HEALIUS LIMITED — Annual Report 2017

Aug 17, 2017

CLICK TO FY 2017 EDIT MASTER RESULTS TITLE STYLE YEAR ENDED 30 JUNE 2017

GROUP RESULTS

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FINANCIAL HIGHLIGHTS
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Group	Underlying1	Underlying1	Reported	Reported
$m	FY 2017	FY 2016	FY 2017	FY 2016
Revenue	1,658.6	1,618.5	1,658.6		1,641.9
EBIT	174.6	196.3	(469.7)		114.4
NPAT (continuing operations)2	92.1	96.8	(516.9)		38.2
NPAT (including MedicalDirector)	92.1	104.0	(516.9)		74.7
NPAT BaU3	96.9	97.9	-		-
As at			30 June 2017	30	June 2016
Free cash flow4			83.6		32.7
Dividend cps 100% franked(60% UNPAT)			10.6		12.0

• » Decline in UNPAT driven by the repositioning in Medical Centres - Bulk Billing and partially offset by strong Imaging and solid Pathology performance

• » Free cash flow > 2½x FY 2016 driven by lower HCP spend and capital discipline. Self-funded capex, dividend and reduced net debt.

• » BaU broadly in-line with FY 2016 as Primary invests for future growth

• » Reported results not comparable with FY 2017 including $587m non-cash impairment charge

• » More positive regulatory environment in the near-term

• 1 Underlying performance reflects Primary’s core trading performance. In FY 2017 it excludes the impact of impairments, costs associated with business restructuring and transformation, and non-recurring items

• 2 NPAT (continuing operations) excludes MedicalDirector’s result in FY 2016 which is separately disclosed as profit from discontinued operations . 3 BaU before ramp-up of new centres and Health & Co initiative-see slide 6

• 4 FCF before capital recycling. FY 2016 also before ATO refund and MedicalDirector cash flow (refer slide 28)

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3

FY17 RESULTS

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SELF-FUNDED GROWTH AND DIVIDEND
350 $129m capex split 55:45 maintenance : growth $84m FCF funded dividend and net debt reduction
300
92
250 (75)
200 212 (44) (11) 11
150 84 (58) (23) 15
100 36
13
50 82
82 82 82
-
Opening cash OCF PPE Net HCP Other Net cash after Capital Dividends Net cash after Reduction in Closing cash
acquisitions intangibles FCF recycling dividends borrowings/
finance costs
$m
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• » Capex of $129m down $64m or 33%[1 ] of which

• HCP capex down $41m

• PP&E capex down $20m

• » Split 55:45 between maintenance and growth

• » Delivered $84m free cash flow >2½x FY 2016[2]

• » Self-funded $58m dividend and reduced net debt $36m

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FCF
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100
80
84
2½ x
60
40
20 33
0
$m
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1Capex is before capital recycling initiatives. FY 2016 also before MedicalDirector (refer slide 28)

• 2 FCF before capital recycling initiatives. FY 2016 also before ATO refund and MedicalDirector cash flow (refer slide 28)

• FY17 RESULTS

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FY16 FY17
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4

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IMPROVED NET DEBT POSITION
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Reported		As at
$m	30 June 2017	30 June 2016	30 June 2015
Total debt	879.7	898.3	1,205.5
Cash	(95.5)	(82.3)	(50.0)
Net debt	784.2	816.0	1,155.5
Bank gearing ratio (covenant <3.5x)	2.5x	2.4x	3.0x
Bank interest ratio (covenant >3.0x)	7.9x	6.6x	5.9x
Gearing (net debt: net debt + equity)	29.5%	25.2%	32.4%

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» Net debt reduction
Significant improvement in leverage in FY 2016 from $327m capital recycling program
» 1200
Further improved in FY 2017 from free cash flow
1155
»
Syndicated bank facility has gearing and interest ratios covenant. We have significant 1000
cover on the limits
» Substantial liquidity available - $365m headroom on financings 800
816
784
»
Gearing impacted by $587m non-cash impairment reducing equity
600
FY15 FY16 FY17
$m
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5

FY17 RESULTS

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IMPACT OF GROWTH INITIATIVES
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Underlying	FY 2017	FY 2016	Better/
	$m	$m	(worse) %
NPAT	92.1	96.8	(4.9)
New centres / Health & Co	4.8	1.1
NPAT BaU	96.9	97.9	(1.0)

• » Underlying performance, before new centres and Health & Co, broadly in-line with FY 2016

• FY 2017 openings: Medical Centres - Corrimal Medical Centre, Brisbane IVF Imaging - River City and Holmesglen Private Hospital

• FY 2016 openings: Imaging - Varsity Lakes and National Capital Private Hospital

• » FY 2018 will have margin drag from 4 new Medical Centres, Perth IVF, and Kawana Imaging Centre

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6

FY17 RESULTS

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BRIDGE OF REPORTED TO UNDERLYING
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FY 2017			Restructuring &	Non-recurring
**$m **	Reported	Impairment	strategic initiatives	items	Underlying
EBIT	(469.7)	587.0	39.2	18.1	174.6
Finance costs	(43.1)				(43.1)
PBT	(512.8)		$644.3m EBIT adjustment		131.5
Income Tax	(4.1)				(39.4)
NPAT	(516.9)				92.1

FY 2016		Balance Sheet	Restructuring &	Gain on sales /
**$m **	Reported	Review	strategic initiatives	ATO	Underlying
EBIT	114.4	85.9	32.9	(36.9)	196.3
Finance cost	(58.0)				(58.0)
PBT	56.4		$81.9m EBIT adjustment		138.3
Income Tax	(18.2)				(41.5)
NPAT	38.2				96.8

• » Reported results are not comparable due to the changing nature of business - refer slides 25-26 for more detailed analysis

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7

FY17 RESULTS

DIVISIONAL RESULTS & STRATEGY

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MCBB: FY 2017 – CHANGE IN METRICS
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Underlying	FY 2017 $m FY 20161 $m Better/ (worse) $ Better/ (worse) %
HCP capital expenditure EBITDA less HCP capital expenditure Revenue EBIT	30.3 60.6 30.3 50.0 95.5 92.2 3.3 3.6 317.8 328.7 (10.9) (3.3) 49.6 71.9 (22.3) (31.0)
Under new contracts, we have significantly reduced upfront costs, improved cash flow and widened appeal To balance the value proposition , HCP revenue share up (see slide 11). Additional investments made to: • recruit and support HCPs • expand service offerings – dental, specialists, occupational health, chronic care • Employee engagement • Corrimal / Brisbane IVF opened HCP capex down $30.3m EBITDA-HCP capex up $3.3m Revenue down $(10.9)m

EBIT down $(22.3)m = Revenue down $(10.9)m D&A savings $4.7m Costs up $(16.1)m

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1 FY 2016 restated to ensure the allocation of expenses from corporate is consistent with FY 2017

9

FY17 RESULTS

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MCBB: GP KEY DRIVERS
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GPs FY 2017 FY 2016 FY 2015 Better/ (worse) % FY16-17 Better/ (worse) % FY15-16	GPs FY 2017 FY 2016 FY 2015 Better/ (worse) % FY16-17 Better/ (worse) % FY15-16	GPs FY 2017 FY 2016 FY 2015 Better/ (worse) % FY16-17 Better/ (worse) % FY15-16
Headcount 1,040 960 923 8.3 4.0 FTEs1 959 920 908 4.2 1.3 Gross billings ($’m) 416.0 417.5 415.8 n/m n/m Share of revenue (%) 42.9% 46.0% 47.6% (310) pp (160) pp GP capital expenditure2 ($’m) 27.4 53.2 63.7 48.5 16.5
EBITDA-HCP capex3 ($’m)	95.5 92.2 75.8	3.6 21.6

EBITDA -HCP capex

• » FTEs more appropriate measure with increasing part-timers/ lower contracted hours

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105
95
96
85 92
75
76
65
F Y15 FY16 FY17
1 FTEs based on 40-hour week 2 Gross GP capex. Gross HCP capex FY 17 $30.3m, FY 16 $60.6m, FY 15 $79.9m
3 Prior years restated to ensure the allocation of expenses from corporate is consistent with FY 2017
$m
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• » Gross billings broadly stable year-on-year

• » Primary receiving lower share of billings under new contracts hence greater number of GPs is critical to revenue growth

• » GP capex reducing significantly year-on-year releasing capital to fund expansion

• » EBITDA-HCP capex is a better measure as it reflects immediate cash impact of new contracts with accounting performance delayed due to 5 year amortisation

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FY17 RESULTS

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MCBB: GP RECRUITMENT
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• » Recruitment and retention are critical success factors

Quarterly GP recruitment

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55
»
Record 153 GPs recruited, with momentum increasing
» Retention improved to 92% across cohort with 1/3 of leavers’ contracts not renewed 35 38
» Strong pipeline of GPs. Plus record 92 registrars over 12-month training cycle 25
»
$19m after-tax GP capex, 73% of new GPs electing for ‘no-upfront’ contracts
Record recruitment 40.00
Q1 Q2 Q3 Q4
35.00
75
30.00
25.00
25
20.00
1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17
(25) 15.00
10.00
(75) Quality reset masks 5.00
stronger retention levels
Joiners (LHS) Leavers (LHS) After-tax capex (RHS)-1
# of GPs
GP capex ($m)
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FY 17 RESULTS

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MCBB: STRATEGY
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• » HCP and employee engagement

• Improve offering to HCPs: recruitment packages, increased support services, nurses, relationship team

• » Staff engagement activities

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• » Diversification of service offerings

• Dental, specialists, IVF, occupational health, integrated care

• » Expansion

• Opening of Corrimal centre and Brisbane IVF

• Reconfiguration of vacant space

• Roll out of 4 new medical centres and Perth IVF in FY 2018

• » Portfolio optimisation

• Refurbishment of existing sites

• Closure of underperforming Parramatta centre

• » Customer experience

EXPANSION		INVESTMENT		ENGAGEMENT		DIVERSIFICATION
Recruitment		Helix (Black Swan)		HCP Recruitment &		Dental
				Retention
Reconfigurations		Refurbishments				Specialists
				Staff Development
Corrimal NSW		Customer		& Retention		IVF
		Experience
IVF BNE				Leadership		Occupational
				Conference		Health
**4 New Centres & **
IVF Perth -FY18				Industry &		Integrated Care
				Government

BACK TO BASICS

• Improvement in patient experience e.g. improved patient journey, queue management

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FY17 RESULTS

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MCPB: HEALTH & CO
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	FY 2017
Underlying	$m
Revenue	1.8
EBITDA	(2.3)
EBIT	(2.3)
Capital expenditure	8.4

• » Launch of brand and partnership with Professor Kerryn Phelps

• » 5 clinics in Health & Co network to-date

• » Strong pipeline of interest

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FY17 RESULTS

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PATHOLOGY: FY 2017 ANALYSIS
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	FY 2017	FY 20161	Better/
Underlying	$m	$m	(worse) %
Revenue	1,038.4	994.4	4.4
EBITDA	146.0	144.9	0.8
Depreciation	(18.8)	(19.1)	1.6
Amortisation	(7.7)	(7.5)	(2.7)
EBIT	119.5	118.3	1.0
Capital expenditure	26.9	40.5	33.6

• » Above market revenue growth of $44.0m or 4.4%

• Increases in both volume and price

• » EBIT margin compression

• Property costs with 124 additional Approved Collection Centres and rental rate increases

• Consumables and cost of new genetic tests

• » Maintained disciplined approach with capex down 33.6% on pcp

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1 FY 2016 restated to ensure the allocation of expenses from corporate is consistent with FY 2017

FY17 RESULTS

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PATHOLOGY: STRATEGY
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• » ACC costs

• Net 124 ACCs in response to Government policy uncertainty

• Strategy reset with greater policy clarity

• FY 2018 initiatives to reduce rental cost growth:

  • » Rent negotiation discipline

  • » Portfolio assessment v target margins

  • » Exit or renegotiate underperforming sites

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• » Diversification

• Niche specialties: Kossard Dermatopatholgy

• Partnerships with operators aligned to specialties

• Expansion in private hospitals

• Medical Centres revenue optimisation eg skin clinics

• Organic opportunities in Southeast Asia via capital light joint ventures

• » Driving efficiencies

• Optimisation of laboratory infrastructure and procurement processes

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FY17 RESULTS

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IMAGING: FY 2017 ANALYSIS
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	FY 2017	FY 20161	Better/
Underlying	$m	$m	(worse) %
Revenue	333.5	326.9	2.0
EBITDA	57.8	61.9	(6.6)
Depreciation	(16.8)	(25.6)	34.4
Amortisation	(12.0)	(13.9)	13.7
EBIT	29.0	22.4	29.5
HCP capital expenditure	4.3	10.3	58.3
Capital expenditure	28.2	54.5	48.3

• » Strong EBIT expansion reflecting benefits of business portfolio management

• Closure of uneconomic community sites

• Focus on higher margin modalities e.g. MRI and CT

• Growth from Medical Centres through focus on service offerings (revenue up 8%)

• Containment of labour growth

• $12.2m costs in EBITDA from sale and leaseback and property trust. Offset by savings in depreciation and notional interest

• Saving in amortisation from more radiologists on ‘no-upfront’ and roll-off of Symbion hospital contract amortisation

• » Self-funding for 2[nd] year. 48.3% reduction in total capex on pcp with HCP capex reducing 58.3%

1 FY 2016 restated to ensure the allocation of expenses from corporate is consistent with FY 2017

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IMAGING: STRATEGY
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• » HCP contracts

• Radiologists stable at 115

• 70% starters on ‘no upfront’ contracts

• » Portfolio alignment and investing for growth

• Hospital contracts (Holmesglen)

• Northern Beaches PPP critical for enhancing reputation in FY18-19

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• Fit for purpose high-end imaging centres (River City, Kawana)

• Primary’s large-scale medical centres network (Corrimal)

• “Whole of Primary” view improving service levels to optimise referrals

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FY17 RESULTS

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DIGITAL INVESTMENT
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• » Deliver a secure and scalable platform. Investments underway or in planning:

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FY17 RESULTS

GOVERNMENT & SUMMARY

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GOVERNMENT POLICY
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• » Federal Budget gave clarity on:

• Progressive restoration of Medicare indexation for GPs, specialists, some imaging modalities. Delivers ~$3.5m annual revenue growth in FY 2019

• Bulk bill incentives to remain in pathology and imaging

• Rent regulation for pathology ACCs removed from agenda

• » MBS review continues but limited findings released to-date

• » Primary likely to participate in 12 Health Care Homes trials

• » On-going discussion regarding RANZCAR/ADIA[1] potential Quality Framework

• » More positive short-term policy settings

• » Irrespective of policy, diversification of revenue: Health & Co, non-MBS GP services and pathology specialities

• » On-going dialogue to influence future policy debate

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1 RANZCAR: Royal Australian and New Zealand College of Radiologists. ADIA: Australian Diagnostic Imaging Association

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FY17 RESULTS

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WRAP UP
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• » Aims

• Cement position as leading supporter of quality healthcare services

• Deliver long-term sustainable growth to shareholders

• Become preferred place for HCPs to practise, staff to work, and patients to visit

• Drive patient-centricity throughout Primary modalities with Medical Centres at the centre

• » Transformation agenda FY 2017

• Increasing HCP numbers

• Diversifying and expanding service offerings

• Growing the Medical Centres and Imaging footprints

• Investing in technology and people capabilities

• Optimising Group synergies and better integration of offerings

• Improving employee engagement

• » Expected to deliver the pathway for sustainability and growth

• » Dr Parmenter commences in September

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FY17 RESULTS

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APPENDICES
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A MARKET LEADING NETWORK

As at August 2017

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FY17 RESULTS

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INDUSTRY TRENDS
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5 year growth
rate of 6.1%
5 year growth
rate of 3.9%
5 year growth
rate of 6.0%
5 year growth
rate of 5.3%
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FY17 RESULTS

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UNDERLYING RESULTS BY DIVISION
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FY 2017	Medical	Health & Co	Pathology	Imaging	Corporate	Group
$M	Centres BB
Revenue1	317.8	1.8	1,038.4	333.5	0.1	1,658.6
EBITDA	125.8	(2.3)	146.0	57.8	(16.1)	311.2
Depreciation	(20.8)	(0.0)	(18.8)	(16.8)	(2.8)	(59.2)
Amortisation	(55.4)	(0.0)	(7.7)	(12.0)	(2.3)	(77.4)
EBIT	49.6	(2.3)	119.5	29.0	(21.2)	174.6

FY 20162	Medical	Health & Co	Pathology	Imaging	Corporate	Group
$M	Centres BB
Revenue1	328.7	-	994.4	326.9	1.6	1,618.5
EBITDA	152.8	-	144.9	61.9	(10.3)	349.3
Depreciation	(20.0)	-	(19.1)	(25.6)	(1.6)	(66.3)
Amortisation	(60.9)	-	(7.5)	(13.9)	(4.4)	(86.7)
EBIT	71.9	-	118.3	22.4	(16.3)	196.3

1 $33.0m of inter-company revenue/expenses have been eliminated at the Group level (FY 2016 $33.1m)

2 FY 2016 restated to ensure the allocation of expenses from corporate is consistent with FY 2017

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RECONCILIATION OF REPORTED TO
UNDERLYING FY 2017
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FY 2017	Reported	Impairment	Restructuring &	Non-recurring	Underlying
**$M **			strategic initiatives	items
Revenue	1,658.6	0.0	0.0	0.0	1,658.6
EBITDA	(333.1)	587.0	39.2	18.1	311.2
Depreciation	(59.2)	0.0	0.0	0.0	(59.2)
Amortisation	(77.4)	0.0	0.0	0.0	(77.4)
EBIT	(469.7)	587.0	39.2	18.1	174.6
Finance costs	(43.1)	0.0	0.0	0.0	(43.1)
PBT	(512.8)	587.0	39.2	18.1	131.5
Income Tax	(4.1)	-	-	-	39.4
NPAT	(516.9)	-	-	-	92.1

• » Impairment charge: goodwill in Medical Centres ($468.5m) and asset carrying values and associated provisions including ex Symbion sites ($118.5m)

• » Restructuring and strategic initiatives: transformation costs ($21.9m), redundancies ($11.2m) and set-up of private/mixed billing medical centre vehicles and pathology in SE Asia ($6.1m)

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RECONCILIATION OF REPORTED TO
UNDERLYING FY 2016
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	Reported	Balance	Restructuring	Gain on Sale	ATO settlement	Underlying
FY 2016		Sheet	& strategic	/ Dissolution
$M		Review	initiatives
Revenue	1,641.9	0.0	0.0	(23.4)	0.0	1,618.5
EBITDA	271.1	83.2	31.9	(23.4)	(13.5)	349.3
Depreciation	(70.1)	2.8	1.0	0.0	0.0	(66.3)
Amortisation	(86.6)	(0.1)	0.0	0.0	0.0	(86.7)
EBIT	114.4	85.9	32.9	(23.4)	(13.5)	196.3
Finance costs	(58.0)	0.0	0.0	0.0	0.0	(58.0)
PBT	56.4	85.9	32.9	(23.4)	(13.5)	138.3
Income Tax	(18.2)	-	-	-	-	(41.5)
NPAT continuingoperations	38.2	-	-	-	-	96.8

• » Balance Sheet review including write-offs of property, legacy IT costs and sundry assets

• » Restructuring and strategic initiatives

• » Gains on sales of THI and VEI shareholding, and dissolution of a Joint Venture

• » Adjustment to the ATO settlement relating to potential HCP tax liabilities

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FY17 RESULTS

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MCBB: FY 2017 ANALYSIS
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	FY 2017	**FY 20161 **	Better/
Underlying	$m	$m	(worse) %
Revenue	317.8	328.7	(3.3)
EBITDA	125.8	152.8	(17.7)
Depreciation	(20.8)	(20.0)	(4.0)
Amortisation	(55.4)	(60.9)	9.0
EBIT	49.6	71.9	(31.0)
HCP capital expenditure	30.3	60.6	50.0
EBITDA less HCP capital expenditure	95.5	92.2	3.6
Total capital expenditure (before capital recycling)	56.4	83.1	32.1

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1 FY 2016 restated to ensure the allocation of expenses from corporate is consistent with FY 2017

FY17 RESULTS

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CASH FLOW RECONCILIATION
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Underlying	FY 2017	FY 2016	Movement
	$m	$m	$’m
Operating cash flows	212.2	225.8	(13.6)
Payments for PP&E, HCPs, intangibles	(128.6)	(193.1)	64.5
Free cash flow	83.6	32.7	50.9
Capital recycling	10.9	327.3	(316.4)
ATO refund	-	49.0	-
MedicalDirector operating cash flow	-	10.3	-
MedicalDirector investing cash flow	-	(11.8)	-
Dividends	(58.4)	(64.4)	6.0
Debt reduction / finance costs	(22.8)	(310.9)	288.1
Net increase in cash held	13.3	32.2	(18.9)
Opening cash	82.3	50.0	32.3
F/X	(0.1)	0.1	(0.2)
Closingcash	95.5	82.3	13.2

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FY17 RESULTS

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TAX IMPLICATIONS OF HCP ACQUISITIONS
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• » Healthcare Practitioners contracted on or after 1 July 2015:

• Deferred tax liability (DTL) to be recognised at the time of the acquisition of healthcare practices and capitalisation of contractual relationship intangible assets.

• Equal movement in DTL will ensure an effective tax rate of 30%

• » Healthcare Practitioners contracted prior to 30 June 2015:

• No DTL has been recognised regarding the acquisition of healthcare practices and capitalisation of contractual relationship intangible assets to-date

• Therefore there is a non-deductible (permanent) difference which will increase the notional effective tax rate above 30%. This will progressively decrease as the associated amortisation expense is recognised and runs off.

• The additional accounting tax expense is as follows:

**$m **	2018	2019	2020
Additional Accounting Tax Expense	7.8	5.2	2.3

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FY17 RESULTS

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DISCLAIMER
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This presentation has been prepared by Primary Health Care Limited (ACN 064 530 516) (‘PRY’).

Material in this presentation provides general background information about PRY which is current as at the date this presentation is made. Information in this presentation remains subject to change without notice. Circumstances may change and the contents of this presentation may become outdated as a result.

The information in this presentation is a summary only and does not constitute financial advice. It is not intended to be relied upon as advice to investors or potential investors and has been prepared without taking account of any person’s investment objectives, financial situation or particular needs.

This presentation is based on information made available to PRY. No representation or warranty, express or implied, is made in relation to the accuracy, reliability or completeness of the information contained herein and nothing in this presentation should be relied upon as a promise, representation, warranty or guarantee, whether as to the past or future. To the maximum extent permitted by law, none of PRY or its directors, officers, employees, agents or advisers (PRY parties) accepts any liability for any loss arising from the use of this presentation or its contents or otherwise arising in connection with it, including, without limitation, any liability arising from the fault or negligence on the part of any PRY parties.

Those statements in this presentation which may constitute forecasts or forward-looking statements are subject to both known and unknown risks and uncertainties and may involve significant elements of subjective judgment and assumptions as to future events which may or may not prove to be correct. Events and actual circumstances frequently do not occur as forecast and these differences may be material. The PRY parties do not give any representation, assurance or guarantee that the occurrence of the events, express or implied, in any forward-looking statement will actually occur and you are cautioned not to place undue reliance on forward-looking statements.

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FY17 RESULTS