

	Sleep Diagnostics	Neuro Diagnostics – Clinic	Neuro Diagnostics - Imaging	Brain Blood Flow Diagnostics
Next generation growth platform	Cloud based sleep diagnostic platforms for both professional and consumer applications	Long term epilepsy market penetration into US, Europe and Asia	Leverage CURRY software into full MEG solution with KRISS	Leverage existing TCD technology and patent to Traumatic Brain Injury (TBI) application
Market potential	Professional application > USD3bn pa Consumer application > USD50bn pa	Greater than USD100m pa	Research only USD100m pa Brain Imaging >USD4bn pa	Estimated cost of TBI’s in the US alone greater than USD76bn pa
Business type	Services – fee per service	Capital equipment – bigger market	Capital equipment & Partnership – new market	Mixture of equipment and service fees

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13

Core Business - Growth Drivers

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~~Compumedics/NeuroScan LTEM innovative brain analysis software and high performance~~ amplifiers are unrivalled world class technology. With the release of new innovative electrode array designs, a larger growth is anticipated in direct sales, with a resulting increase in the sales of ~~high-density EEG systems~~

We have >20,000 systems installed worldwide. Strong reputation and brand name. Customers like buying from Compumedics.

Earnings initiatives to continue to flow through in FY19 – FY21. Lower cost base enables addition of mid-tier plus further manufacturing and operational efficiency gains.

Opportunity to significantly grow the USA business based on the sales and marketing management and operational changes now implemented

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Expansion into untapped German market, as well as Canada, Latin America and the Middle East

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Push into the Chinese and Japanese neurology markets

Ideally positioned to accelerate organic growth and value realisation

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USA – CMP is number 3 Supplier USA Clinical Sales Force Expansion - Indicative More sales representatives = more revenue for both sleep and neurology

Past FY2018 to now FY2019

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USD3.0m USD4.0m USD7.0m

FY2020

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USD11.0m

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China - We are the number 1 Premier Supplier Compumedics Clients in China

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Sleep
Neuroscience
2
Neuroscan 28
5
Xin Jiang Helongjiang
Inner Mongolia 2 Jilin
Beijing 88 2 Liaoning
23
Ningxia Qinhuangdao
China Sales (invoiced) – USD’s QingHai2 3 3 HeBei 10 3 Tianjin Dalian
16
7.6 Gansu 14 HeNan 12 Welfang
Shandong
Shaanxi 6 Rizhao
6.0 6.2 SiChuan Jining
5.6 JiangSu
10 HuBei 5 11 Shanghai
18 2 13 14 Suzhou 49
3.8 Chongqing AnHui 34 6 Zhejiang
YunNan GuiZhou 4 Nanchang
2 2 Changsha 26
Fujian
GuangXi GuangDong
27 2 Xiamen
8
Shenzhen
FY14 FY15 FY16 FY17 FY18
Hong Kong
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16

Step out 1 - Brain Imaging: 1[st] sale secured

Opportunity Market & Competition Plan Outcome CMP’s CURRY brain analysis The MEG market is currently H1 FY19 – complete CMP plans to sell software is already the gold estimated at about 20 systems a first installation at US and install 1 MEG standard for the MEG* year at an average selling price of based Barrow systems in market USD4.0m each = US$80m/annum Neurological Institute FY18/FY19 MRI is too slow to capture This is expected to grow about 10% Late H1. Early H2 FY19 CMP expects to dynamic brain activity a year, excluding China – Secure second MEG sell at least 2 MEG needed for alzheimer's et al It is estimated that China could more sale systems in FY20 CMP’s agreement with than double the existing market size H2 FY19 – Additional CMP expects to KRISS provides access to a to about 50 units a year, with clinical and new MEG sales double sales in new and superior hardware reimbursement are pursued for FY21 to 4 to 5 MEG platform closure systems for about The dominant existing player is USD20m Compumedics can access a Elekta, based out of Sweden, Late FY19 / Early FY20 complete MEG sale (circa followed by Yokogawa/Ricoh – gain FDA for MEG in USD3 to 4m each) as (Japanese market) and CTF MEG (a US for clinical opposed to the USD30k much smaller player) application software sale**

*MEG = Magnetoencephalography

**MRI = Magnetic resonance imaging

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17

Step out 2 - eHealth – Cloud Sleep Diagnostics

Nexus 360	Operational systems have been	Compumedics are now	Key partners
(professional	developedfor the cloud based	approaching	being pursued
cloud sleep	capture, transfer	a select group of	continue to
diagnostics) sold	and translation of medical grade	strategic	include web,
into 16 US sites.	sleep parameters from any web-	partners/investors	telco, eHealth,
Has generated	enabled device. The system can	to expedite the	consumer
revenues of	then store, analyse and interpret	process and rapidly	health/
$285k in FY18.	that data	deploy the platform to	electronics
US will continue	in a simple and actionable	market. Discussions	providers
to offer	manner, reducing the need for	continue on the	and device
opportunities in	on-site professionals.	proposed JV in China	manufacturers.
the short-term,		with Health 100
with an expected
exit revenue run-
rate of $1.0m for
FY19

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18

Directors & Executive Team Key Management

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Alan Anderson Ph.D. Non Executive Director CMP Tenure : 18 yrs

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Mr Tucson Dunn Non Executive Director CMP Tenure 6 months

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David Burton, Ph.D. Executive Chairman, CEO Founder, Tenure 31yrs

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Mr. David Lawson Chief Financial Officer & Company Secretary CMP Tenure 19 yrs

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Mr. Warwick Freeman Chief Technology Officer CMP Tenure 25 yrs

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Kerry Hubick, Ph.D. Trademark, Patent & General Legal Attorney CMP Tenure 10 yrs

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Mr. Christoph Witte General Managing Director Compumedics Germany GmbH CMP/DWL - Tenure 28 yrs

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19

Investor Summary

Core business profitable with on-going growth opportunities in key global markets

Compumedics remains committed to continuing to deliver superior returns to shareholders

Spin off/strategic decisions to unlock significant value, provide funds for growth and potentially capital returns to shareholders

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International sales force

expansion, neurology and sleep market opportunity and earnings improvement initiatives to continue to drive growth of core business

Brain imaging and e-Health are the next steps Moving 25+years and $100m+ in cumulative R&D to a modern platform to solve massive and growing problems of neuro imaging in clinic and sleep disorders in the home

FY19 guidance: Sales $40m-$42m, $5.5m-$6.5m EBITDA, NPAT $4.0m-$5.0m

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Disclaimer

This presentation has been prepared by Compumedics Ltd (CMP). While the information in this presentation has been prepared in good faith and with reasonable care, no representation or warranty, express or implied, is made as to the accuracy, adequacy or reliability of any statement, estimates, opinions or other information contained in the presentation.

This presentation may contain forward looking statement. These forward-looking statement have been made based upon CMP’s expectations and beliefs concerning future developments and their potential effect on CMP (and it’s controlled entities) and are subject to risks and uncertainty which are, in many instances, beyond CMP’s control. No assurance is given that future developments will be in accordance with CMP’s expectations. Actual results could differ materially from those expected by CMP.

This presentation does not constitute an offer to sell or a solicitation of an offer to purchase any security or financial product or service. Any such offer or solicitation shall be made only pursuant to a Product Disclosure Statement, Information Memorandum, Prospectus or other offer document relating to a financial product or service.

Past performance is not necessarily indicative of future results and no person guarantees the performance of any financial product or service or the amount or timing of any return from it. There can be no assurance that the financial product or service will achieve any targeted return, that asset allocations will be met or that the financial product or service will be able to implement its investment strategy and investment approach or achieve its investment objective.

The information contained in this presentation is not intended to be relied upon as advice to investors or potential investors, who should consider seeking independent professional advice depending upon their specific investment objectives, financial situation or particular needs.

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