HEALIUS LIMITED - Annual Report 2014

Results for announcement to the market

Primary Health Care Limited

ACN 064 530 516

Appendix 4E – Preliminary Final Report For the year ended 30 June 2014

CONTENTS	PAGE
Review of operations	3
Directors’ report	8
Auditor’s independence declaration	28
Independent auditor’s report	29
Directors’ declaration	31
Income statement	32
Statement of comprehensive income	33
Balance sheet	34
Statement of changes in equity	35
Cash flow statement	37
Notes to the financial statements	38
Shareholder and corporate information	79
Compliance statement	81

Primary Health Care Limited

Appendix 4E – Preliminary Final Report

Results for announcement to the market

For the year ended 30 June 2014

	% change	2014	2013
$000	2014 vs 2013	Total	Total
Revenue	6%	1,524,115	1,440,036
EBITDA		399,092	381,168
Depreciation		62,899	60,613
EBITA		336,193	320,555
Interest expense		62,175	72,029
Amortisation of borrowing costs		9,572	4,529
Amortisation of intangibles		31,055	28,657
Income tax expense		70,837	65,275
Profit for theyear after tax	8%	162,554	150,064
Attributable to non-controllinginterest		18	(47)
Profit attributable to members of theparent entity	8%	162,536	150,111

	2014	2013
CENTS PER SHARE	Total	Total
Basic earningsper share - total	32.2	29.9
Final dividend 2,3	11.0	11.0
Interim dividend2	9.0	6.5
	20.0	17.5

1 Diluted earnings per share is materially consistent with basic earnings per share.

2 All dividends paid were 100% franked at the corporate income tax rate (2014: 30%; 2013: 30%).

3 The record date for determining entitlement to the final dividend is 29 August 2014 and is payable on 15 September 2014.

2 Primary Health Care Limited Appendix 4E – Preliminary Final Report 2014

Review of operations for the year ended 30 June 2014

The Directors of Primary Health Care Limited (“Primary”) announce the results for the financial year ended 30 June 2014 (“FY2014”).

Key points of the results are:

EBITDA up 4.7% to $399.1m (2013: $381.2m)
Medical Centres margin gain of 80bps
NPAT up 8.3% to $162.5m from $150.1m (up 10.3% to $165.5m excluding refinance charge of $3.0m)
EPS up 7.7% to 32.2 cps from 29.9 cps (up 9.7% excluding refinance charge of $3.0m)
Refinance of bank debt at improved margins
Full year dividend up 14.3% to 20.0 cps (2013: 17.5 cps) fully franked.

Operating overview

Primary has delivered a solid trading result for FY2014 with 8.3% NPAT growth, and 7.7% EPS growth. The results include a $3.0m non-cash after-tax charge for borrowing costs expensed on the expiring bank debt facility, following the successful early refinance in November 2013. Excluding this $3.0m charge, NPAT was up 10.3% and EPS was up 9.7% on the prior corresponding period.

Highlights of the trading result are the following key indicators:

Medical Centres EBITDA growth of 8.3% in the second half of FY2014 over prior corresponding period (“pcp”)
– Medical Centres EBITDA margin up 80 bps to 56.8%
Pathology EBITDA growth of 6.0% to $156.7m and revenue growth of 6.1%
Imaging EBITDA growth of 7.2% to $73.0m and revenue growth of 7.7%.

Outlook

The possible introduction of some form of co-payment for some classes of patients for some GP services may impact GP practices across Australia. It is not possible to predict with certainty whether a co-payment will be introduced and, if so, the consequences, but the greater efficiency of large-scale centres such as Primary's should assist Primary to adapt to any changes. If some form of co-payment system were introduced, that may challenge some small practices and create opportunities for Primary.

Change has always been an opportunity for Primary. This started with the initial introduction of bulk billing to the community 30 years ago and, more recently, the deregulation of licensed collection centres for Pathology, and the need for affordable IVF with changing community needs.

Primary has adapted, and always will adapt, to changes in the healthcare environment and community needs. It is possible that these changes may be more rapid in the next few years so that Primary may refine its models of service provision and practice acquisition, including in relation to GP and specialist practitioners outside of our large-scale medical centres. As and when the picture is clearer Primary will undertake a full review of the evolving regulatory and commercial landscape, changes that might be made to Primary's business models, and the whole range of regulatory consequences of any changes.

Primary is well positioned for future growth via:

Underlying organic growth
New medical centre sites roll-out FY2016 and beyond
New services e.g. IVF
Opportunities for backfilling and bolt-on acquisitions
Outsourcing opportunities in Pathology and Imaging

Primary expects EBITDA for FY2015 to be in the range of $410 million to $425 million, resulting in EPS growth of between 5% and 12%. This guidance range necessarily adopts a conservative view given the uncertainty facing the sector under the Federal Government's proposed co-payment initiatives, and any potential short-term flow-on impacts to patient volumes that this uncertainty may bring.

3 Primary Health Care Limited Appendix 4E – Preliminary Final Report 2014

Review of operations for the year ended 30 June 2014

	YEAR ENDED	YEAR ENDED
$M	30 JUNE 2014	30 JUNE 2013
Operating Revenue
Medical Centres	309.6	300.8
Pathology	887.4	836.3
Imaging	316.1	293.4
Health Technology	37.2	37.0
Corporate	4.1	1.6
Intersegment	(30.3)	(29.0)
Total	1,524.1	1,440.0
Operating EBITDA
Medical Centres	175.8	168.4
Pathology	156.7	147.8
Imaging	73.0	68.1
Health Technology	20.2	20.2
Corporate	(26.6)	(23.3)
Total	399.1	381.2
Margin
Medical Centres	56.8%	56.0%
Pathology	17.7%	17.7%
Imaging	23.1%	23.2%
Health Technology	54.3%	54.6%
Total	26.2%	26.5%

Medical Centres

EBITDA for the Medical Centres division was $175.8m, compared with $168.4m for the prior year. The EBITDA margin for FY2014 was 56.8%, compared with 56.0% for the prior year. EBITDA increased from $84.7m 1HFY2014 to $91.1m 2HFY2014. The effect of dental funding changes in December 2012 flattened overall Medical Centres growth for 1HFY2014 over pcp. The second half result was pleasing particularly given the headwind of the annual Medicare fee increase being delayed from 1 November 2013 to 1 July 2014.

A total of 71 medical centres, including 58 large-scale Primary centres, are now in operation. Primary is now actively looking for 8 new medical centre sites to add to its 58 large-scale centres. These will not be operational before FY2016.

Primary will continue to add services to its current centres. These centres have significant existing capacity for additional services, providing a strong platform for future growth. An example of Primary extending its service offering is the IVF clinic which successfully opened in July 2014. Primary upgraded and relocated its oldest and largest medical centre at Warringah, New South Wales, to a new site in the year. The new facility provides further long-term growth for the centre and is operating successfully. It contains expanded services including an MRI facility.

Primary now has 15 registrars practising in its centres and 74 accredited supervisors. Along with the clinical education provided by the Primary Training Institute, this is a very significant commitment to quality and training.

GPs and other professionals continue to join the Group on a consistent basis. FY2014 has seen the decrease in the average acquisition cost of practices to Primary continue, as has now been the case for 18 months.

4 Primary Health Care Limited Appendix 4E – Preliminary Final Report 2014

Review of operations for the year ended 30 June 2014

Pathology

EBITDA for the Pathology division was $156.7m, compared with $147.8m for the prior year. The EBITDA margin for FY2014 was 17.7%, consistent with the prior year. The Pathology division’s revenue growth of 6.1% in the financial year reflects primarily organic revenue growth. During the year Primary entered the Tasmanian pathology market with an organic start-up operation, and now provides service in all States in Australia. It is expected this new market will contribute positively to the EBITDA of the division by 2HFY2015. Combined with the continued roll-out of collection centres during the year, this has provided a constraint on margin growth during the second half of the financial year.

The improvement in the operating performance of the Pathology division over the past three financial years has been strong and sustained, delivering a Compound Annual Growth Rate (CAGR) of 6.2% revenue and 9.7% EBITDA.

Pathology volumes in recent months have, however, been subdued.

Imaging

EBITDA for the Imaging division was $73.0m, compared with $68.1m for the prior year. The EBITDA margin for FY2014 was 23.1%, compared with 23.2% for the prior year. Revenue for FY2014 grew 7.7%. MRI revenue has been strong since Medicare funding changes in November 2013.

During the year the division successfully tendered for immigration visa medicals and this work has commenced in August 2014.

Wage and productivity gains are slow and long-term, though industrial action in Victoria in 2HFY2014 had a negative effect on the results. The improvement in the operating performance of the Imaging division over the past three financial years has delivered an EBITDA CAGR of 18.9%.

FY2014 includes an adjustment for the adoption of accounting standard AASB 11 Joint Arrangement on 1 July 2013, which reduced reported FY2013 EBITDA by approximately $4m, with no effect on reported EPS.

Health Technology

EBITDA for the Health Technology division was $20.2m, compared with $20.2m for the prior year. The EBITDA margin for FY2014 was 54.3% compared with 54.6% for the prior year. Subscription renewal rates improved for all general practitioner and specialist software products. Primary is currently focused on improving the products and services for both external and internal users.

Depreciation and amortisation

Depreciation expense was up 3.8% at $62.9m for the year, compared with $60.6m for the prior year. This is consistent with the Group's strategy of utilising its current infrastructure footprint.

Amortisation of intangibles was $31.1m compared with $28.7m for the prior year. This increase reflects the Group's continued investment in its information technology software platforms to both aid revenue growth and obtain operating efficiencies across the Group.

Finance costs

On 27 November 2013 Primary completed financial close on the refinancing of the Group’s syndicated bank debt facility, which was due to mature in February 2015. The $1.25bn refinancing provides an extended bank debt maturity profile for Primary as follows:

a $625m, three year two months non-amortising facility, maturing January 2017; and
a $625m, five year non-amortising facility, maturing November 2018.

Margins payable on the facility are improved on prior terms. The facility is also sufficient to provide funds for the repayment of the $152m Primary retail bonds maturing in September 2015.

A majority of Primary's bank debt interest has been hedged for FY2015 and FY2016. The average fixed rates payable on hedged bank debt (excluding margin payable to bank) are 3.23% and 3.35% respectively for FY2015 and FY2016. The

5 Primary Health Care Limited Appendix 4E – Preliminary Final Report 2014

Review of operations for the year ended 30 June 2014

interest rate payable on Primary's retail bonds of $152m is hedged to maturity in September 2015 at an all-in rate, including margin payable to bond holders, of 8.75%.

Amortisation of borrowing costs

During FY2014, unamortised borrowing costs on the previous expiring syndicated bank facility of $4.1m ($3.0m after tax) were charged to the income statement and included in amortisation of borrowing costs of $9.6m, upon the early refinance of Primary’s syndicated bank debt.

Taxation

The effective tax rate on operating earnings for the year was 30.3%.

Balance sheet

The Group's net assets increased by 2.6% compared with the previous year, which is largely attributable to the current year's profit after tax.

Bank Covenants

As at 30 June 2014, Primary has two bank facility covenants, being a gearing ratio and an interest cover ratio. As at 30 June 2014, the gearing ratio, as calculated by bank facility definitions, was 2.32 times and well within the bank covenant requirement to be below 3.25 times. As at 30 June 2014 interest cover, as calculated by bank facility definitions, was 6.45 times and well within bank covenant requirement to be above 3.0 times.

Dividend

The final dividend will be 11.0 cents per share fully franked, payable on 15 September 2014. The record date for determining entitlement for the final dividend is 29 August 2014. A Dividend Reinvestment Plan and Bonus Share Plan will continue to be in place with a 2.5% discount.

This increases the dividend pay-out ratio from 58.7% in FY2013 to 62.1% in FY2014 and reflects both the improving financial results of Primary and the confidence of the Board in the future operations.

6 Primary Health Care Limited Appendix 4E – Preliminary Final Report 2014

Primary Health Care Limited Financial Report For the year ended 30 June 2014

7 Primary Health Care Limited Appendix 4E – Preliminary Final Report 2014

Directors’ report for the year ended 30 June 2014

The Directors of Primary Health Care Limited submit their Directors’ Report for the financial year ended 30 June 2014 (referred to as “the year” or “FY2014”), accompanied by the Financial Report of Primary and the entities it controlled from time to time during the year (referred to as “Primary”, “the Company” or “the Group”). In order to comply with the provisions of the Corporations Act 2001 , the Directors’ report as follows:

Directors

The Directors of Primary during and since the end of FY2014 were:

Mr Robert Ferguson
Mr Brian Ball
Dr Edmund Bateman
Mr Henry Bateman
Mr James Bateman
Mr Andrew Duff
Dr Paul Jones
Dr Errol Katz
Ms Arlene Tansey

Details of the qualifications and experience of each of the Directors are set out on pages 10 to 12 of this Report.

Group Company Secretary

Details of the qualifications and experience of Ms Yvette Cachia, the Group Company Secretary are set out on page 12 of this Report.

Directors’ meetings during FY2014

The number of meetings of the Board and of each Board committee held during FY2014 and the number of meetings attended by each Director are set out below:


2014	BOARD OF DIRECTORS		AUDIT COMMITTEE		NOMINATION AND REMUNERATION COMMITTEE		RISK MANAGEMENT COMMITTEE
	HELD	ATTENDED	HELD	ATTENDED	HELD	ATTENDED	HELD	ATTENDED
R Ferguson	12	12	2	2	4	4	N/A	N/A
B Ball	12	12	2	2	4	4	N/A	N/A
E Bateman	12	12	2	2*	N/A	N/A	N/A	N/A
H Bateman^	12	10	N/A	N/A	N/A	N/A	3	3
J Bateman^	12	11	N/A	N/A	N/A	N/A	3	3
A Duff	12	12	2	2*	N/A	N/A	3	3
P Jones	12	12	2	2	N/A	N/A	3	3
E Katz	12	12	2	1*	4	4	3	3
A Tansey^	12	11	2	2	4	4	N/A	N/A

Notes:

Attended meetings by invitation.

^ The Director missed one meeting of the Board approving an item of business arising from previous meetings of the Board, at which the Director attended where the business was considered, reviewed, and discussed by the Board.

8 Primary Health Care Limited Appendix 4E – Preliminary Final Report 2014

Directors’ report for the year ended 30 June 2014

The Audit Committee for FY2014 comprised: Mr Brian Ball (Chair), Mr Rob Ferguson, Dr Paul Jones, and Ms Arlene Tansey.

The Nomination and Remuneration Committee for FY2014 comprised: Mr Rob Ferguson (Chair), Mr Brian Ball, Dr Errol Katz, and Ms Arlene Tansey.

The Risk Management Committee for FY2014 comprised: Dr Errol Katz (Chair), Mr James Bateman, Mr Henry Bateman, Mr Andrew Duff, and Dr Paul Jones.

Significant change in the state of affairs

There was no significant change in the state of affairs of the Group during the year.

Principal activities

During the year, the principal continuing activities of the Group were:

a medical centre operator;
diagnostic imaging services;
a provider of pathology; and
a provider of health technology.

As a medical centre operator, the Group provides a range of services and facilities to general practitioners, specialists, and other health care providers who provide services from its medical centres. Further details of these activities can be found on page 48 of this Report.

Review and results of operations

A review of the operations of the Group during the year, and the results of those operations, can be found on pages 3 to 6 of this Report.

Events after the end of the year

There has not been any matter or circumstance that has arisen since the end of the financial year which, in the opinion of Directors, has significantly affected, or may significantly affect, the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years.

Future developments

Disclosure of information regarding likely developments in the operations of the Group in future financial years and the expected results of those operations other than that disclosed in this Report is likely to result in unreasonable prejudice to the Group. Accordingly, no further information is included in this Report.

Dividends

In respect of FY2014:

an interim dividend of 9.0 cents per share (100% franked), was paid to the holders of fully paid ordinary shares on 7 April 2014; and
the Directors have approved the payment of a final dividend of 11.0 cents per share (100% franked), to the holders of fully paid ordinary shares, the record date being 29 August 2014, payable on 15 September 2014.

Primary operates a Dividend Reinvestment Plan (DRP) and a Bonus Share Plan (BSP). During FY2014, shares issued pursuant to the DRP and BSP were 1,693,557 (2013: 2,101,907) and 44,446 (2013: 102,720) respectively.

Rounding off of amounts

Primary is of a kind of entity referred to in ASIC Class Order 98/0100, dated 10 July 1998, and in accordance with that Class Order, amounts in the Directors’ Report and the Financial Report are rounded off to the nearest thousand dollars, or where the amount is $500 or less, zero in accordance with that Class Order.

Shares under option

Options are held by both employees and independent contractors of the Group. Details of all unissued ordinary shares of Primary under option at the date of this Report are set out below. No option holder has any right under the options to participate in any other share issue of Primary or of any other entity.

9 Primary Health Care Limited Appendix 4E – Preliminary Final Report 2014

Directors’ report for the year ended 30 June 2014


2014	OPENING BALANCE	EXERCISED DURING YEAR	LAPSED DURING OR SINCE THE END OF THE FINANCIAL YEAR	CLOSING BALANCE
Issue 15	1,061,000	-	(20,000)	1,041,000
Issue 16	747,000	-	(32,500)	714,500
Issue 17	535,500	-	-	535,500
Issue 106	50,000	-	(50,000)	-
Issue 107	25,000	-	(25,000)	-
Issue 108	30,000	-	(30,000)	-
Issue 110	392,500	-	(392,500)	-
Issue 112	887,500	-	(307,500)	580,000
Issue 113	1,755,000	-	(222,500)	1,532,500
Issue 114	4,638,000	-	(1,497,500)	3,140,500
Issue 115	1,227,500	-	(35,000)	1,192,500
Balance as at 30 June 2014 and the date of this report	11,349,000	-	(2,612,500)	8,736,500

Shares issued on the exercise of options

No ordinary shares of Primary were issued during or since the end of FY2014 on the exercise of options.

Qualifications, experience and special responsibilities of Directors

Mr Robert Ferguson, B.Ec (Hons). Non-executive Chairman (age 68)

Mr Ferguson was appointed Non-executive Chairman of the Board on 1 July 2009. He is Chairman of the Nomination and Remuneration Committee and a member of the Audit Committee.

Mr Ferguson is currently Non-executive Chairman of Bentham IMF (Australia) Limited since 2009 (a Director since 2004), a Director of Tyro Payments Limited since 2005, and Chairman of GPT Management Holdings Limited since 2010 (a Director since 2009). Mr Ferguson is also a Director of Watermark Market Neutral Fund Limited since 2013, and a Director of the Lowy Institute since 2003. He was formerly a Director of the Sydney Institute from 1998 to 2013.

Mr Brian Ball, B.Ec. Non-executive Director (age 65)

Mr Ball was appointed as a Non-executive Director of the Company in 1994. He is the Chairman of the Audit Committee and a member of the Nomination and Remuneration Committee.

Mr Ball is a part-owner of the private equity management company, Advent Private Capital Pty Ltd. Mr Ball joined Advent in 1986 and was the Chairman or a Director of over 25 investee businesses receiving equity capital from funds managed by the Advent Group, as well as the Advent IV and Advent V private equity management funds.

Dr Edmund Gregory Bateman, M.B.B.S. Chief Executive Officer (age 72)

Dr Bateman was a founding member of the Board as Chief Executive Officer since 1994. He has overseen the development of the Primary Group, from the establishment of its first 24-hour medical centre in 1985, through to the ASX-listed entity it has become today.

10 Primary Health Care Limited Appendix 4E – Preliminary Final Report 2014

Directors’ report for the year ended 30 June 2014

Mr James Bateman, MBA. Executive Director (age 46)

Mr Bateman was appointed as an Executive Director in 2011. He is the General Manager of the Primary Group’s Pathology division (since 2001) and a member of the Risk Management Committee. Mr Bateman has a Masters of Business Administration in Health Care Management from the Wharton School, University of Pennsylvania.

Mr Bateman joined the Company in 1989 and has had significant experience across the divisions of the Primary Group, including various management roles in the Medical Centres, Diagnostic Imaging, and Information Technology divisions, including as Chief Operating Officer.

Mr Bateman is a Director of a significant number of the Company’s wholly-owned operational subsidiaries.

Mr Henry Bateman, LLB. Executive Director (age 37)

Mr Bateman was appointed as an Executive Director in 2011. He is General Manager of the Company’s Medical Centres division (since 2008) and a member of the Risk Management Committee. Mr Bateman has a Bachelor of Laws from Bond University.

Mr Bateman joined the Company in 2000. Formerly a commercial lawyer with Norton Smith Solicitors, his experience in the Primary Group includes previous roles as Company Solicitor overseeing the development of the Primary Group’s commercial litigation and contracts, and industrial relations policy and procedure. In 2004, Mr Bateman became Head of Operations, Medical Centres, establishing a management team and structure that conducted the rapid roll-out and development of large-scale medical models, before becoming General Manager of Medical Centres.

Mr Bateman is a Director of all of the Company’s wholly-owned operational medical centre subsidiaries.

Mr Andrew Duff, ACA. Finance Director (age 53)

Mr Duff was appointed as an Executive Director in 2011. He is the Company’s Finance Director. Mr Duff is a Member of the Institute of Chartered Accountants in Australia. He is a member of the Risk Management Committee.

Mr Duff joined the Company following its public listing in 1998. Prior to joining the Company, Mr Duff was Chief Accountant of Medical Defence of Australia from 1995 to 1998, an Insolvency Manager from 1993 to 1995, and a Senior Audit Manager at Deloitte Touche Tohmatsu in both London and Sydney from 1985 to 1993. Mr Duff’s responsibilities include managing all aspects of the Primary Group’s financial affairs, capital management, taxation matters, and liaison with external shareholders, investors, analysts and regulators.

Mr Duff is a Director of a significant number of the Company’s wholly-owned operational subsidiaries.

Dr Paul Francis Jones, M.B., B.S., F.A.M.A. Non-executive Director (age 59)

Dr Jones was appointed as a Non-executive Director in 2010. He is a member of the Audit Committee and the Risk Management Committee.

Dr Jones has over 30 years’ experience in a broad range of general medical practice, including nine years’ experience in the Primary Group’s medical centres. Dr Jones originally trained at the Repatriation and General Hospital, Concord NSW and subsequently at Calvary Public Hospital, Bruce ACT. He has been a Director and Federal Councillor of the Australian Medical Association (“AMA”), a past President of AMA ACT and a member of the Federal AMA Council of General Practice. He was formerly a general practitioner adviser to Calvary Public Hospital and held roles as GPVMO and Director, Medical Education Program. Dr Jones is a former Chair of ACT GP Workforce Working Group and a member in 2009 of the ACT Health Minister’s GP Task Force. In 2010 he was awarded Fellowship of the AMA.

Dr Errol Katz, M.B., B.S. (Hons), LLB (Hons), MPP. Non-executive Director (age 44)

Dr Katz was appointed as a Non-executive Director in 2010. He is Chairman of the Risk Management Committee and a member of the Nomination and Remuneration Committee.

Dr Katz has degrees in Medicine and Law from Monash University, and a Masters in Public Policy from Harvard University, where he was a Menzies Scholar. He has worked as a doctor at The Alfred Hospital, as a strategy consultant at The Boston Consulting Group, and in strategy and operational roles at Visy Industries. More recently he has held roles in private equity. Dr Katz is a Director of Southern Health where he is Chairman of the Quality Committee and a member of the Remuneration and Population Health Committee. He is also a Director of Fourtae Pty Ltd, Choosewell Pty Ltd and Apositive Cashflow Funding Pty Ltd.

11 Primary Health Care Limited Appendix 4E – Preliminary Final Report 2014

Directors’ report for the year ended 30 June 2014

Ms Arlene Tansey, Juris Doctor (JD), BBus(Admin), MBA. Non-executive Director (age 56)

Ms Tansey was appointed as a Non-executive Director in 2012. She is a member of the Audit Committee and the Nomination and Remuneration Committee.

Ms Tansey has a Juris Doctorate (Law) from University of Southern California, a Bachelor of Business Administration from Pace University, and an MBA in finance and international business from New York University. She is a Fellow of the Australian Institute of Company Directors. She was previously a Senior Executive with the ANZ Bank, most recently Managing Director, Balance Sheet Management for the Institutional Bank where she worked for ten years. Prior to that Ms Tansey was an Associate Director at Macquarie Bank in Project and Structured Finance following her move to Australia from the United States where she held positions in securities law and investment banking.

Ms Tansey is currently a Non-executive Director of Adelaide Brighton Limited since 2011, Lend Lease Real Estate Investments Limited since 2010, Lend Lease Investment Management Limited since 2010, Infrastructure NSW and The Australian Research Alliance for Children & Youth. She is also a Director of Hunter Phillip Japan Pty Ltd. She is the Chairman of Urbanise.com Limited since 2014.

Group Company Secretary

Ms Yvette Cachia, B.Ed, MA (Dist.), LLB (Hons 1), LLM, Grad. Dip. Applied Corporate Governance, MAICD, CAHRI General Manager, People and Governance, and Group Company Secretary

Ms Cachia was appointed to the position of Group Company Secretary in 2008 and the General Manager, People and Governance in 2011. She is a member of the New South Wales Bar Association, the Australian Institute of Company Directors, and the Australian Human Resources Institute. Before joining Primary, Ms Cachia worked as a Company Secretary for a range of ASX-listed entities in the technology and mining sectors, in addition to her work as a Barrister.

Directors’ shareholdings

The following table sets out each current Director’s relevant interest in shares (directly and indirectly owned) in Primary as at the date of this Report:


2014	OPENING BALANCE	RECEIVED DURING THE YEAR ON THE EXERCISE OF OPTIONS	OTHER CHANGES DURING THE YEAR	CLOSING BALANCE
R Ferguson
	190,800	–	–	190,800
B Ball
	87,000	–	–	87,000
EG Bateman
	23,843,252	–	(3,097,513)	20,745,739
H Bateman
	977,513	–	(777,578)	199,935
J Bateman
	818,653	–	–	818,653
A Duff
	75,900	–	3,867	79,767
P Jones
	16,220	–	(6,346)	9,874
E Katz
	–	–	2,000	2,000
A Tansey
	10,000	–	–	10,000

12 Primary Health Care Limited Appendix 4E – Preliminary Final Report 2014

Directors’ report for the year ended 30 June 2014

Indemnification of officers and auditors

During the year, Primary paid a premium in respect of a contract insuring the Directors and Executive Officers of Primary and of any related body corporate, against liability incurred that is permitted to be covered by section 199B of the Corporations Act 2001 . It is a condition of the insurance contract that its limits of indemnity, the nature of the liability indemnified, and the amount of the premium, not be disclosed.

The Constitution of Primary provides that each officer of Primary must be indemnified by Primary against any liability incurred by that person in that capacity. However, Primary must not indemnify that person if to do so would be prohibited by section 199A of the Corporations Act 2001 , any other statutory provision, or judge-made law.

Non-audit services

During the year Deloitte Touche Tohmatsu, Primary’s auditor, has performed certain other services in addition to their statutory duties. The Directors are satisfied that the provision of these non-audit services by the auditor (or by another person or firm on the auditor’s behalf) is compatible with, and did not compromise, the auditor independence requirement of the Corporations Act 2001 .

The Audit Committee reviews the non-audit services performed by the auditor on a case-by-case basis. A new policy was adopted in July 2008 which outlines when they will approve non-audit services by the auditor.

A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is included in this Annual Report. Details of amounts paid or payable to the auditor of Primary and its related bodies corporate for audit and non-audit services provided during the year are given in Note 32 on page 78 of this Report.

Management of safety risks

Primary is committed to ensuring that the health and safety of all employees, sub-contractors and the general public is given the highest priority. Primary’s WHS performance is monitored through regular monthly reports being provided to senior management and quarterly performance reporting to the Board. Health and safety is incorporated into business planning, purchasing and contracting policies, and the design of workplaces.

Primary's key strategic goal continues to be to minimise the number of incidents that result in lost time by employees, and our performance in this area is regularly monitored across all business units.

In order to improve Primary's health and safety performance, resources are allocated to the maintenance and improvement of the WHS management system. During the year ended 30 June 2014 there was a detailed review of the resources devoted to the management of the WHS Systems in place. Professional health and safety staff work very closely with the Employee Representative Committees which have been established over a number of years in order to incorporate employee representation and consultation into health and safety initiatives as well as a forum for disseminating information to improve health and safety across all business units.

Primary recognises our responsibilities to contractors. As part of our health and safety procedures, contractors are required to provide evidence that they have WHS management systems in place. Workplace induction is provided to contractors prior to the commencement of any work. We also have monitoring procedures in place for addressing any health and safety issues that may arise.

Key health and safety performance indicators are as follows:

Key health and safety performance indicators are as follows:

	2014	2013
Number of WorkCover prosecutions		-
	-
Number of sites subject to WHS Internal Audit		35
	39
Number of Incidents Resulting in Lost Time Injuries		122
	80

Incidents are subject of investigation and there was no systematic breakdown in the WHS Management System during the year ended 30 June 2014.

Primary has a comprehensive program of health and safety internal audits that are conducted over all business units during the course of the year. Audit findings may be either areas of non-conformance with WHS procedures or be areas for improvement. All findings are discussed with auditees before being finalised. The final reports are presented to senior management and include the findings, recommendations to address findings, persons responsible for

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implementation of recommendations and time frames for implementation.

Training in health and safety is provided to staff at induction to ensure staff perform their duties safely. Further training is provided when specific issues are identified through regular workplace supervision, hazard reporting, and regular inspections.

Primary is engaged in continuous improvement to raise health and safety standards. During the year Primary focused on improving the implementation of corrective actions arising from internal audit findings.

During the year a key focus will be the implementation of the revised WHS Manual following a significant revision to procedures.

REMUNERATION REPORT FOR FY2014

The Directors of Primary Health Care Limited present the Remuneration Report prepared in accordance with section 300A of the Corporations Act 2001 for Primary and the consolidated entity for the year ended 30 June 2014.

The information provided in this Remuneration Report has been audited as required by section 308(3C) of the Corporations Act 2001 . This Remuneration Report forms part of the Directors’ Report.

Key Management Personnel (“KMP”) of the Group are defined as those persons having the authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any Director (whether executive or otherwise) of the Company. Throughout this Remuneration Report, the term “Senior Executives” is also used to refer to all executives who fall within the definition of KMP. The use of the term “Executive” encompasses the Group Chief Executive Officer, Senior Executives, and General Managers of the Company and the Group for FY2014.


KMP (2014)	TITLE
Dr Edmund Bateman	Chief Executive Officer
Mr Andrew Duff	Finance Director
Mr James Bateman	General Manager – Pathology
Mr Henry Bateman	General Manager – Medical Centres
Mr Carl Adams	General Manager – Diagnostic Imaging
Mr Matthew Bardsley	General Manager – Information Innovation
Mr Rob Ferguson	Non-executive Chairman
Mr Brian Ball	Non-executive Director
Dr Paul Jones	Non-executive Director
Dr Errol Katz	Non-executive Director
Ms Arlene Tansey	Non-executive Director

There were no changes to KMP from the prior year ended 30 June 2013.

A. Executive remuneration

This Remuneration Report outlines Primary’s remuneration policy and practices, together with details of the specific remuneration arrangements that apply to the KMP of the Company and the Group in accordance with the requirements of the Corporations Act 2001 .

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Directors’ report for the year ended 30 June 2014

The Report provides:

an overview of Primary’s executive remuneration strategy and linkage between the strategy and the components of executive remuneration;
details of the Directors and Senior Executives covered by this report; and
details of the actual remuneration outcomes for Senior Executives.

Board policy on remuneration

Primary recognises that remuneration is an important factor in attracting, motivating and retaining key employees, as well as providing long-term value for shareholders.

The objectives of Primary’s remuneration strategy are to:

ensure that shareholders’ interests and employee interests are in alignment;
attract and retain high-calibre employees by providing benchmarked, market-competitive remuneration; and
fairly and responsibly reward senior management, having regard to the overall performance of Primary, and the performance of the senior manager.

Primary believes that its remuneration strategy should:

align with business strategy and the creation of sustainable business and value for shareholders;
recognise and reward individual performance and maintain accountability for functional responsibilities and objectives;
align employee remuneration with specific and measurable individual and corporate objectives and targets that are linked to shareholders’ interests;
be appropriately benchmarked and market-competitive;
integrate variable pay elements for short-term and long-term performance which link executive reward to strategic goals and Group performance;
incorporate performance measures which drive incentive outcomes and differentiate between average and high performers;
clearly differentiate between short-term and long-term reward levers; and
implement mandatory deferral arrangements to encourage retention of appropriate skills and experience.

Nomination and Remuneration Committee

The Nomination and Remuneration Committee is appointed and authorised by the Board to assist the Board in fulfilling its statutory and fiduciary duties. The Committee is responsible for making recommendations to the Board about:

necessary and desirable competencies of Directors;
Board succession planning and leadership development;
the development of a process for the evaluation of the performance of the Board, its committees and Directors;
- the appointment and re-election of Directors;
the Company’s remuneration, recruitment, retention and termination policies and procedures for Senior Executives;
Senior Executives’ remuneration and incentives; and
the remuneration framework for Directors.

Membership of the Nomination and Remuneration Committee (“the Committee”) is reviewed and determined on an annual basis by the Board. The Committee comprises at least three Directors, all of whom are independent. During FY2014, members of the Nomination and Remuneration Committee were:

Mr Rob Ferguson (Chairman)
Mr Brian Ball
Ms Arlene Tansey
Dr Errol Katz.

The Nomination and Remuneration Committee has the authority to seek information, which is relevant to its functions, from any officer or employee of the Company. The Committee has the authority to retain legal, accounting or other advisers, consultants or experts which it considers appropriate, to assist it to meet its responsibilities in developing remuneration recommendations for the Board by providing independent advice regarding remuneration strategies,

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incentive plans and objective market practice of other listed companies.

Primary recognises the importance of ensuring that any recommendations given to the remuneration of KMP provided by remuneration consultants are provided independently of those to whom the recommendations relate. Further information about the parameters under which external remuneration consultants are engaged is provided below.

External consultants engaged during FY2014


CONSULTANT	COMMITTEE AND BOARD ENGAGEMENTS	NATURE OF ENGAGEMENT
Aon Hewitt	Nomination and Remuneration Committee	Independent remuneration review of Senior Executives and participants in Primary’s Executive Incentive Plan and remuneration benchmarking
Leadership & Succession Partners	Nomination and Remuneration Committee	Leadership development and leadership succession
Corporate Wisdom	-	Executive and Senior Management leadership development and coaching
Dr John Eady	–	Executive development
Foresight Global Coaching	–	Senior Management coaching

Arrangements for engaging remuneration consultants and other external advisors

Primary has a range of protocols in place under which remuneration consultants are engaged and interact with management and the Board.

All remuneration consultants are engaged by, and report directly to, the Nomination and Remuneration Committee. Prior to selection and engagement, the Committee will consider the nature and scope of the project to be undertaken and its alignment with the skills, experience, and expertise of the consultants. The Committee also assesses the independence of consultants and any potential conflicts of interest. Once engaged, all interaction between a remuneration consultant and Primary occurs through the Committee.

All reports and recommendations provided by remuneration consultants are:

provided directly to the Chairman of the Committee who is an independent, Non-executive Director; and
impartial and free from undue influence of any KMP members or senior management.

Primary’s success depends on the capabilities of the KMP and Senior Executives who develop and implement its business strategies. The Committee will consider all recommendations provided by remuneration consultants and external advisors within the broader context of Primary’s needs in relation to the strategic objectives and performance of Primary, in addition to its human capital management, talent retention, leadership development, and succession planning requirements. The Committee’s objectives in relation to executive compensation are, therefore, closely aligned with the importance of attracting and retaining the appropriate individuals to lead and manage Primary’s operations, which is essential to provide shareholder value over the long-term.

Details of contracts of CEO and KMP

The remuneration and other terms of employment for KMP are not generally formalised in employment and service agreements. However, each Senior Executive is entitled to leave and notice provisions in accordance with the relevant State or Commonwealth legislation.

No fees for Executive Directors

During FY2014, no Executive Director received a fee-for-service for their role as a Director.

Remuneration structure

Remuneration for Senior Executives has the following components:

Fixed annual remuneration

The terms of employment for all Senior Executives contain a fixed remuneration component expressed as a dollar

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amount. The Senior Executive may take this amount in a form agreed with Primary. Fixed annual remuneration (“FAR”) is made up of base salary, company superannuation contributions, and benefits, including fringe benefits tax. This amount of remuneration is not “at-risk”, but is set by reference to appropriate benchmark information for an individual’s responsibilities, performance, qualifications, experience, and location.

Fixed remuneration overview

Fixed remuneration overview


Components of fixed remuneration	FAR comprising base salary, benefits (including superannuation) and applicable fringe benefits tax (as a total cost to the Company), is determined on an individual basis, depending on the size and scope of the position, functional responsibilities, the importance of the role to the Company, and the external market.
Review of fixed remuneration	Each KMP’s salary is reviewed annually by the Nomination and Remuneration Committee as part of each individual’s participation in the Primary Executive Incentive Plan (“PEIP”). The Committee reviews the skills, knowledge, accountability, and general performance of each KMP in line with external market reviews of comparatively benchmarked companies in Australia. Fixed remuneration remains constant throughout the year. FAR for each PEIP participant is reviewed annually, but variations remain discretionary and are not guaranteed.
Benchmarks for setting fixed remuneration	The Nomination and Remuneration Committee obtains external data based on an analysis of ASX200 entities, market capitalisation, revenue, number of employees, and industry type. The Committee also considers market comparisons for similar roles, level of responsibility, and the performance and potential of the Senior Executive.

“At-risk” remuneration

Option Plan

Options may be issued to Senior Executives under Primary’s Employee Option Plan at the sole discretion of the Board. Further details of the Plan are included in Note 18 to the financial statements on page 61. The Board will not consider issuing options to Senior Executives in the normal course of events until the Senior Executive has served a minimum of two years with Primary. The options will normally be exercisable a minimum of three years after date of issue to the Senior Executive.

No offer of Options was made to any individuals defined as KMP in FY2014 (FY2013: nil). During the year, no Senior Executive exercised options that were granted to them as part of their compensation.

Primary Executive Incentive Plan

During 2010, Primary established a Primary Performance Rights Plan (“PPRP”). The PPRP was approved by shareholders at Primary’s Annual General Meeting on 26 November 2010. The PPRP was initially designed to facilitate the grant of Performance Rights (conditional rights to acquire a share, subject to the achievement of specified service and performance hurdles), to eligible participants. In the first year of the PPRP’s operation, being the year ended 30 June 2011, the whole-Group target linked to earnings per share (“EPS”) growth was not achieved and no grant of performance rights was made under the PPRP in respect of that year.

During the following year (the year ended 30 June 2012), the Nomination and Remuneration Committee again reviewed the PPRP in the context of a range of recent regulatory changes relating to the taxation treatment of performance rights and options, as well as the high cost of administering the PPRP. Given these changes, and the ongoing costs, the Nomination and Remuneration Committee recommended that Primary’s core objective in enhancing the link between performance-based compensation and actual business performance through the granting of longterm incentives (“LTIs”) to eligible participants, could be effectively addressed through the award of deferred cash, rather than performance rights as part of, what is now called, the Primary Executive Incentive Plan.

The core objectives of the Primary Executive Incentive Plan (“PEIP”) continue to:

align the remuneration of Senior Executives with shareholder value;
encourage ongoing and sustained workplace performance;

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assist in retaining the skills and experience of key executives;
link Senior Executive remuneration to the achievement of performance criteria and conditions over an extended period; and
provide opportunities for Senior Executives to share in the growth and value of Primary.

The Nomination and Remuneration Committee (“the Committee”) is responsible for administering the PEIP in accordance with the following framework:

participation in the PEIP is not open to Non-executive Directors;
Executive Directors who participate in the PEIP are not entitled to participate in Committee recommendations and Board resolutions concerning the PEIP;
the Committee will design an annual PEIP offer for eligible Senior Executives to participate in relation to following financial year;
the PEIP will include both a short-term incentive (“STI”) and a long-term incentive (“LTI”) component. Both components are awarded at the sole discretion of the Committee and are at-risk;
both the STI and the LTI will be linked to specified Group and individual performance hurdles. The hurdles will reflect Primary’s business plans, targets, budgets, and performance objectives;
the Committee takes a number of factors into account when approving the settlement of setting STI and LTI incentive hurdles, including market consensus on future earnings, revenue and EBITDA growth, and external factors such as the regulatory environment in which Primary operates;
all offers under the PEIP will be made annually, following the announcement of Primary’s full-year results;
no STI or LTI incentive (either current or previously awarded and subject to ongoing restriction) is payable to those participants who leave employment during the assessment year or period, unless cessation of employment is due to retirement, total and permanent disablement, redundancy, or death;
no interest is payable prior to or following any STI or LTI payment; and
in the event of a change of control all restricted cash LTIs will be released to the relevant participant.

The PEIP – structure

The PEIP has four levels, which allow the Committee to invite eligible participants to participate on a level which correlates to the individual’s position, skills, experience, and tenure.

Short-Term Incentive – “STI”

The STI is an at-risk, discretionary, and performance-based payment, awarded on an annual basis, usually in September or October each year.

The STIs awarded to KMP under the PEIP in respect of the year ended 30 June 2012 were reported in Primary’s 2013 Annual Report.

For FY2014, the STI will comprise a cash incentive payment which will be linked to both Group performance and the achievement of certain key performance indicators (“KPIs”) based on a range of financial measures. Under the PEIP, KPI measures are personal to each participant, but include performance hurdles such as capital and financial management, strategic financial planning, WH&S and risk management, team leadership, and succession planning. The percentage of fixed annual remuneration (“FAR”) which, is available for award to eligible participants, varies according to the participant’s level within the PEIP. The performance hurdles relevant for Primary’s KMP are provided further in this Remuneration Report below.

Long-Term Incentive – “LTI”

The LTI is an at-risk, deferred cash payment, which is restricted for a maximum period of 3 years (one-third of the LTI is released each year over 3 years) from the date first awarded, usually in September or October each year. At levels 1 to 3, eligible participants have opportunities to achieve LTIs as varying percentages of their fixed annual remuneration. Level 4 participants are not eligible to receive an LTI.

The incremental LTI hurdle is a Group Earnings Per Share (“EPS”) growth target, selected by the Board because of its clear link to shareholder returns and Primary’s overall strategic objectives. The EPS performance condition is determined by dividing the operating profit attributable to the Primary Group by the weighted average number of ordinary shares outstanding during the financial year. Growth in EPS will be measured by comparing the EPS in the base year and subsequent measurement years as adjusted for unusual items, as considered appropriate by the Board. The final determination of Primary’s financial performance is determined after reviewing the Company’s audited financial results for the relevant period. Financial targets are assessed quantitatively against the pre-determined targets. Where possible, non-financial targets are also assessed quantitatively and otherwise they are assessed by annual qualitative

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performance appraisal. At the beginning of each year the Board establishes a threshold and a maximum EPS metric for the new assessment year.

For FY2012, the LTI comprised an at-risk incentive payment based on a Group Earnings Per Share (“EPS”) growth target of between 5-12%, with payment of deferred cash increasing in equal increments for each percentage of EPS growth, to a maximum of 12%. This Group EPS target was achieved. Accordingly, all eligible participants at levels 1 to 3 of the PEIP were awarded the relevant maximum LTI as a percentage of FAR. The first one-third of each LTI award in respect of FY2012 was paid in October 2013.

For FY2013, the LTI comprised an at-risk incentive payment based on a Group Earnings Per Share (“EPS”) growth target of between 10-17%, with payment of deferred cash increasing in equal increments (starting at 0% for EPS growth < 10% to 100% for EPS growth = or > 17%) for each percentage of EPS growth to a maximum of 17%. The total of this Group EPS target was achieved. Accordingly, all eligible participants at levels 1 to 3 of the PEIP were awarded the relevant maximum LTI as a percentage of FAR. The first one-third of each LTI award in respect of FY2013 will be paid in September or October 2014.

For FY2014, the LTI will comprise an at-risk incentive payment based on a Group Earnings Per Share (“EPS”) growth target of between 7-13%, with payment of deferred cash increasing in equal increments (starting at 0% for EPS growth < 7% to 100% for EPS growth = or > 13%) for each percentage of EPS growth to a maximum of 13%. In FY2014, EPS growth of 7.7% was achieved. Accordingly, all eligible participants at levels 1 to 3 of the PEIP will be awarded an appropriately proportionate amount of their allocated LTI as a percentage of FAR. The first one-third of each LTI award in respect of FY2014 will be paid in September or October 2015.

The maximum STI and LTI opportunities for eligible PEIP participants are set out below:

PEIP – FY2014 – Percentage of fixed annual remuneration as STI and LTI


LEVEL	STI (% OF FAR) MAXIMUM AVAILABLE	LTI (% OF FAR) MAXIMUM AVAILABLE (RESTRICTED FOR 3 YRS)
L1 CEO	67% (0% EPS Target/67% KPIs)	0%

L1 KMP & Other	40% (16% EPS Target/24% KPIs)	20%

L2	25% (10% EPS Target/15% KPIs)	18%

L3(a) & (b)	20% (8% EPS Target/12% KPIs)	10% – 15%
	10% (0% EPS Target/10% KPIs)

L4	15% (6% EPS Target/9% KPIs)	0%

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Summary of fixed and at-risk remuneration structure

A summary of the components of fixed, short-term, and long-term incentives provided above are summarised in the table below:

table below:
	PRIMARY EXECUTIVE INCENTIVE PLAN
FIXED REMUNERATION	SHORT-TERM INCENTIVE	LONG-TERM INCENTIVE
		- This component of compensation is “at-risk” and only earned if performance metrics are achieved in the year awarded. - The LTI is subject to continued service requirements as the LTI is released in 3 equal tranches over a 3-year period, commencing one year after the date on which the LTI was first granted. - For FY2014, the Board determined to use earnings per share (“EPS”) in a range of 7% to 13% as the key measure for performance-based long-term incentive awards.
- Salary (cash), compulsory superannuation and salary sacrifice. - Reviewed annually with any changes effective from 1 January each year. - Compensation in-line with the Senior Executive’s role, value and contribution to Primary. - Based on external benchmarking data targeted to be near the median of the competitive talent market. - Differentiated by a range of individual levels based on experience, performance, complexity, size and scope of business unit and market demands.	- “At-risk” cash payment made on an annual basis. - Mix of financial and non-financial targets. - Linked to key performance indicators with metrics including revenue growth, EBITDA growth, EBIT growth, operating margin and return on capital employed. - Linked to Group performance metrics such as EPS growth which is assessed on an annual basis. - Capped at a percentage of the Senior Executive’s fixed remuneration. The percentage is determined on an individual basis.

Details of remuneration paid

The following information discloses the total remuneration of:
all executives who fall within the definition of Key Management Personnel of the Group, being those persons with authority and responsibility for planning, directing and controlling the activities of the Group, including the Chief Executive Officer (excluding Non- executive Directors); and
the division of cash salary, short-term employee benefits, and post-employment benefits (superannuation); and
prior year comparison.

Grants made to KMP under the PEIP

An STI was granted to eligible Senior Executives in respect of the year ended FY2013 and was paid during FY2014.

Details of these grants are outlined in the table below.

Primary’s Nomination and Remuneration Committee will shortly:

assess whether eligible participants have met specified performance hurdles for FY2014;
make a grant, where appropriate, under the PEIP in respect of applicable STI or LTI arrangements; and
determine the Group performance hurdles and KPIs applicable to the PEIP in respect of the year ending 30 June 2015.

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The tables below show the total remuneration for each Senior Executive in FY2014 and prior year comparison for FY2013:

2014	FIXED REMUNERATION (SALARY/FEES)	FIXED REMUNERATION (SALARY/FEES)	SHORT-TERM INCENTIVE UNDER PEIP^ (STI AWARDED FOR FY2013 AND PAID IN FY2014)	SHORT-TERM INCENTIVE UNDER PEIP^ (STI AWARDED FOR FY2013 AND PAID IN FY2014)	LONG-TERM INCENTIVE UNDER PEIP^ (LTI AWARDED IN FY2014 FOR FY2013)^	LONG-TERM INCENTIVE UNDER PEIP^ (LTI AWARDED IN FY2014 FOR FY2013)^
	1 JULY 2013 TO 30 JUNE 2014	POST- EMPLOYMENT BENEFITS SUPER- ANNUATION	STI AWARDED	% OF STI AWARDED	LTI AWARDED	% OF LTI AWARDED	TOTAL FOR FY2014
Chief Executive Officer

E Bateman*
	1,482,225	17,775	1,000,000	100%	N/A	N/A	2,500,000
Key Management Personnel

J Bateman*
	652,275	17,775	254,200	100%	127,100	100%	1,051,350
A Duff*
	652,275	17,775	254,200	100%	127,100	100%	1,051,350
H Bateman*
	652,275	17,775	254,200	100%	127,100	100%	1,051,350
C Adams
	424,225	17,775	172,800	100%	86,400	100%	701,200
M Bardsley
	424,225	17,775	172,800	100%	86,400	100%	701,200
Total
	4,287,500	106,650	2,108,200		554,100		7,056,450

Notes:

^ PEIP – Primary Executive Incentive Plan. Short-term incentive based on the achievement of KPIs linked to revenue growth, EBITDA growth, EBIT growth, operating margin, and return on capital employed. The first one-third of that award, in respect of FY2013, was paid in FY2014. The second-third of that award is not payable until FY2015 and the final third in FY2016.

These KMP are not paid a fee for their services as Executive Directors.

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2013	FIXED REMUNERATION (SALARY/FEES)	FIXED REMUNERATION (SALARY/FEES)	SHORT-TERM INCENTIVE UNDER PEIP^ (STI AWARDED FOR FY2012 AND PAID IN FY2013)	SHORT-TERM INCENTIVE UNDER PEIP^ (STI AWARDED FOR FY2012 AND PAID IN FY2013)	LONG-TERM INCENTIVE UNDER PEIP^ (LTI AWARDED IN FY2013 FOR FY2012)^	LONG-TERM INCENTIVE UNDER PEIP^ (LTI AWARDED IN FY2013 FOR FY2012)^
	1 JULY 2012 TO 30 JUNE 2013	POST- EMPLOYMENT BENEFITS SUPER- ANNUATION	STI AWARDED	% OF STI AWARDED	LTI AWARDED	% OF LTI AWARDED	TOTAL FOR FY2013
Chief Executive Officer

E Bateman*
	1,500,000	N/A	N/A	N/A	N/A	N/A	1,500,000
Key Management Personnel

J Bateman
	576,280	16,470	220,000	100%	110,000	100%	922,750
A Duff
	576,280	16,470	220,000	100%	110,000	100%	922,750
H Bateman
	551,280	16,470	200,000	100%	100,000	100%	867,750
J Frost (to 14 November 2012)	195,422	8,333	150,400	94%	–	0%	354,155

C Adams
	399,530	16,470	100,000	100%	72,000	100%	588,000
M Bardsley (from 14 November 2012)
	249,706	16,470	100,000	100%	72,000	100%	438,176
Total
	4,048,498	90,683	990,400		464,000		5,593,581

Notes:

^ PEIP – Primary Executive Incentive Plan. Short-term incentive based on the achievement of KPIs linked to revenue growth, EBITDA growth, EBIT growth, operating margin, and return on capital employed. It was awarded in respect of FY2012, during FY2013. The LTI achieved in respect of FY2012 was awarded in respect in FY2013, but the first one-third of that award was not payable until FY2014.

The Chief Executive Officer did not participate in the PEIP in FY2013.

Key Management Personnel remuneration

The Nomination and Remuneration Committee considers the remuneration of KMP on an on-going basis, specifically, in relation to issues around a range of factors such as:

economic setting and workforce planning;
Primary’s challenges, performance, near and long-term growth expectations;
criticality of retention, recruitment, and succession planning;
comparative market positioning of KMP’s current fixed annual remuneration; and
history of remuneration adjustments and changes to reward strategy, including retrospective, prospective, influence of market adjustments in competitor companies, and the criticality of internal pay relativity.

KMP remuneration recommendations

During the year ended 30 June 2014, the Nomination and Remuneration Committee continued to consider the:

criticality of retention, recruitment, and succession planning;
tenure, skills, experience, and the importance of retaining Primary’s KMP;
importance of linking executive remuneration to reward;
comparative market positioning of KMPs’ current fixed annual remuneration and at-risk remuneration; and

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 the growth of the size, scope and complexity of Primary’s operations.

The key findings from an independent remuneration review by Egan Associates in FY13[1] commissioned by the Committee, included recognition that:

Primary’s KMP have strong continuity of effective service and are highly experienced;
FAR should be pitched at or about the market median, with performance aligned reward delivering third quartile total reward outcome on achieving stretch performance hurdles; and
the annualised value of long-term incentives of the KMP at Primary is historically below that of the market generally, as is to a lesser extent the opportunity under the annual incentive program.

During the year ended 30 June 2013, the Committee resolved to:

revise the level of fixed annual remuneration of several KMP, commencing 1 January 2013, as reflected in the remuneration tables for FY2013 and FY14 above; and
provide the Chief Executive Officer with appropriate opportunities to participate in Primary’s Executive Incentive Plan, specifically, at-risk, short-term incentives, contingent on the achievement of a range of key financial and nonfinancial KPIs to provide a clear link between remuneration outcomes and the key drivers of long-term shareholder value.

During the year ended 30 June 2014, the Committee commissioned independent analysis of market practices relating to remuneration mix and variable pay practice from Aon Hewitt.[2] No specific recommendations were made in that report and the Committee made no resolution to alter the existing incentive arrangements for KMP.

During the year ended 30 June 2014, Aon Hewitt also provided independent advice in relation to the benchmarking of other senior executives on the PEIP against industry comparators.[3] Having considered Aon Hewitt’s recommendations, the Committee resolved to re-position the remuneration of those participants to the recommended market median for fixed annual remuneration, given the:

relatively modest FAR component;
cost of replacing those individuals were they to leave employment; and
the skills and experience of each individual.

1 Egan Associates received $36,093 for remuneration advice during FY2013 in respect of this advice.

2 Aon Hewitt received $8,512 for remuneration advice during FY2014 in respect of this advice.

3 Aon Hewitt received $31,517 for remuneration advice during FY2014 in respect of this advice.

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Current Key Management Personnel remuneration mix

The following table sets out the percentage of fixed and at-risk remuneration as a component of total available remuneration for those KMP who participate in the Primary Executive Incentive Plan (“PEIP”) and those measures upon which recommendations are made in relation to STIs awarded under the PEIP:


KMP	FAR	STI	LTI	AT-RISK	STI MEASURES
Dr Edmund Bateman Chief Executive Officer	60.0%	40.0%	0%	40.0%	There are several key performance components to the STI for the PEIP which apply to the Chief Executive Officer: Financial performance to budget – metrics including revenue growth, EBITDA growth, EBIT growth, operating margin and return on capital employed. People and performance – leadership of the Senior Executive team, oversight of short and long-term strategic business division plans, effective reporting to the Board. Effective engagement with external stakeholders. Oversight of effective workplace programs such as occupational health and safety procedures, gender diversity initiatives, and management succession planning.
Andrew Duff Finance Director	62.5%	25.0%	12.5%	37.5%	There are several key performance components to the STI for the PEIP which apply in various combinations to each KMP: Linked to key performance indicators with metrics including revenue growth, EBITDA growth, EBIT growth, operating margin, and return on capital employed. Strategic objectives – performance against strategic objectives linked to the KMP’s business unit and functional responsibility. These objectives may include business unit cost targets, market share growth, quality and efficiency initiatives, new product development, medical health professional recruitment, investor relations, and business acquisitions. Operating margin – effective implementation of measures linked to the Company’s overall financial operating margin. Sustainability performance – including operational improvement initiatives, performance against budgeted capital cost, and identifying and managing risk. Leadership and culture – including human capital management initiatives, succession planning, training, and development.
James Bateman General Manager – Pathology	62.5%	25.0%	12.5%	37.5%
Henry Bateman General Manager – Medical Centres	62.5%	25.0%	12.5%	37.5%
Carl Adams General Manager – Diagnostic Imaging	62.5%	25.0%	12.5%	37.5%
Matthew Bardsley General Manager – Information Innovation	62.5%	25.0%	12.5%	37.5%

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The mix of fixed and at-risk remuneration of the Chief Executive Officer and KMP who participate in the Primary Executive Incentive Plan (“PEIP”) are further illustrated in the diagram below:

==> picture [293 x 174] intentionally omitted <==

Performance Payment Potential for FY2014

The following table sets out the minimum and maximum performance payment potential for current Key Management Personnel for FY2014. Incentive amounts are based on fixed annual remuneration approved by the Board as part of the 2014 remuneration review process and the executive remuneration strategy outlined above, as well as the potential total STI and LTI award under the PEIP (other than option grants) for FY2014 which may be awarded and granted in FY2015.

FY2015.
	SHORT-TERM INCENTIVE		SHORT-TERM INCENTIVE		LONG-TERM INCENTIVE
	PAID AS CASH LINKED TO GROUP EPS TARGET(1)		PAID AS CASH LINKED TO KPIS(2)		DEFERRED CASH(3)
	MINIMUM	MAXIMUM	MINIMUM	MAXIMUM	MINIMUM	MAXIMUM
Chief Executive Officer
E Bateman	$0	$0	$0	$1,000,000	N/A	N/A
Key Management Personnel
J Bateman	$0	$112,880	$0	$169,320	$0	$141,100
A Duff	$0	$112,880	$0	$169,320	$0	$141,100
H Bateman	$0	$112,880	$0	$169,320	$0	$141,100
M Bardsley	$0	$72,320	$0	$108,480	$0	$90,400
C Adams	$0	$72,320	$0	$108,480	$0	$90,400

(1) The STI paid as cash is based on a whole Group target of EPS between 7% and 13% and will be paid in the financial year 2015 based on performance for FY2014.

(2) The STI paid as cash is based on the achievement and assessment of personal performance targets and will be paid in FY2015 based on performance for FY2014.

(3) The maximum value for the LTI for FY2014 is based on the methodology provided under ‘Long-Term Incentive – “LTI”’ on pages 18 and 19 of this Report. Any LTI in respect of FY2014 will be awarded as deferred cash during FY2015. The first one-third of the FY2014 LTI will payable in FY2016, the next one-third will be payable in FY2017, and the final one-third payable in FY2018.

25 Primary Health Care Limited Appendix 4E – Preliminary Final Report 2014

Directors’ report for the year ended 30 June 2014

B. Non-executive Director remuneration

The remuneration of all individuals who are Non-executive Directors of the Company for their ordinary services as Directors of either the Company or any of its subsidiary entities is subject to the aggregate limit of A$1,400,000 for any calendar year (set by shareholders at the 2008 General Meeting). This limit takes account of the level of fees paid to Directors of other Australian entities of similar size and complexity, as well as the responsibilities and work requirements of Board members.

Board fees are paid to Non-executive Directors only. Fees are not linked to the performance of Primary so that independence and impartiality is maintained. Superannuation contributions were made at a rate of 9.25% in FY2014 and at a rate of 9.5% from 1 July 2014 onwards, which satisfies Primary’s statutory superannuation obligations.

In addition to Board and Committee fees, Non-executive Directors are entitled to be reimbursed for all reasonable travel, accommodation, and other expenses, incurred in attending meetings of the Board, Committees, or shareholders, or while engaged on Primary business.

Non-executive Directors do not accrue separate retirement benefits in addition to statutory superannuation entitlements.

There is no share plan or other equity participation for Primary’s Non-executive Directors.

The table below outlines the total fees paid to the Company’s Non-executive Directors for FY2014 and a prior year comparison:


2014	DIRECTORS’ FEES	AUDIT COMMITTEE FEES	SUPER CONTRIBUTIONS	TOTAL
Robert Ferguson1
	217,225	–	17,775	235,000
Brian Ball
	100,052	7,500	9,948	117,500
Arlene Tansey
	100,687	–	9,313	110,000
Errol Katz
	100,687	–	9,313	110,000
Paul Jones
	100,687	–	9,313	110,000
Total
	619,338	7,500	55,662	682,500


2013	DIRECTORS’ FEES	AUDIT COMMITTEE FEES	SUPER CONTRIBUTIONS	TOTAL
Robert Ferguson1
	213,530	–	16,470	230,000
Brian Ball
	95,711	7,500	9,289	112,500
John Crawford (to 30 November 2012)
	38,226	–	3,440	41,666
Arlene Tansey (from 31 August 2012)
	80,000	–	8,000	88,000
Errol Katz
	96,330	–	8,670	105,000
Paul Jones
	96,330	–	8,670	105,000
Total
	620,127	7,500	54,539	682,166

1 Mr Ferguson’s remuneration is a fixed fee inclusive of fees for his role as Chairman of the Nomination and Remuneration Committee.

26 Primary Health Care Limited Appendix 4E – Preliminary Final Report 2014

Directors’ report for the year ended 30 June 2014

Company strategy and performance

Primary’s medical centre management business was formally established in 1985 with one medical centre, and Primary has been listed on the ASX since 1998. Primary has since grown to become Australia’s largest medical centre operator with a network of Australia-wide large-scale medical centres. The Group now also delivers a broad range of pathology and diagnostic services, and is a leading provider of health technology services to medical practitioners.

The table below demonstrates the performance of the Group over the five years ended 30 June 2014:


	YEAR ENDED 30 JUNE
	2014	2013	2012	2011	2010
Revenue		1,440,036	1,392,067	1,322,094	1,296,658
	1,524,115
Profit before tax		215,339	168,435	113,970	180,264
	233,391
Profit Attributable to Equity Holders of Primary Health Care Ltd ($000)		150,111	116,615	78,285	131,997
	162,536
Share price at end of year ($)		4.78	2.95	3.43	3.56
	4.54
Interim dividend (cents per share)		6.5	5.0	3.0	15.0
	9.0
Final dividend (cents per share)		11.0	6.0	5.0	10.0
	11.0
Basic Earnings Per Share (cents)		29.9	23.3	15.8	27.8
	32.2

Notes:

All dividends are franked to 100% at 30% corporate income tax rate.
Final dividends are declared after the balance date and are therefore paid in the following financial year.

Signed in accordance with a resolution of the Directors made pursuant to section 298(2) of the Corporations Act 2001 .

On behalf of the Directors

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Edmund Bateman – Director Sydney 13 August 2014

27 Primary Health Care Limited Appendix 4E – Preliminary Final Report 2014

Auditor’s independence declaration for the year ended 30 June 2014

Deloitte Touche Tohmatsu A.B.N. 74 490 121 060

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Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia

DX 10307SSE Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au

The Board of Directors Primary Health Care Limited 30-38 Short Street LEICHHARDT NSW 2040

13 August 2014

Primary Health Care Limited

Dear Board Members

In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Primary Health Care Limited.

As lead audit partner for the audit of the financial statements of Primary Health Care Limited for the financial year ended 30 June 2014, I declare that to the best of my knowledge and belief, there have been no contraventions of:

(i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit

(ii) any applicable code of professional conduct in relation to the audit.

Yours sincerely

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DELOITTE TOUCHE TOHMATSU

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S C Gustafson Partner Chartered Accountants Sydney, 13 August 2014

28 Primary Health Care Limited Appendix 4E – Preliminary Final Report 2014

Independent auditor’s report to the members of Primary Health Care Limited

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Deloitte Touche Tohmatsu A.B.N. 74 490 121 060

Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia

DX 10307SSE Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au

Independent Auditor’s Report to the members of Primary Health Care Limited

Report on the Financial Report

We have audited the accompanying financial report of Primary Health Care Limited, which comprises the balance sheet as at 30 June 2014, the income statement, the statement of comprehensive income, the cash flow statement and the statement of changes in equity for the year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity, comprising the company and the entities it controlled at the year’s end or from time to time during the financial year as set out on pages 31 to 78.

Directors’ Responsibility for the Financial Report

The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements , that the consolidated financial statements comply with International Financial Reporting Standards.

Auditor’s Responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control, relevant to the company’s preparation of the financial report that gives a true and fair view, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Member of Deloitte Touche Tohmatsu Limited Liability limited by a scheme approved under Professional Standards Legislation.

29 Primary Health Care Limited Appendix 4E – Preliminary Final Report 2014

Independent auditor’s report to the members of Primary Health Care Limited

Auditor’s Independence Declaration

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001 . We confirm that the independence declaration required by the Corporations Act 2001 , which has been given to the directors of Primary Health Care Limited, would be in the same terms if given to the directors as at the time of this auditor’s report.

Opinion

In our opinion:

(a) the financial report of Primary Health Care Limited is in accordance with the Corporations Act 2001 , including:
(i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2014 and of its performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001 ; and
(b) the consolidated financial statements also comply with International Financial Reporting Standards as disclosed in Note 1.

Report on the Remuneration Report

We have audited the Remuneration Report included in pages 14 to 27 of the directors’ report for the year ended 30 June 2014. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001 . Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

Opinion

In our opinion the Remuneration Report of Primary Health Care Limited for the year ended 30 June 2014, complies with section 300A of the Corporations Act 2001 .

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DELOITTE TOUCHE TOHMATSU

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S C Gustafson Partner Chartered Accountants Sydney, 13 August 2014

30 Primary Health Care Limited Appendix 4E – Preliminary Final Report 2014

Directors’ declaration

The Directors of Primary Health Care Limited (“Primary”) declare that:

(a) in the Directors’ opinion, there are reasonable grounds to believe that Primary will be able to pay its debts as and when they become due and payable; and
(b) in the Directors’ opinion, the financial statements and notes thereto are in accordance with the Corporations Act 2001 , including compliance with accounting standards and giving a true and fair view of the financial position and performance of Primary and the Group; and
(c) the financial statements and notes thereto are in compliance with International Financial Reporting Standards issued by the International Accounting Standards Board as provided in Note 1 to the consolidated financial statements; and
(d) there are reasonable grounds to believe that Primary and the controlled entities identified in Note 27 will be able to meet any obligations or liabilities to which they are, or may become, subject to by virtue of the Deed of Cross Guarantee between Primary and those controlled entities pursuant to ASIC Class Order 98/1418; and
(e) the Directors have been given the declarations required by section 295A of the Corporations Act 2001 from the Chief Executive Officer and Chief Financial Officer for the year ended 30 June 2014.

Signed in accordance with a resolution of the Directors made pursuant to section 295(4) of the Corporations Act 2001 .

On behalf of the Directors

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Edmund Bateman Managing Director 13 August 2014