Pro medicus annual report 2008

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Pro medicus Annual Report 2008

Highlights 2007/2008

financial highlights

Profit after tax a record $7.93 million, up 12.5% on prior year
Revenue, a record $15.36 million, up 17.8%
Australian operations up by 33.1% on prior year
Operating margins 73.9%
Final dividend of 3.25 cents per share fully franked
Total dividend for the year of 6.0 cents fully franked
Strong balance sheet with cash reserves up by 15.7% to $12.89 million
Company remains debt-free

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CONTENTS
1 Highlights 2007/2008 2 Financial Summary 4 CEO & Chairman’s Letter 6 Business Background 8 The Year 2008 in Review
10 Into the Future 12 Financial Statements 14 Directors’ Report 59 Directors’ Declaration 60 Independent Audit Report
62 ASX Additional Information 64 Corporate Governance 68 Corporate Information
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business highlights

A ‘tipping point’ now reached with more than 125 practices using Pro Medicus’ digital technology, up from 40 sites a year ago.
Continued growth of promedicus.net, the company’s e-health offering. More than 27,500 doctors are now registered to use the network, which carried 3.52 million transactions for the year, an increase of 10%.
US activities have seen ongoing successful RIS placements in the world’s biggest market comprising 8,500 imaging centres and community-based hospitals, around 30 times the Australian market.
Launch of further technologies aimed at interfacing leading Electronic Medical Record (EMR) vendors in the US.
New agreement signed with Agfa-Gevaert in North America. Pro Medicus to sell under its own brand directly to end users. Opens up new markets – eg orthopaedics and cardiology – where the technology is applicable.
Continued investment in building the platform for future growth including the appointment of a new CEO and increasing investment in R&D.

Pro medicus Annual Report 2008

Financial summary

Year ended 30 June 2008
All figures in $A thousands unless otherwise stated
	2008	2007
	$’000	$’000
Revenues from Continuing Operations	15,361	13,199
	+16.4%
Revenue	15,361	13,035
	+17.8%
Operating Profit Before Interest and Income Tax	10,620	9,081
	+16.9%
Net Profit After Tax	7,933	7,052
	+12.5%
Total Assets 30 June	19,543	17,554
Shareholders’ Funds 30 June	15,744	14,257
Net Tangible Assets per Share at 30 June (cents)	14.0	12.0
Earnings per Share (cents)	7.9	7.1
	+11.3%
Franked Dividends per Share (cents per share)	6.0	7.0
	-14.3%
		3

Pro medicus Annual Report 2008

CEO &Chairman’s Letter

Dear Shareholders,

It is our pleasure to report on another highly successful year of record sales and profits. One that has seen Pro Medicus strengthen its position as a leading provider of medical IT solutions to the local markets and prime itself for its next phase of business growth in international markets.

We are also pleased to report continued growth in our e-health offering, promedicus.net. Our growing community of more than 27,500 Australian doctors generated more than 3.52 million transactions in the year, an increase of 10% over last year. Part of this growth has been achieved by extending the network to new providers such as specialists – a trend the company is looking to encourage.

Profit after tax of $7.93 million was a record for the company, up 12.5% on last year and the company’s fourth successive record profit. Revenue of $15.36 million, also a record, was up 17.8% on last year.

Pro Medicus’ Australian business grew very strongly during the year, with sales up 33.1% over the previous year. Pre-tax profit of $9.63 million in 2008 was up 32.4%, and second half pre-tax profit was $5.61 million, up 40.1%.

Over the past 12 months the company has continued to develop its export markets with further sales of our RIS solution primarily in the United States, where we booked pre-tax profit of $1.69 million, down from $2.46 million. This comparative result was impacted by the early renegotiation of the Agfa contract, a significantly stronger Australian dollar and the expected transition from new licence to support revenue for the Canadian AltaPACS contract.

This significant growth was in line with our predictions that a “tipping point” had been reached in the rate of adoption of our technology. The number of Australian radiology practices using our digital imaging product increased to 125 as at the end of June, up from 40 a year ago. We expect this trend to continue as the industry moves towards the new efficiency and productivity benchmarks delivered by our digital product.

In July the company signed a new, two-year renewable agreement with Agfa-Gevaert in North America. This new contract not only enables Pro Medicus to continue to use the extensive Agfa sales force to generate leads but will also see the company sell its own Pro Medicus-branded products directly to end users, rather than under the Agfa label as was previously the case. Importantly, the company will also be able to target new markets that were not addressed

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in the previous contract, such as orthopaedics and cardiology, where the technology is applicable.

The company is now in a transition period as the new US business model is implemented. However there are new projects in our sales funnel and we would expect momentum to pick up over the next 12 to 18 months. Taking control of our North American sales effort means that the company will now get the full mark-up on the sale of our software and ongoing service rather than sharing it with Agfa. Whilst initially these higher margins will be offset by establishment costs, longer term the company believes the new model for the US will provide significantly greater upside and growth potential.

Fundamental to our business is our software technology. During the past year, we introduced a number of new capabilities for both the local and international markets. For example, in the US we have developed new interfacing technology which allows connections with leading providers of Electronic Medical Records (EMRs). We have also undertaken a major R&D effort aimed at transitioning our products to a new technology platform, designed to serve as the cornerstone for our future growth in both local and overseas markets.

Financially we remain very strong, being debt free with cash reserves of $12.89 million. The Board has declared

a fully franked final dividend of 3.25 cents per share. This brings the total dividend for the year to 6.0 cents per share fully franked.

Looking forward, the company expects that radiology practices both here and abroad will continue to recognise the significant benefits that can be realised using our broad portfolio of digital technology offerings.

Although world events have presented a challenging year for most businesses we are excited to be in the healthcare industry at a time when technology is valued for its potential to make such a big difference to people’s lives.

In closing, we would like to express our sincere thanks to our fellow directors and to the small but highly talented team at Pro Medicus for their invaluable personal contributions to what has been another outstanding year for our company.

Yours faithfully,

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David Chambers CHIEF EXECUTIVE OFFICER

Mel Ward AO CHAIRMAN

Pro medicus Annual Report 2008

Business Background

Pro Medicus is a leading provider of IT solutions and services to the private healthcare industry.

Established in 1983 by Dr Sam Hupert and Anthony Hall, Pro Medicus aimed to provide a class-leading range of products and services to address the specific IT needs of the healthcare industry.

Pro Medicus now provides healthcare IT solutions to large Australian corporate groups, as well as specialist physicians and surgeons, GPs and allied health professionals. The suite of products comprises core and e-health applications and digital radiology (PACS) integration products, plus a comprehensive suite of services centred on the company's product offerings. These include training and installation, hardware configuration and ongoing technical and end user support.

In 2003 the company successfully expanded overseas, completing its first installation in the UK, where it now has 20 sites. In the 2004/2005 year Pro Medicus entered the North American market with a large digital imaging contract with AltaPACS in Canada and a three-year contract with Agfa to market digital technology to the private imaging centre market.

The company has recently entered in to a new agreement with Agfa which will see it using the Agfa sales force as a conduit, whilst selling its products directly to end users under its own brand name, rather than solely under the Agfa label. Pro Medicus will also be able to expand its offering into new markets – like orthopaedics and cardiology – where its technology is applicable, as well as being able to work with other PACS vendors where appropriate.

The activities of Pro Medicus in the financial year ending June 30, 2008 can be characterised by the following revenue streams:

CORE BUSINESS

The company’s core business consists of a range of integrated software applications and services that are designed to aid the management of medical practices. The primary products in this area include medical accounting, clinical reporting, appointments/scheduling and marketing/management information applications. Services include network design and implementation, hardware sourcing and configuration, staff and management training and ongoing technical and end user support.

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‘08
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E-HEALTH

Pro Medicus’ internet-based e-health offering, promedicus.net, enables referring doctors to receive encrypted clinical reports via the internet to a centralised "in-tray" run on a doctor’s computer. These reports are then electronically incorporated into the patients’ medical records, doing away with the need for double handling or manual filing.

promedicus.net currently integrates with more than 50 clinical desktop products and is supported on both Microsoft Windows and Apple Macintosh platforms. More than 27,500 Australian doctors are registered users of promedicus.net.

Pro Medicus provides end-to-end management of the delivery process ensuring that both the sending of the result by the diagnostic provider and its receipt by the referring doctor are logged. This assists in fulfilling duty-of-care requirements and in so doing provides significant added value to the process.

DIGITAL IMAGING

Digital Radiology or PACS (Picture Archive and Communication Systems) radiology images (x-rays) are acquired digitally and viewed on high-resolution monitors without the need to convert these images to x-ray film. Images and the subsequent diagnostic report are stored and linked electronically. This new way of managing a radiology practice is forecast to revolutionize the diagnostic imaging business by significantly improving efficiency of radiographic/technical staff and radiologists as well as facilitating the sharing of the diagnostic images, leading to better quality of care and patient outcomes.

Pro Medicus has developed a range of highly modular digital imaging (PACS) integration products. These integration products provide a seamless interface between the Pro Medicus system and a range of leading PACS products, allowing large diagnostic imaging providers to incrementally implement this technology across their enterprises. Revenue is generated from the sale of software licenses for the integration modules, implementation services and ongoing support. Pro Medicus’ digital integration products are now being offered and sold to radiology practices in Australia, USA, Canada and the United Kingdom.

Pro medicus Annual Report 2008

Year in review

australia

CORE BUSINESS

The core business continued to perform well during the past year. The key drivers were digital imaging and revenues from ongoing service and support. This has provided the company with a growing recurring revenue stream.

E-health

Digital imaging

The migration of Australian private radiology providers from analogue to a fully digital system increased pace during the past financial year. Pro Medicus maintained its status as the market leader in radiology digital integration technology in Australia. The company now has more than 125 sites enjoying the productivity and clinical benefits that an integrated digital environment delivers, up from 40 sites a year ago.

The company’s e-health business, promedicus.net, continued to grow solidly, reinforcing its position as the largest and clearly preferred system for the electronic delivery of diagnostic imaging reports. More than 27,500 doctors now subscribe to the network, which carried over 3.52 million transactions for the year. Revenue is generated from a transaction charge for each report that is delivered, as well as one-off connection fees and recurring subscriptions.

‘08

united states

The company continued to make solid progress in the US, increasing its market penetration using Agfa’s HealthCare sales team. The sales funnel remains robust with several new wins over the last months including its first sale to a large imaging centre group incorporating integration to a leading Electronic Medical Record (EMR) product. It is expected that this and other planned integrations will broaden our reach to both the imaging centre and community based hospital market segments.

canada

Revenue from the AltaPACS contract was derived during the period from recurring support revenue. The company expects that its longstanding relationship with this client will continue throughout the coming year, providing ongoing support revenue as well as revenue from one-off projects and licence purchases as the group looks to expand within its region.

These developments, together with previous billing and transcription modules, further differentiate the product offering in a market where many imaging centres and hospitals spend large amounts outsourcing their billing and transcription.

Pro medicus Annual Report 2008

Into the future

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US Expansion Canadian
Expansion
New
Promedicus.net International
Pro medicus
Markets
Digital Imaging New Products
Key growth strategies for 2009
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In the coming year Pro Medicus is looking to continue to maximise the opportunities it has created with digital imaging integration in Australia as well as the significant growth opportunities flowing from the newly re-structured Agfa North American contract.

The move to digital radiology in Australia reached a tipping point in 2008, and the company predicts that it will continue to benefit as an increasing number of practices move to this technology.

Market penetration in the US is also expected to accelerate throughout the 2009 financial year. Revenues from the combined Agfa North American and direct selling activities are expected to increase over the next 12 months as we continue to transition to the new business model and build on the solid base that has been created.

As well as maximising its returns from existing overseas contracts, Pro Medicus will continue to explore other overseas opportunities, both in terms of new markets and of other products and opportunities in existing markets.

Pro medicus Annual Report 2008

Financial statements

	contents
Directors’ Report	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .page 14
Auditor’s Independence Declaration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Income Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Balance Sheet	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Statement of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Cash Flow Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Notes to the Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Note 1	Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Note 2	Summary of Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Note 3	Financial Risk Management Objectives & Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Note 4	Segment Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Note 5	Income and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Note 6	Income Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Note 7	Earnings per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Note 8	Dividends Paid and Proposed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Note 9	Cash and Cash Equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Note 10	Trade and Other Receivables (Current) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Note 11	Plant and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Note 12	Intangible Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Note 13	Trade and Other Payables (Current). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Note 14	Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Note 15	Contributed Equity and Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Note 16	Share based Payment Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Note 17	Commitments and Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Note 18	Events after the Balance Sheet Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Note 19	Auditors’ Remuneration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Note 20	Director and Executive Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Directors’ Declaration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Independent Audit Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
ASX Additional Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Corporate Governance Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

Pro medicus Annual Report 2008

Your Directors submit their report for the year ended 30 June 2008.

DIRECTORS

The names and details of the company’s directors in office during the financial year

and until the date of this report are as follows Directors’ report

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Melvyn Keith Ward AO CHAIRMAN

B.E.(Hons), M.Eng.Sc., F.I.E(Aust), F.T.S., F.A.I.M., I.V.A.

Mel Ward joined Pro Medicus Limited as a Director on 4 April, 2000. He is a director of a number of companies including Coca-Cola Amatil Ltd, Macquarie Communications Infrastructure Group, Western Australian Newspapers Holdings Limited and Transfield Services Limited.

He was also a director of AXA Asia Pacific Holdings until April 2003 and of Insurance Manufacturers of Australia until July 2006. After a long career in the communications sector, he retired as Managing Director of Telecom Australia (Telstra) in 1992. Mel is Chairman and serves on the audit committee.

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Dr Peter David Jonson NON-EXECUTIVE DIRECTOR

B.Comm(Hons), M.A.(Hons), PhD, F.A.I.C.D., F.A.A.S.S.

Peter Jonson joined Pro Medicus as a Director on 4th April 2000. He is Chairman of the Australian Institute for Commercialisation, Australian Aerospace and Defence Innovations Ltd and Bionomics Ltd. Dr Jonson is also Chair of the Federal Government’s CRC Committee. He is a director of Village Roadshow Ltd, Sequoia Capital Management Ltd and Metal Storm Limited. He is Chair Emeritus of the Melbourne Institute, having served as the Chair of its Advisory Board from 1992 to 2002.

In his previous career, Peter was an economist at the Reserve Bank of Australia for 17 years, including 7 years in its most senior economics post, then called Head of Research. He subsequently worked in the private finance industry for 12 years including CEO of Norwich Financial Services Ltd and Managing Director and then Chairman of ANZ Funds Management. Peter is a fellow of the Australian Institute of Company Directors and of the Academy of the Social Sciences in Australia.

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Dr Sam Aaron Hupert DEPUTY CHAIRMAN & EXECUTIVE DIRECTOR M.B.B.S. Retired 1st October 2007. Deputy Chairman and Executive Director - Appointed 1st October 2007.

Co-founder of Pro Medicus Limited in 1983, Sam Hupert is a Monash University Medical School graduate who commenced General Practice in 1980. Realising the significant potential for computers in medicine he left general practice in late 1984 to devote himself full time to managing the Company.

On the 1st of October 2007 Dr Hupert stepped down as Managing Director and Chief Executive a position he had held for 25 years. He was appointed Deputy Chairman and Executive Director at this time and maintains an active role in the company.

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Anthony Barry Hall EXECUTIVE DIRECTOR & TECHNOLOGY DIRECTOR B.Sc.(Hons), M.Sc.

Co-founder of Pro Medicus Limited in 1983, Anthony Hall has been principal architect and developer of the core software systems. His current role is to oversee product development and plan the future technical direction of the Company.

David Chambers CHIEF EXECUTIVE OFFICER & MANAGING DIRECTOR B.Sc. Grad Dip. Bus. Appointed CEO on the 1st October 2007. Appointed as a director on 10th December 2008.

David Chambers joined Pro Medicus as CEO on the 1st of October 2007 and was appointed a Director on the 10th December 2007. David graduated from La Trobe University with a BSc, Chemistry and Mathematics in 1978 and went on to do a Grad Dip Bus Mgt, Marketing at the Australian Graduate School of Management.

He has extensive experience in the healthcare industry and was previously the General Manager of Agfa Healthcare Asia Pacific prior to taking on the role of Vice President Sales & Services, North America at Agfa Healthcare.

Peter Kempen NON-EXECUTIVE DIRECTOR

Appointed 12 March 2008

Peter Kempen joined Pro Medicus as a Director on 12 March 2008. He is Chairman of Patties Food Limited, Danks Holdings and Ivanhoe Grammar School.

Peter has previously been Managing Partner of Ernst & Young Corporate Finance Australia and was also heavily involved in the first corporatisation of a radiology practice and ultimate public listing of Medical Imaging Australasia Limited. Peter is a Fellow of the Institute of Chartered Accountants in Australia and a Fellow of the Australian Institute of Company Directors. Peter is Chairman of the audit committee.

Philip Gregory Molyneux AM NON-EXECUTIVE DIRECTOR B.Econ, F.C.A.

Retired 30 August 2007

Philip Molyneux joined Pro Medicus Limited as a Director on 4 April, 2000. Until his retirement Philip was Chairman of Anadis Limited, and Equity Trustees Limited, a director of Centre for Eye Research Australia Limited and Australian National Academy of Music. He was also a director of Corps of Commissionaires (Victoria) Limited until April 2005 and a director of Sundowner Motor Inns Limited from July 2003 to June 2004. He was also a trustee of Monash University Accident Research Foundation. Philip was Chairman of the audit committee.

Phillip retired from the Pro Medicus board on the 30th of August 2007.

Alexander McKendrick COMPANY SECRETARY B.Juris LLB; Barrister & Solicitor, Supreme Court of Victoria

Alexander was acting Company Secretary at 30 June 2008 and subsequently became Company Secretary on 4 July 2008. Alexander is currently Company Secretary & Legal Manager for Dairy Australia Ltd. Alexander has previously been General Counsel and Chief Operating Officer of Transport Certification Australia Ltd and Legal Counsel at Nylex Limited.

Pro medicus Annual Report 2008

Directors’ report cont.

INTERESTS IN THE SHARES AND OPTIONS OF THE COMPANY

As at the date of this report, the interests of the directors in the shares and options of the Company were:

		Options over
	Ordinary Shares	Ordinary Shares
A. B. Hall	30,068,500	425,000
S. A. Hupert	30,072,660	425,000
M. K. Wa_r_d	50,000	400,000
P. D. Jonson	50,000	200,000
D. Chambers	50,000	NIL
P. T. Kempen	30,000	200,000
EARNINGS PER SHARE
	Cents
Basic earnings per share		7.9
Diluted earnings per share		7.9

DIVIDENDS
Ordinary Shares	Cents	$’000
Final dividends recommended:
Normal dividend plan	3.25	3,259
Dividends paid in the year:
Interim for the year	2.75	2,757
Final dividend for 2007 shown as recommended in the 2007 report:
Normal dividend plan	3.00	3,008
Special dividend	1.00	1,002

OPERATING AND FINANCIAL REVIEW Corporate Structure

Pro Medicus Limited is a company limited by shares that is incorporated and domiciled in Australia.

Nature of operations and principal activities

The principal activities of the Company during the year were the supply of product and services to diagnostic imaging groups and a broad range of groups within the private medical market. These products and services include:

Innovative proprietary medical software;
Training, installation and professional services;

In addition the company has been engaged in ongoing new product development:

A number of new capabilities have been introduced into the US product offering throughout the year including the integration to a number of 3rd party billing modules as well as integration to a leading US electronic medical record (EMR) provider.

The company has also increased its R&D effort with a number of projects underway including the development of a new technology platform designed to underpin the company’s future growth in both local and overseas markets.

Support and service products;
Promedicus.net secure email; and
Digital radiology integration products & services aimed at facilitating the transition from an analogue to a fully digital environment.

REVIEW AND RESULTS OF OPERATIONS Investment Activities

Surplus funds are invested by the Company in commercial bills to maximise the interest return.

Performance Indicators

Management and the Board monitor overall performance, from the strategic plan through to the performance of the Company against operating plans and financial budgets. The Board, together with management, have identified key performance indicators (KPIs) that are used to monitor performance. Key management monitor these KPIs on a regular basis and Directors receive appropriately structured board reports for review prior to each monthly Board meeting allowing them to actively monitor the Company’s performance.

Dynamics of the Business

The company’s Australian operations performed very strongly over the past year with revenue increasing by 33.1% from $9.4M to $12.51M largely driven by the increasing uptake of our digital imaging technology. Over 125 practices now use the technology, up from 40 practices last year.

The significant growth confirms the company’s belief that our digital imaging interface technology is the market leader in Australia and is a key component for future ongoing success both here and abroad.

Promedicus.net, the company’s e-health offering, continued to hold its leading market position with growth in both the number of doctors registered (25,300 doctors to 27,776, an increase of 10%) as well as transaction volumes which climbed 10% to 3.52 million transactions. Revenue increased 1% from $2.38 million to $2.41 million despite margin pressure from competitors.

Under the new agreement, Pro Medicus will have its own presence in the US and will be able to sell products under its own name rather than under the Agfa brand. Pro Medicus will also not be confined to the imaging centre market, but can now expand into new markets – like orthopaedics and cardiology – where its technology is applicable. It can also collaborate with other PACS vendors where appropriate. The company believes that these initiatives will better position it for future growth in this market.

Operating Results for the Period

Pro Medicus reported an after tax profit of $7.933 million, up 12.5% making this the most profitable year in Pro Medicus history. Revenue also rose to a record $15.36 million, an increase of 17.8% on the previous year.

Net margin as defined by profit before tax to revenue from operating activities decreased marginally from 77.6% in 2007 to 73.9% in 2008 as the company continued to build the platform for future growth which included the appointment of a new CEO as well as increased investment in research and development.

Shareholder Returns

The Company is pleased to report a dividend return to shareholders of a total of 6.0 cents per share. This is made up of a final dividend of 3.25 cents plus the interim dividend of 2.75.

The directors are confident that the holdings of reserve cash after paying out the second half dividend is sufficient to underpin the development and expansion needs of the company as the business looks to increase its penetration of existing markets and new product development.

Whilst the company continued to see good uptake of its technology in the North American market, total revenue for the period decreased from $3.093M in 2007 to $2.19M. This was largely due to a number of one off factors including the early renegotiation of the Agfa North America contract, the strengthening of the AUD$ against both the US$ and Canadian dollar and the expected transition from new licence to support revenue with the Canadian Alta PACS contact.

In July the company announced the renegotiation of its Agfa North American contract which will provide the company with greater control of the sale and servicing of its products in North America.

Pro medicus Annual Report 2008

Directors’ report cont.

The company has maintained cash holdings and the increased return on net assets and equity as shown in the table below, reflects the increased level of profit in the current period.

	2008	2007	2006	2005	2004
Basic earnings per share – reported (cents)	7.9	7.1	6.1	5.5	3.6
Basic earnings per share - restated (cents)	n/a	n/a	n/a	n/a	4.4
Return on assets (%)	57.9	55.5	55.5	49.9	38.4
Return on equity (%)	50.4	49.5	46.3	42.9	32.3
Net debt / equity ratio (%)	Nil	Nil	Nil	Nil	1.2
Dividend payout ratio (%) – normal dividend plan	75.8	77.5	65.4	77.4	97.9
Dividend payout ratio (%) – total dividend	75.8	98.5	89.9	86.5	97.9
Available franking credits ($’000)	5,102	5,582	5,268	5,362	4,910

Investments for Future Performance

The Company will continue to direct resources into the development of new products and in particular is committed to the research being undertaken within the core RIS/PACS offerings for the Australian, US and Canadian markets, and the expansion of Promedicus.net. It is anticipated this will translate into an increase and improvement in the bottom line of the operation. The company is also undertaking a major redevelopment aimed at transitioning some of the company’s core technology to the latest software platforms.

The treasury function, co-ordinated within Pro Medicus Limited, is limited to maximising interest return on surplus funds and now managing currency risk. The treasury operates within policies set by the Board, which is responsible for ensuring that management’s actions are in line with board policy.

During the financial period, surplus cash was deposited to various bank instruments and Cash Management accounts to maximise the interest earned.

Despite significant increases in development and business activity over the past year as a result of the US and Canadian developments, staff numbers have remained relatively unchanged.

The directors express their gratitude for the efforts of all employees in achieving this year’s result.

Cash from Operations

Net cash flows from operating activities was a positive $8.81m for the current period, attributed by a $16.19m collection of receipts from customers compared with payments of $4.16m to suppliers and employees. The company continued to hold total cash assets of $12.89 million.

Liquidity and Funding

The Company remains committed to providing staff with access to appropriate training and development programs, together with the resources to complete their duties.

The Company is cash flow positive, has substantial cash reserves and has no overdraft facility. Sufficient funds are held to finance operations.

Risk Management

REVIEW OF FINANCIAL CONDITION

Capital Structure

The company has a sound capital structure with a debt/equity ratio, which has remained at zero in the current year.

The Company takes a proactive approach to risk management. The Board is responsible for ensuring that risks, and also opportunities, are identified on a timely basis and that the Company’s objectives and activities are aligned with the risks and opportunities identified by the Board.

The directors believe that the debt to equity ratio for the Company could increase, if the need for expansion or acquisition required extra funds sourced from borrowings.

Treasury Policy

The Company has limited exposure to foreign exchange rate fluctuations as a consequence of contracts written in and cash being held in foreign currencies. For larger overseas transactions the Company uses derivative financial instruments in the form of forward currency contracts, to hedge its risk associated with foreign currency fluctuations.

The Company believes that it is crucial for all Board members to participate in this process, as such the Board has not established separate committees for areas such as risk management, environmental issues, occupational health and safety or treasury.

The Board has a number of mechanisms in place to ensure that management’s objectives and activities are aligned with the risks identified by the Board. These include the following:

Board approval of strategic plans, which encompass the company’s vision, mission and strategy statements, designed to meet stakeholder needs and manage business risk;
Implementation of Board approved operating plans and budgets and Board monitoring of progress against these budgets, including the establishment and monitoring of KPIs; and
Overseeing of appropriate backup procedures for important company data.
Continued installation and use of the Promedicus.net secure email product and Specialist Report Sender;
Continued focus on overseas expansion particularly in Canada and the US; and
The company is looking for further international opportunities for its world class digital radiology integration technology.

As a result, it is anticipated that the 2009 financial year will show improvement in profits. However, this is dependant on many market factors over which the directors have no control.

Corporate Governance

In recognising the need for the highest standards of corporate behaviour and accountability, the directors of Pro Medicus Limited support and have adhered to the principles of good corporate governance. Please refer to the separate “Corporate Governance” section for more details of specific policies.

Statement of Compliance

The above report is based on the guidelines in The Group of 100 Incorporated publication Guide to the Review of Operations and Financial Condition.

ENVIRONMENTAL REGULATION AND PERFORMANCE

The Company has no identified risk with regard to environmental regulations currently in force. There have been no known breaches by the Company of any regulations.

SHARE OPTIONS

Un-issued Shares

As at the date of this report, there were 2,300,000 un-issued ordinary shares under options Refer to Notes 17 and 22 of the financial statements for further details of the options outstanding.

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

Shareholders’ equity increased by 10.43% from $14.257m to $15.744m. This movement was largely the result of higher profit and retaining cash in the business.

SIGNIFICANT EVENTS AFTER THE BALANCE DATE

A Final Dividend of 3.25 cents per share has been declared post 1 July. Please refer Note 8.

Pro Medicus appointed Alexander McKendrick; B.Juris LLB; Barrister & Solicitor, Supreme Court of Victoria as Company Secretary on 4 July 2008.

Option holders do not have any right, by virtue of the option, to participate in any share issue of the Company.

Shares Issued as a Result of the Exercise of Options

During the financial year, 260,000 share options were exercised by ex employees and a further 90,000 shares expired during the year. No directors or key management personnel in the current year, have exercised any option to acquire fully paid ordinary shares in Pro Medicus Limited.

Under the terms of the Share Option Plan 20% of the options vest on each anniversary of the date of commencement 25 August 2000 and can be converted into fully paid shares. All options are now fully vested.

LIKELY DEVELOPMENTS AND EXPECTED RESULTS

The Directors foresee that the 2009 financial year will be a year of growth in both the local and overseas markets. It is anticipated this will result from:

Continued penetration of the Radiology Information System and digital imaging integration products in the Australian market, and there is evidence that the Australian Market has reached the tipping point in the take-up of digital radiology.

INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS

During the financial year, the Company did not indemnify any person for any reason.

During or since the financial year, the Company has paid premiums in respect of a contract for Directors’ & Officers’/Company Re-Imbursement Liability insurance for directors, officers and Pro Medicus Limited for costs incurred in defending proceedings against them.

Pro medicus Annual Report 2008

Directors’ report cont.

Terms of this cover are confidential and are not disclosed per Corporations Act 2001 .

REMUNERATION REPORT (AUDITED) Remuneration Report

This report outlines the remuneration arrangements in place for directors and executives of Pro Medicus Limited in accordance with the requirements of the Corporations Act 2001 and its Regulations. For the purposes of this report, key management personnel (KMP) of Pro Medicus Limited are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company, directly or indirectly, including any director (whether executive or otherwise) of the company, and includes the three executives in the company receiving the highest remuneration.

For the purposes of this report, the term ‘executive’ encompasses the chief executive, senior executives, general managers and secretaries of the company.

DETAILS OF KEY MANAGEMENT PERSONNEL

(i) Directors
Melvyn Keith Ward	Chairman (non-executive)
Dr Peter David Jonson	Deputy Chairman (non-executive)
Dr Sam Aaron Hupert	Executive Director and Deputy Chairman
Anthony Barry Hall	Executive Director and Technology Director
David Chambers - Appointed	Managing Director and CEO – appointed 10 December 2007
Peter Terence Kempen - Appointed	Non Executive Director and Chairman Audit Committee – appointed 12 March 2008
Philip Gregory Molyneux - Resigned	Chairman Audit Committee (non executive – retired 30 August 2007)
(ii) Executives
Geoffrey William Holden - Retired	Chief Financial Officer & Company Secretary – retired 6 July 2007
Sean Collins - Resigned	Chief Financial Officer & Company Secretary – resigned 18 February 2008
Clinton Cooper – Appointed & Resigned	Chief Financial Officer & Company Secretary – appointed 18 February 2008
	and resigned 2 June 2008
Danny Tauber	Chief Operating Officer
Bernard Duscher-Resigned	Senior Developer–resigned 20 June 2008

Remuneration committee

Remuneration and nomination issues are handled at the full Board level. The Board due to the small number of directors decided this. No Committees for these functions have been established at this time.

Board members, as per groupings detailed below, are responsible for determining and reviewing compensation arrangements.

In order to maintain good corporate governance the Non-Executive Directors assume responsibility for determining and reviewing compensation arrangements for the Chief Executive Officer, Executive Director and Technology Director.

The Executive Directors in turn are responsible for determining and reviewing the compensation arrangements for the Non-Executive Directors. The full Board reviews the terms of employment for the Company Secretary and the Board has delegated the responsibility of executive remuneration to the executive management.

The assessment considers the appropriateness of the nature and amount of remuneration of such directors and senior managers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality board and executive team.

Remuneration philosophy

The performance of the company depends upon the quality of its directors and executives. To prosper, the company must attract, motivate and retain highly skilled directors and executives.

The remuneration of non-executive directors for the period ending 30 June 2008 is detailed in Table 1 of this report.

Senior manager and executive director remuneration

Objective

To this end, the company embodies the following principles in its remuneration framework:

Provide competitive rewards to attract high calibre executives
Link rewards to shareholder value
Portion of executive remuneration ‘at risk’, dependent upon meeting pre-determined performance benchmarks
Establish appropriate, demanding performance hurdles in relation to variable executive remuneration

Remuneration structure

In accordance with best practice corporate governance, the structure of non-executive director and senior manager remuneration is separate and distinct.

The company aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the company and so as to:

reward executives for company, business unit and individual performance against targets set by reference to appropriate benchmarks;
align the interests of executives with those of shareholders;
link reward with the strategic goals and performance of the company; and
ensure total remuneration is competitive by market standards.

Structure

Non-executive director remuneration

Objective

The Board seeks to set aggregate remuneration at a level which provides the company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders.

Structure

The Constitution and the ASX Listing Rules specify that the aggregate remuneration of non-executive directors shall be determined from time to time by a general meeting. An amount not exceeding the amount determined is then divided between the directors as agreed. The latest determination was at the Annual General Meeting held on 4 November 2005 when shareholders approved an aggregate remuneration of $500,000 per year.

The amount of the aggregate remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst directors is reviewed annually. The Board considers advice from external consultants as well as the fees paid to non-executive directors of comparable companies when undertaking the annual review process.

In determining the level and the make-up of executive remuneration, the executive management consider market levels of remuneration for comparable executive roles. Employment Contracts have been entered into with the Chief Executive Officer, Executive Director and the Technology Director. No other employment contracts have been executed. Details of these contracts are provided on page 12.

Remuneration consists of the following key elements:

Fixed Remuneration
Variable Remuneration
Short Term Incentive (‘STI’)
Long Term Incentive (‘LTI’)

The proportion of fixed remuneration and variable remuneration (potential short term and long term incentives) is established for each executive director and senior manager as described under the Remuneration Committee section above.

Fixed Remuneration

Objective

Each director receives a fee for being a director of the company. No additional fee is paid for time spent on Audit Committee business.

Non-executive directors have long been encouraged by the board to hold shares in the company (purchased by the director on market). It is considered good governance for the directors to have a stake in the company on whose board he sits. The non-executive directors of the company participate in the Employee Share Incentive Scheme [Option based] which was established in 2000 to provide incentive for participants.

The level of fixed remuneration is set so as to provide a base level of remuneration which is both appropriate to the position and is competitive in the market.

Fixed remuneration is reviewed annually and the process consisting of a review of company wide, business and individual performance, relevant comparative remuneration in the market and internal and, where appropriate, external advice on policies and practices. As noted above, the company conducting the review has access to external advice independent of management.

Pro medicus Annual Report 2008

Directors’ report cont.

Senior managers are given the opportunity to receive their fixed (primary) remuneration in a variety of forms including cash and fringe benefits such as motor vehicles and expense payment plans. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the company.

The fixed remuneration component of the 3 relevant most highly remunerated senior managers is detailed in Table 1 of this report.

Senior management with responsibility for the particular business function assess the achievement of conditions based on performance appraisals against predefined goals.

Company performance

For details of the company’s performance (as measured by Earnings Per Share and other relevant measures) for the current financial year and previous four financial years, refer to page 3 of the Directors’ Report.

Employment Contracts

Variable Remuneration – Long Term Incentive (LTI) The LTI described below relates to the prior year.

Executive Service Contracts, on similar terms and conditions, have been prepared for the Chief Executive Officer, Deputy Chairman and Technology Director.

Objective

The objective of the LTI plan was to reward senior managers and executive directors in a manner which aligned this element of remuneration with the creation of shareholder wealth.

As such LTI grants were only made to executives who were able to influence the generation of shareholder wealth and thus have a direct impact on the Company’s performance.

These agreements provide the following major terms:

Each executive will receive a remuneration package per annum which is to be reviewed annually;
The agreements protect the Company’s confidential information and provide that any inventions or discoveries of an executive become the property of the Company;

Structure

LTI grants to executives were delivered in the form of options. The company granted these options in 2000 and at the time there was no performance hurdle for this long term incentive plan.

Subsequent to this an executive [non-directors] Performance Based Incentive Share Plan was set up but to date no grants have been made.

Non-competition during employment and for a period of 12 months thereafter; and
Termination by the Company on six months notice or payment of six months remuneration in lieu of notice or a combination of both (or without notice or payment in lieu in the event of misconduct or other specified circumstances). The agreements may be terminated by the executives on the giving of six months notice.

Variable Pay – Short Term Incentive (STI)

Short term incentives in the form of cash bonuses were paid to key staff based on a mix of company based and personal performance targets.

STI bonus for 2008

For the 2008 financial year, there were no STI bonuses paid to staff.

Key Performance Indicators

Actual STI payments granted to each executive depend on the extent to which specific targets set at the beginning of the financial year are met. The targets consist of a number of Key Performance Indicators (KPIs) covering both financial and non-financial, corporate and individual measures of performance. Included are measures such as contribution to net profit after tax, sales targets, customer service, risk management, product development, and leadership/team contribution. These measures were chosen as they represent the key drivers for short term success of the business and provide a framework for delivering long term value.

TABLE 1: REMUNERATION OF KEY MANAGEMENT PERSONNEL FOR THE YEAR ENDED 30 JUNE 2008

									Total
				Post					Performance
		Short-Term		Employment	Long Term	Share-Based	Payment	Total	Related
			Non-
	Salary &	Cash	Monetary		Incentive
30 June 2008	Fees	Bonus	benefits	Superannuation	Plans	Shares	Options
Directors
M K Ward	80,000			7,200				87,200
P D Jonson				43,600				43,600
P G Molyneux	6,667			600				7,267
S A Hupert	180,472		3,321	99,528				283,321
A B Hall	180,472		3,475	99,528				283,475
D Chambers	313,193			42,307		69,064		424,564
P T Kempen	12,134			1,092			21,701	34,927
Executives
G W Holden	30,798			3,278				34,076
S Collins	85,627			7,706				93,333
C Cooper	54,058			3,979				58,037
D Tauber	251,871			13,129				265,000
B. Duscher	136,973			14,959				151,932
1,192,580			6,796	325,221		69,064	21,701	1,766,732

TABLE 2: REMUNERATION OF KEY MANAGEMENT PERSONNEL FOR THE YEAR ENDED 30 JUNE 2007

									Total
				Post					Performance
		Short-Term		Employment	Long Term	Share-Based	Payment	Total	Related
			Non-
	Salary &	Cash	Monetary		Incentive
30 June 2007	Fees	Bonus	benefits	Superannuation	Plans	Shares	Options
Directors
M K Ward	80,000			7,200				87,200
P D Jonson	29,999			13,601				43,600
P G Molyneux	40,000			3,600				43,600
S A Hupert	174,887		8,486	105,113				288,486
A B Hall	174,887		5,623	105,113				285,623
Executives
G W Holden	69,125	5,625		80,875				155,625	5,625
D Tauber	282,314	47,075		12,686				342,075	47,075
B. Duscher	123,853	35,000		11,147				170,000	35,000
	975,065	87,700	14,109	339,335				1,146,209	87,700

Pro medicus Annual Report 2008

Directors’ report cont.

Compensation options granted, vested and exercised during the year as part of remuneration

During the financial year 200,000 options were granted to Peter Kempen. The options had a grant date of 12 March 2008 and an exercise price of $1.25. The fair value of the options at grant date was $66,000 ($0.33 per option). The options have a first exercise date of 12 March 2009 and an expiry date of 12 March 2018. No options were granted during the previous financial year.

During the financial year B. Duscher exercised 30,000 options with an exercise price of $1.15 and G. W. Holden exercised 85,000 options with an exercise price of $1.15 for a total amount of $132,250. No options were exercised during the previous financial year.

A further 90,000 options from B. Duscher lapsed during the year.

For details of the valuation of options, including models and assumptions used please refer to Note 16.

DIRECTORS’ MEETINGS

The numbers of meetings of directors (including meetings of committees of directors) held during the year and the number of meetings attended by each director were as follows:

	Directors’ Meetings	Eligible to attend	Audit Committee	Eligible to attend
Number of meetings held:	11		3	3
Number of meetings attended:
A. B. Hall	11	11	3	3
S. A. Hupert	11	11	3	3
M. K. Ward	11	11	3	3
P. D. Jonson	10	11	3	3
P. T. Kempen	3	3	0	0
D Chambers	9	9	0	0
P. G. Molyneux	2	2	1	1

Committee membership

As at the 30 June 2008, the company had an Audit Committee comprising the 3 non-executive directors and 3 executive directors.

ROUNDING

The amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the Company under ASIC Class Order 98/0100. The Company is an entity to which the Class Order applies.

AUDITOR INDEPENDENCE AND NON-AUDIT SERVICES

The directors received a declaration from the auditor of Pro Medicus Limited (refer page 15).

NON-AUDIT SERVICES

The following non-audit services were provided by the company’s auditor, Ernst & Young. The directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for the auditors imposed by the Corporations Act. The nature and scope of the non-audit service provided means that auditor independence is not compromised.

Ernst & Young received the following amount for the provision of non-audit services: Professional services rendered in respect to taxation matters and share incentive work $37,535

Signed in accordance with a resolution of the Directors.

==> picture [141 x 59] intentionally omitted <==

M K Ward DIRECTOR

Melbourne, 26 August 2008.

Pro medicus Annual Report 2008

Auditor’s Independence Declaration

==> picture [539 x 632] intentionally omitted <==

Income Statement

FOR THE YEAR ENDED 30 JUNE 2008	Notes	2008	2007
		$’000	$’000
Sale of Goods	5(a)	83	347
Cost of Sales		(45)	(164)
Gross Profit		38	183
Rendering of Services	5(a)	9,074	7,673
Licence Revenue	5(a)	5,544	4,519
Finance Revenue	5(a)	705	660
Revenue		15,361	13,035
Other Income	5(b)	—	9
Accounting and Secretarial Fees		(371)	(167)
Advertising and Public Relations		(63)	(48)
Depreciation and Amortisation	5(c)	(92)	(87)
Insurance		(191)	(150)
Finance Costs	5(c)	—	—
Legal Costs		(13)	(4)
Operating Lease Expenditure - minimum lease payments	5(c)	(169)	(179)
Other Expenses		(377)	(80)
Research and Development Costs (incl amortization)	5(c)	(568)	(746)
Salaries and Employee Benefits Expense	5(c)	(2,074)	(1,670)
Travel and Accommodation		(118)	(172)
Profit before income tax		11,325	9,741
Income tax expense	6	(3,392)	(2,689)
Net Profit for the period	15	7,933	7,052
Earnings per share (cents per share)	7
- Basic for net profit for the year		7.9¢	7.1¢
- Diluted – for net profit for the year		7.9¢	7.0¢
- Franked dividends per share (cents per share)		6.0¢	7.0¢
Dividends per share (cents per share)	8
- Interim dividend paid per share		2.75¢	2.5¢
- Special interim dividend paid per share		—	0.5¢
- Final dividend per share		3.25¢	3.0¢
- Special final dividend per share		—	1.0¢

Pro medicus Annual Report 2008

Balance Sheet

AS AT 30 JUNE 2008	Notes	2008	2007
		$’000	$’000
Current Assets
Cash and cash equivalents	9	12,885	11,135
Trade and other receivables	10	3,792	4,335
Prepayments		76	53
Total Current Assets		16,753	15,523
Non-current Assets
Deferred income tax asset	6	282	294
Plant and equipment	11	199	214
Intangible assets	12	2,309	1,523
Total Non-current Assets		2,790	2,031
TOTAL ASSETS		19,543	17,554
LIABILITIES
Current Liabilities
Trade and other payables	13	996	613
Income tax payable		1,235	1,413
Provisions	14	850	644
Total Current Liabilities		3,081	2,670
Non-current Liabilities
Deferred income tax liabilities	6	670	331
Provisions	14	48	296
Total Non-current Liabilities		718	627
TOTAL LIABILITIES		3,799	3,297
NET ASSETS		15,744	14,257
EQUITY
Contributed equity	15	331	32
Share reserve	15	21	—
Retained earnings	15	15,392	14,225
TOTAL EQUITY		15,744	14,257

Statement of Changes in Equity

	Issued	Share	Retained	Total
	Capital	Reserve	Earnings	Equity
FOR THE YEAR ENDED 30 JUNE 2008	$’000	$’000	$’000	$’000
At 1 July 2006	32	—	13,174	13,206
Profit for the year	—	—	7,052	7,052
Conversion of Options to Shares	—	—	—	—
Equity dividends	—	—	(6,001)	(6,001)
At 30 June 2007	32	—	14,225	14,257
At 1 July 2007	32	—	14,225	14,257
Profit for the year	—	—	7,933	7,933
Conversion of Options to Shares	299	—	—	299
Share Based Payment	—	21	—	21
Equity dividends	—	—	(6,766)	(6,766)
At 30 June 2008	331	21	15,392	15,744

Pro medicus Annual Report 2008

Cash Flow Statement

FOR THE YEAR ENDED 30 JUNE 2008	Notes	2008	2007
		$’000	$’000
Cash flows from operating activities
Receipts from customers		16,192	10,512
Payments to suppliers and employees		(4,163)	(2,957)
Borrowing costs		—	—
Income tax paid		(3,219)	(1,750)
Net cash flows from operating activities	9	8,810	5,805
Cash flows from investing activities
Capitalised Development Costs	12	(1,236)	(712)
Interest received	5(a)	705	660
Purchase of property, plant and equipment	11	(61)	(58)
Net cash flows used in investing activities		(592)	(110)
Cash flows from financing activities
Proceeds from issue of shares	15	299	—
Payment of dividends on ordinary shares	8	(6,767)	(6,001)
Net cash flows used in financing activities		(6,468)	(6,001)
Net increase/(decrease) in cash and cash equivalents		1,750	(306)
Cash and cash equivalents at beginning of period		11,135	11,441
Cash and cash equivalents at end of period	9	12,885	11,135

Notes to the Financial Statements For the Year ended 30 June 2008

1. CORPORATE INFORMATION

The financial report of Pro Medicus Limited (the Company) for the year ended 30 June 2008 was authorised for issue in accordance with a resolution of directors on 26 August 2008.

Pro Medicus Limited is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian stock exchange.

The nature of the operations and principal activities of the Company are described in note 3.

(b) Statement of compliance with IFRS

The financial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

New accounting standards and interpretations Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Company for the annual reporting period ending 30 June 2008. These are outlined in the table below.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Preparation

The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting Standards.

			Application	Impact	Application
			date of	on company	date for
Reference	Title	Summary	standard	financial report	company*
AASB Int. 12	Service Concession	Clarifies how operators	1 January 2008 Unless the Company		1 July
and AASB	Arrangements and	recognise the infrastructure		enters into service	2008
2007-2	consequential amendments	as a financial asset and/or		concession arrangements
	to other Australian	an intangible asset –		or public-private-
	Accounting Standards	not as property, plant		partnerships (PPP),
		and equipment.		the amendments are not
				expected to have any
				impact on the Company's
				financial report.
AASB Int. 4	Determining whether	The revised Interpretation	1 January 2008 Refer to AASB Int. 12		1 July
(Revised)	an Arrangement contains	specifically scopes out		and AASB 2007-2	2008
	a Lease	arrangements that fall		above.
		within the scope of AASB
		Interpretation 12.
AASB Int.	Service Concession	Requires disclosure of	1 January 2008 Refer to AASB Int. 12		1 July
129	Arrangements:	provisions or significant		and AASB 2007-2	2008
	Disclosures	features necessary to		above.
		assist in assessing the
		amount, timing and certainty
		of future cash flows and
		the nature and extent of
		the various rights and
		obligations involved.
		These disclosures apply
		to both grantors and
		operators.

Pro medicus Annual Report 2008

Notes to the Financial Statements For the Year ended 30 June 2008

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continue)

			Application	Impact	Application
			date of	on company	date for
Reference	Title	Summary	standard	financial report	company*
AASB Int. 13	Customer Loyalty	Deals with the accounting	1 January 2008 The Company does not		1 July
	Programmes	for customer loyalty		have any customer	2008
		programmes, which are		loyalty programmes and
		used by companies to		as such this interpretation
		provide incentives to their		is not expected to have
		customers to buy their		any impact on the
		products or use their		Company’s financial
		services.		report.
AASB Int. 14	AASB 119 – The Limit on	Aims to clarify how to	1 January 2008 The Company does not		1 July
	a Defined Benefit Asset,	determine in normal		have a defined benefit	2008
	Minimum Funding	circumstances the limit on		pension plan and as
	Requirements and their	the asset that an employer’s		such this interpretation is
	Interaction	balance sheet may contain		not expected to have any
		in respect of its defined		impact on the company’s
		benefitpensionplan.		financial report.
AASB	Amendments to Australian	The amendments were	1 January 2008 These amendments are		1 July
2007-9**	Accounting Standards	issued as a result of the		only applicable to the	2008
	arising from the Review	review of AAS 27 Financial		public sector and as
	of AASs 27, 29 and 31	Reporting by Local		such are not expected to
		Governments, AAS 29		have any impact on the
		Financial Reporting by		Company’s financial
		Government Departments		report.
		and AAS 31 Financial
		Reporting by Governments
		and largely relocates these
		industry-based standards
		to topic-based standards.
AASB 1004	Contributions	This standard contains the	1 January 2008 Refer to AASB 2007-9		1 July
(revised)		original requirements on		above.	2008
		contributions from AASB
		1004 as issued in July 2004,
		as well as the requirements
		on contributions from AASs
		27, 29 and 31 substantively
		unamended (with some
		exceptions).
AASB Int.	Contributions by Owners	This interpretation has	1 January 2008 Refer to AASB 2007-9		1 July
1038	Made to Wholly-Owned	been revised as a		above.	2008
(Revised)	Public Sector Entities	consequence of revised
		AASB 1004.
AASB 1049	Whole of Government and	New standard to address	1 January 2008 Refer to AASB 2007-9		1 July
	General Government	differences between		above.	2008
	Sector Financial Reporting	Generally Accepted
		Accounting Principles
		(GAAP) and Government
		Finance Statistics (GFS).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continue)

			Application	Impact	Application
			date of	on company	date for
Reference	Title	Summary	standard	financial report	company*
AASB 1050	Administered Items	This standard contains the	1 January 2008 Refer to AASB 2007-9		1 July
		requirements for the		above.	2008
		disclosure of administered
		items from AAS 29,
		substantively unamended
		(with some exceptions).
AASB 1051	Land Under Roads	This standard contains the	1 January 2008 Refer to AASB 2007-9		1 July
		specific transitional		above.	2008
		requirements relating to
		land under roads. It applies
		to general purpose financial
		reports of local governments,
		government departments
		and whole of governments
		and financial statements of
		GGSs.
AASB 1052**	Disaggregated Disclosures	This standard contains the	1 January 2008 Refer to AASB 2007-9		1 July
		requirements for the reporting		above.	2008
		of disaggregated
		information by local
		governments from AASs
		27 and 29, substantively
		unamended (with some
		exceptions).
AASB 8 and	Operating Segments and	New standard replacing	1 January 2009 AASB 8 is a disclosure		1 July
AASB 2007-3	consequential amendments	AASB 114 Segment		standard so will have no	2009
	to other Australian	Reporting, which adopts		direct impact on the
	Accounting Standards	a management reporting		amounts included in the
		approach to segment		Company's financial
		reporting.		statements, although it
				may indirectly impact the
				level at which goodwill
				is tested for impairment.
				In addition, the amendments
				may have an impact on
				the Company’s segment
				disclosures.
AASB 123	Borrowing Costs and	The amendments to AASB	1 January 2009 These amendments to		1 July
(Revised) and	consequential amendments	123 require that all borrowing		AASB 123 require that	2009
AASB 2007-6	to other Australian	costs associated with a		all borrowing costs
	Accounting Standards	qualifying asset be		associated with a qualifying
		capitalised.		asset be capitalised.
				The Company has no
				borrowing costs associated
				with qualifying assets
				and as such the
				amendments are not
				expected to have any
				impact on the Company's
				financial report.

Pro medicus Annual Report 2008

Notes to the Financial Statements For the Year ended 30 June 2008

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continue)

			Application	Impact	Application
			date of	on company	date for
Reference	Title	Summary	standard	financial report	company*
AASB 101	Presentation of Financial	Introduces a statement of	1 January 2009 These amendments are		1 July
(Revised) and	Statements and consequential	comprehensive income.		only expected to affect	2009
AASB 2007-8	amendments to other	Other revisions include		the presentation of the
	Australian Accounting	impacts on the presentation		Company’s financial report
	Standards	of items in the statement		and will not have a direct
		of changes in equity, new		impact on the measurement
		presentation requirements		and recognition of
		for restatements or		amounts disclosed in the
		reclassifications of items		financial report.
		in the financial statements,		The Company has not
		changes in the presentation		determined at this stage
		requirements for dividends		whether to present a single
		and changes to the titles		statement of comprehensive
		of the financial statements.		income or two separate
				statements.
AASB	Amendments to Australian	The amendments clarify	1 January 2009 The Company has		1 July
2008-1	Accounting Standard –	the definition of 'vesting		share-based payment	2009
	Share-based Payments:	conditions', introducing the		arrangements that may
	Vesting Conditions and	term 'non-vesting conditions'		be affected by these
	Cancellations	for conditions other than		amendments. However,
		vesting conditions as		the Company has not yet
		specifically defined and		determined the extent of
		prescribe the accounting		the impact, if any.
		treatment of an award that
		is effectively cancelled
		because a non-vesting
		condition is not satisfied.
AASB	Amendments to Australian	The amendments provide	1 January 2009 These amendments are		1 July
2008-2	Accounting Standards	a limited exception to the		not expected to have	2009
	– Puttable Financial	definition of a liability so		any impact on the
	Instruments and	as to allow an entity that		Company’s financial
	Obligations arising on	issues puttable financial		report as the Company
	Liquidation	instruments with certain		does not have on issue
		specified features, to classify		or expect to issue any
		those instruments as equity		puttable financial
		rather than financial liabilities.		instruments as defined
				by the amendments.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continue)

			Application	Impact	Application
			date of	on company	date for
Reference	Title	Summary	standard	financial report	company*
AASB 3	Business Combinations	The revised standard	1 January 2009 These amendments are		1 July
(Revised)		introduces a number of		not expected to have	2009
		changes to the accounting		any impact on the
		for business combinations,		Company’s financial
		the most significant of which		report as the Company
		allows entities a choice for		does not have on issue
		each business combination		or expect to issue any
		entered into – to measure		puttable financial
		a non-controlling interest		instruments as defined
		(formerly a minority interest)		by the amendments.
		in the acquiree either at its
		fair value or at its
		proportionate interest in the
		acquiree’s net assets.
		This choice will effectively
		result in recognising good-
		will relating to 100% of the
		business (applying the fair
		value option) or recognising
		goodwill relating to the
		percentage interest
		acquired. The changes
		apply prospectively.
AASB 127	Consolidated and Separate	Under the revised standard,	1 January 2009 If the Company changes		1 July
(Revised)	Financial Statements	a change in the ownership		its ownership interest in	2009
		interest of a subsidiary (that		existing subsidiaries in
		does not result in loss of		the future, the change
		control) will be accounted		will be accounted for as
		for as an equity transaction.		an equity transaction.
				This will have no impact
				on goodwill, nor will it
				give rise to a gain or a
				loss in the Company’s
				income statement.
AASB	Amendments to Australian	Amending standard issued	1 January 2009 Refer to AASB 3		1 July
2008-3	Accounting Standards	as a consequence of		(Revised) and AASB 127	2009
	arising from AASB 3	revisions to AASB 3		(Revised) above.
	and AASB 127	and AASB 127.

Pro medicus Annual Report 2008

Notes to the Financial Statements For the Year ended 30 June 2008

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continue)

			Application	Impact	Application
			date of	on company	date for
Reference	Title	Summary	standard	financial report	company*
AASB 2008-7	Cost of an Investment	The main amendments of	1 January 2009	These amendments are	1 July
	in a Subsidiary, Jointly	relevance to Australian		not expected to have any	2009
	Controlled Entity or	entities are those made to		impact on the company’s
	Associate	IAS 27 deleting the ‘cost		financial report as the
		method’ and requiring all		Company does not have
		dividends from a subsidiary,		any Subsidiaries, Joint
		jointly controlled entity or		Controlled Entities or
		associate to be recognised		Associates.
		in profit or loss in an entity's
		separate financial statements
		(i.e., parent company
		accounts). The distinction
		between pre- and post-
		acquisition profits is no
		longer required. However,
		the payment of such dividends
		requires the entity to
		consider whether there is
		an indicator of impairment.
		AASB 127 has also been
		amended to effectively
		allow the cost of an
		investment in a subsidiary,
		in limited reorganisations,
		to be based on the previous
		carrying amount of the
		subsidiary (that is, share of
		equity) rather than its fair
		value.
AASB 2008-5	Improvements to IFRSs	The improvements project	1 January 2009	The Company has not	1 July
and 2008-6		is an annual project that	except for	yet determined the	2009
		provides a mechanism for	amendments to	extent of the impact of
		making non-urgent, but	IFRS 5, which	the amendments, if any.
		necessary, amendments	are effective from
		to IFRSs. The IASB has	1 July 2009.
		separated the amendments
		into two parts: Part 1 deals
		with changes the IASB
		identified resulting in
		accounting changes; Part II
		deals with either terminology
		or editorial amendments
		that the IASB believes will
		have minimal impact.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continue)

			Application	Impact	Application
			date of	on company	date for
Reference	Title	Summary	standard	financial report	company*
IFRIC 15	Agreements for the	This interpretation propos-	1 January 2009 The Company does not		1 July
	Construction of Real	es that when the real estate		enter into agreements to	2009
	Estate	developer is providing		provide construction
		construction services to		services to the buyer's
		the buyer's specifications,		specifications and as
		revenue can be recorded		such this interpretation
		only as construction		is not expected to have
		progresses.		any impact on the
		Otherwise, revenue should		Company’s financial
		be recognised on		report.
		completion of the relevant
		real estate unit.
IFRIC 16	Hedges of a Net	This interpretation proposes	1 January 2009 The Interpretation is		1 July
	Investment in a Foreign	that the hedged risk in a		unlikely to have any	2009
	Operation	hedge of a net investment		impact on the Company
		in a foreign operation is the		since it does not hold
		foreign currency risk arising		any hedges of a Net
		between the functional		Investment in a Foreign
		currency of the net investment		operation.
		and the functional currency
		of any parent entity. This
		also applies to foreign
		operations in the form of
		joint ventures, associates
		or branches.

* designates the beginning of the applicable annual reporting period unless otherwise stated

(c) Significant accounting judgements, estimates and assumptions

(i) Significant accounting estimates and assumptions The carrying amounts of certain assets are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets within the next annual reporting period are:

Recovery of deferred tax assets:

Deferred tax assets are recognised for deductible temporary differences as management considers that it is probable that future taxable profits will be available to utilise those temporary differences.

Capitalisation of Development costs:

Development costs are only capitalised by the company when it can be demonstrated that the technical feasibility of completing the intangible asset is valid so that the asset will be available for use or sale.

(d) Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

Sale of goods

Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and can be reliably measured. Risks and rewards are considered passed to the buyer at the time of delivery of the goods to the customer.

Rendering of services

Revenue from the installation and ongoing support of software applications and services is recognised by reference to the stage of completion of a contract or contracts in progress. Stage of completion is measured by completion of identifiable service segments.

Service Revenue is recognised over the term of the contract. Where revenue is received in advance, revenue is recognised

Pro medicus Annual Report 2008

Notes to the Financial Statements For the Year ended 30 June 2008

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continue)

in the period during which service was provided. Where the contract outcome cannot be reliably measured, revenue is recognised only to the extent that costs have been incurred.

A provision for impairment is made when there is objective evidence that Pro Medicus will not be able to collect the debts. Bad debts are written off when identified.

(i) Inventories

Inventories are valued at the lower of cost and net realisable value. The cost of finished goods represents the purchase cost.

Licences

License revenue is recognised when control of the right to be compensated for the license can be reliably measured. License revenue is recognised when ownership of the goods have passed to the buyer, which is usually after the software application has been installed and is ready for use by the buyer.

Interest

Revenue is recognised as the interest accrues (using the effective interest method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument) to the net carrying amount of the financial asset.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

(j) Derivative financial instruments and hedging The Company uses derivative financial instruments in the form of forward currency contracts; to hedge its risk associated with foreign currency fluctuations. Certain derivative instruments are also held for trading for the purpose of making short term gains. These derivatives do not qualify for hedge accounting and changes in fair value are recognised immediately in profit or loss in income or expenses.

(e) Government Grants

Government grants are recognised when there is a reasonable assurance that the grant will be received and all attaching conditions will be complied with.

(f) Leases

The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependant on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

(k) Derecognition of financial Instruments The derecognition of a financial instrument takes place when the Company no longer controls the contractual rights that comprise the financial instrument, which is normally the case when the instrument is sold, or all the cash flows attributable to the instrument are passed through to an independent third party.
(l) Foreign currency translation
- Both the functional and presentation currency of Pro Medicus Limited is Australian dollars (A$).
(i) Company as a lessee

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases.

Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term.

(g) Cash and cash equivalents

Cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.

Transactions in foreign currencies are initially recorded in the functional currency at the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date.

(m) Income tax

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.

For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above.

Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

(h) Trade and other receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost less an allowance for any uncollectible amounts.

Deferred income tax liabilities are recognised for all taxable temporary differences, except where the deferred income tax liability arises from the initial recognition

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continue)

of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

Deferred income tax assets are recognised for all deductible temporary differences, carry forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised, except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on the tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Income taxes relating to items recognised directly in equity are recognised in equity and not in the income statement.

(n) Other taxes

Revenues, expenses and assets are recognised net of the amount of GST except:
when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or of the expense item as applicable; and
receivables and payables are stated with the amount of GST included.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.

Cash flows are included in the Cash Flow Statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows.

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.

(o) Property, plant and equipment

Property plant and equipment is stated at cost less accumulated depreciation and any impairment in value.

Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows:

	2008	2007
Property Improvements	2 to 7 years	2 to 7 years
Motor Vehicles	4 to 5 years	4 to 5 years
Office Equipment	2 to 7 years	2 to 7 years
Furniture and Fittings	5 years	5 years
Research and Development Equipment	3 to 4 years	3 to 4 years

Pro medicus Annual Report 2008

Notes to the Financial Statements For the Year ended 30 June 2008

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continue)

Research and development costs Research costs are expensed as incurred.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset.

Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the period the item is derecognised.

Impairment

The carrying values of plant and equipment are reviewed for impairment at each reporting date, with recoverable amount being estimated when events or changes in circumstances indicate that the carrying value may be impaired.

An intangible asset arising from development expenditure on an internal project is recognised only when the company can demonstrate the technical feasibility of completing the intangible asset so that it will be available for sale or use, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the development and the ability to measure reliably the expenditure attributable to the intangible asset during its development. Following initial recognition of the development expenditure, the cost model is applied requiring the asset be carried at cost less any accumulated amortisation and accumulated impairment losses. Any expenditure so capitalised is amortised over the period of expected benefit from the related project.

For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash generating unit to which the asset belongs.

If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount.

The recoverable amount of plant and equipment is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

(p) Intangible assets

Separately acquired intangible assets Intangible assets acquired separately are capitalised at cost.

Amortisation is calculated on a straight-line basis over the estimated useful life of the asset. The useful life of the capitalised software licence was assessed to be 5 years.

Intangible assets, excluding development costs, created within the business are not capitalised and expenditure is charged against profits in the period in which the expenditure is incurred.

Intangible assets are tested for impairment where an indicator of impairment exists, either individually or at the cash generating level. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis.

Development expenditure includes costs of materials and services and salaries and wages and other employee related costs arising from the generation of the intangible asset.

The carrying value of an intangible asset arising from development expenditure is tested for impairment annually when the asset is not yet available for use or more frequently when an indication of impairment arises during the reporting period.

(q) Trade and other payables

Trade payables and other payables are carried at amortised costs and represent liabilities for goods and services provided to the Company prior to the end of the financial year that are unpaid and arise when the Company becomes obliged to make future payments in respect of the purchase of these goods and services.

(r) Provisions

Dividends payable are recognised when a legal or constructive obligation to pay the dividend arises, typically following approval of the dividend at a meeting of directors.

(s) Employee leave benefits

Provision is made for employee entitlement benefits accumulated as a result of employees rendering services up to the reporting date.

Liabilities arising in respect of wages and salaries and annual leave, expected to be settled within twelve months of the reporting date are measured at their nominal amounts based on remuneration rates which are expected to be paid when the liability is settled.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continue)

(i) Wages salaries, annual leave and sick leave Liabilities for wages and salaries and annual leave, expected to be settled within twelve months of the reporting date are recognised in other payables in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for sick leave are recognised when the leave is taken and measured at the rates paid.
(ii) Long Service Leave

The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currencies that match, as closely as possible the estimated future cash outflows.

In valuing equity-settled transactions, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of Pro Medicus Limited (market conditions) if applicable.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become fully entitled to the award (the vesting date).

At each subsequent reporting date until vesting, the cumulative charge to the income statement is the product of:

(i) The grant date fair value of the award;
(ii) The current best estimate of the number of awards that will vest, taking into account such factors as the likelihood of employee turnover during the vesting period and the likelihood of non-market performance conditions being met; and
(iii) The expired portion of the vesting period.

The charge to the income statement for the period is the cumulative amount as calculated above less the amounts already charged in previous periods. There is a corresponding entry to equity.

(t) Share based payment transactions

(i) Equity settled transactions:

The company provides benefits to its employees (including KMP) in the form of share-based payments, whereby employees render services in exchange for shares or rights over shares (equity-settled transactions).

There are currently two plans in place to provide these benefits:

The Employee Share Option Plan (ESOP), which provides benefits to directors and senior executives; and
The Employee Share Incentive Scheme, which provides benefits to directors and staff by way of options to shares in the Company***

***As these options were granted prior to 7 November 2002 they are exempted from the requirements of AASB 2 “Sharebased Payment.” As such no expense has been recorded in the income statement.

The cost of these equity-settled transactions with employees (for awards granted after 7 November 2002 that were unvested at 1 January 2005) is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by an external valuer using a binomial model, further details of which are given in note 16.

Until an award has vested, any amounts recorded are contingent and will be adjusted if more or fewer awards vest than were originally anticipated to do so. Any award subject to a market condition is considered to vest irrespective of whether or not that market condition is fulfilled, provided that all other conditions are satisfied.

If the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. An additional expense is recognised for any modification that increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee, as measured at the date of modification.

If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph.

The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share (see note 7).

Pro medicus Annual Report 2008

Notes to the Financial Statements For the Year ended 30 June 2008

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continue)

3. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

(u) Contributed equity

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

(v) Earnings per share

Basic earnings per share is calculated as net profit attributable to members of the Company, adjusted to exclude any costs of servicing equity (other than dividends) divided by the weighted average number of ordinary shares, adjusted for any bonus element.

Diluted earnings per share is calculated as net profit attributable to members of the Company adjusted for

Costs of servicing equity (other than dividends)
The after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and
Other non-discretionary changes in revenue or expenses during the period that would result from the dilution of potential ordinary shares divided by the weighted average number of ordinary shares and dilutive potential ordinary shares adjusted for any bonus element.

The company’s principal financial instruments are cash and short-term deposits.

The main purpose of these financial instruments is to provide finance for the Company’s operations. The Company has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. The Company also enters into derivative transactions, including principally forward currency contracts. The purpose is to manage the currency risks arising from the Company’s operations. It is, and has been throughout the period under review, the Company’s policy that no trading in financial instruments shall be undertaken. The main risks arising from the Company’s financial instruments are foreign currency risk and credit risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below.

Foreign currency risk

The Company has transactional currency exposure, which arise from sales made in currencies other than the company’s functional currency. As a result gains and losses on re-measurement of forward currency contracts to fair value are recognised directly in the income statement.

(w) Comparatives

Where necessary, comparatives have been reclassified and repositioned for consistency with current year disclosures.

As at 30 June, the company had no forward currency contracts outstanding (2007: nil).

Approximately 15% (2007: 25%) of the Company’s sales are denominated in currencies other than the functional currency but there are no significant currency risk exposures on costs.

At 30 June, had the Australian Dollar moved, as illustrated in the table below, with all other variables held constant, post tax profit and equity would have been affected as follows:

	Post Tax Profit	Post Tax Profit	Equity
	Higher/(Lower)		Higher/(Lower)
Judgements of reasonably	2008	2007	2008	2007
possible movements:	$’000	$’000	$’000	$’000
AUD/USD +10%	169	246	—	—
AUD/USD–5%	(84.5)	(123)	—	—

3. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continue)

Management believe the balance date risk exposures are representative of the risk exposure inherent in the financial instruments.

Interest risk

The Company exposure to market interest rates relates primarily to the company’s cash and cash equivalents.

At balance date, the company had the following financial assets exposed to Australian Variable interest rate risk that are not designated in cash flow hedges:

Credit risk

The Company trades only with recognised, credit worthy third parties.

It is the Company’s policy that all customers who wish to trade on credit terms are subject to credit assessment.

In addition, receivable balances are monitored on an ongoing basis with the result that the Company’s exposure to bad debts is not significant.

Cash and Cash equivalents ($’000’s) $12,885 (2007: $11,135).

The Company’s policy is to place cash balances in 30 day term deposits that earn higher interest rates.

At 30 June 2008, if interest rates had moved, as illustrated in the table below, with all other variables held constant, post tax profit and equity would have been affected as follows:

As the Company trades predominantly within the Diagnostic Imaging market there is a concentration of credit risk. Given the underlying Government funding support for Radiology, recent amalgamations and the commercial successes achieved, credit risk is considered to be minimal.

	Post Tax Profit	Post Tax Profit	Equity
	Higher/(Lower)		Higher/(Lower)
Judgements of reasonably	2008	2007	2008	2007
possible movements:	$’000	$’000	$’000	$’000
+1% (100 basis points)	129	111	—	—
–2% (200 basis points)	(258)	(222)	—	—

Liquidity risk

The Company has minimal liquidity risk as it has significant cash reserves.

The table below reflects all contractually fixed pay-offs and receivables for settlement, repayments and interest resulting from recognized financial assets and liabilities. Cash flows for financial assets and liabilities without fixed amount of timing are based on the conditions existing at 30 June 2008.

The remaining contractual maturities of the company’s financial liabilities are:

	2008	2007
	$’000	$’000
<30 days	969	572
31-60 days	—	33
61-90 days	9	—
Over 90 days	18	8
TOTAL	996	613

Pro medicus Annual Report 2008

Notes to the Financial Statements For the Year ended 30 June 2008

3. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continue)

Maturity analysis of financial assets and liability based on management’s expectation.

The risk implied from the values show in the table below, reflect a balanced view of cash inflows and outflows. The company’s financial instruments mainly originate directly from the operations of the company.

	< 30 days	31-60 days	61-90 days	Over 90 days	Total
Year ended 30 June 2008	$’000	$’000	$’000	$’000	$’000
Financial Assets
Cash and cash equivalents	12,885	—	—	—	12,885
Trade and other receivables	2,109	137	199	1,347	3,792
Financial Liabilities
Trade and other payables	969	—	9	18	996
Net Maturity	14,025	137	190	1,329	15,681
	< 30 days	31-60 days	61-90 days	Over 90 days	Total
Year ended 30 June 2007	$’000	$’000	$’000	$’000	$’000
Financial Assets
Cash and cash equivalents	11,135	—	—	—	11,135
Trade and other receivables	2,721	193	215	1,206	4,335
Financial Liabilities
Trade and other payables	572	33	—	8	613
Net Maturity	13,284	160	215	1,198	14,857

4. SEGMENT INFORMATION

The Company operates predominantly in one industry being, information technology within the health care industry and in two geographical areas being Australia and North America.

Geographic Segments

	Australia North America Pro Medicus Ltd 2008 2007 2008 2007 2008 2007 $’000 $’000 $’000 $’000 $’000 $’000
Revenue Sales to customers outside the company	12,511 9,455 2,190 3,093 14,701 12,548
Total segment revenue	12,511 9,455 2,190 3,093 14,701 12,548
Results Segment Result Interest Revenue Non segment expenses Income Tax Expense	8,930 6,618 1,690 2,463 10,620 9,081 705 660 (3,392) (2,689)
Net Profit	7,933 7,052
Assets Segment Assets Non segment assets Income Tax Assets	17,550 12,618 1,711 4,642 19,261 17,260 282 294
Total Assets	19,543 17,554
Liabilities Segment Liabilities Non segment liabilities Tax Liabilities	1,894 1,553 — — 1,894 1,553 1,905 1,744
Total Liabilities	3,799 3,297
Other segment information Capital expenditure Depreciation and amortisation	1,297 770 — — 1,297 770 527 406 — — 527 406

Pro medicus Annual Report 2008

Notes to the Financial Statements For the Year ended 30 June 2008

Notes	2008	2007
	$’000	$’000

5. INCOME AND EXPENSES

Income and expenses

5 (a) Revenue
Sale of goods		83	347
Rendering of services		9,074	7,673
Licence revenue		5,544	4,519
Finance revenue		705	660
		15,406	13,199
Breakdown of finance revenue
Bank and deposit interest receivable		705	660
		705	660
5 (b) Other income
Government Grants		—	9
		—	9
An Export Market Development Grant [EMDG] was received in 2006/07
for expenses incurred in 2004/5 in developing overseas markets.
(c) Other Expenses
Finance costs		—	—
Total borrowing costs expensed		—	—
Depreciation and Amortisation
Motor Vehicles		16	20
Office Equipment		22	21
Furniture and Fittings and Property Improvements		12	11
Research & Development Equipment		27	20
Intangible Asset		15	15
Total Depreciation and Amortisation Expenses		92	87
Research and Development Expense
Research expenses		133	427
Amortization on capitalized development costs	12	435	319
Total Research & Development Expense		568	746
Salaries and Employee Benefits Expense
Wages & Salaries		1,898	1,532
Long service leave provision		(45)	54
Defined contribution plan expense		221	84
Total Salaries and Employee Benefits Expense		2,074	1,670
Operating Lease Expense		169	179
Foreign Exchange Loss
Foreign exchange losses on transactions		134	40
Total Foreign Exchange Loss		134	40

	2008	2007
	$’000	$’000
6. INCOME TAX
The major components of income tax expense are:
Income Statement
Current income tax
Current income tax charge	3,121	2,881
Adjustments in respect of current income tax of previous years	(80)	(189)
Deferred income tax
Relating to origination and reversal of temporary differences	351	(3)
Income tax expense reported in the income statement	3,392	2,689
A reconciliation between tax expense and the product of accounting profit before
income tax multiplied by the Company’s applicable income tax rate is as follows:
Accounting profit before tax from continuing operations	11,325	9,741
At the Company’s statutory income tax rate of 30% (2007: 30%)	3,397	2,922
Adjustments in respect of current income tax of previous years	(80)	(189)
Expenditure not allowable for income tax purposes	109	42
Other	(34)	(86)
Income tax expense reported in the income statement	3,392	2,689
Deferred income tax
Deferred income tax at 30 June relates to the following:
Deferred tax liabilities
Capitalised development expenses	670	331
Deferred income tax liabilities	670	331
Deferred tax assets
Employee Entitlements	270	282
Audit Fee Accrual	12	12
Deferred income tax assets	282	294

7. EARNINGS PER SHARE

The following reflects the income and share data used in the basic
and diluted earnings per share computations:
Net Profit attributable to ordinary equity holders from continuing operations	7,932,452	7,051,732
	Number	Number
Weighted average number of ordinary shares for basic earnings per share	100,280,000	100,020,000
Effect of dilution:
Share options	149,790	362,963
Weighted average number of ordinary shares adjusted for the effect of dilution	100,429,790	100,382,963
There have been no other transactions involving ordinary shares or potential
ordinary shares between the reporting date and the date of completion
of these financial statements

Pro medicus Annual Report 2008

Notes to the Financial Statements For the Year ended 30 June 2008

	2008	2007
	$’000	$’000
8. DIVIDENDS PAID AND PROPOSED
Declared and paid during the year:
Dividends on ordinary shares
Final franked dividend for 2007: 3.00 cents (2006: 3.00 cents)	3,008	3,000
Final franked special dividend for 2007: 1.0 cent (2006: nil)	1,002	—
Interim franked dividend for 2008: 2.75 cents (2007: 3.00 cents)	2,757	3,001
	6,767	6,001
Proposed for approval by directors (not recognised as a liability as at 30 June):
Dividends on ordinary shares:
Final franked dividend for 2008: 3.25 cents (2007: 3.00 cents)	3,259	3,000
Final franked special dividend for 2008: nil (2007: 1.0 cent)	—	1,000
Total dividends proposed	3,259	4,000
Franking credit balance
The amount of franking credits available for the subsequent financial year are:
– franking account balance as at the end of the financial year at 30% (2007: 30%)	4,281	4,169
– franking credits that will arise from the payment of income tax payable
as at the end of the financial year	1,235	1,413
– franking debits that will arise from the payment of dividends as at the end
of the financial year	—	—
– franking credits that the entity may be prevented from distributing
in the subsequent financial year	—	—
	5,516	5,582
The amount of franking credits available for future reporting periods:
– impact on the franking account of dividends proposed or declared before
the financial report was authorised for issue but not recognised as a distribution
to equity holders during the period	(1,397)	(1,715)
	4,119	3,867
The tax rate at which paid dividends have been franked is 30% (2007: 30%).
Dividends proposed will be fully franked.
9. CASH AND CASH EQUIVALENTS
Cash at bank and in hand	3,841	1,793
Short-term deposits	9,044	9,342
	12,885	11,135

Cash at bank earns interest at floating rates based on daily bank deposit rates.

Short term deposits are made for varying periods of between 20 days and 35 days, depending on the immediate cash requirements of the Company, and earn interest at the respective short-term deposit rates.

The fair value of cash and cash equivalents is $12,885,000 (2007: $11,135,000). The fair value approximates carrying value due to the short term nature of cash at bank and short term deposits.

	2008	2007
	$’000	$’000
9. CASH AND CASH EQUIVALENTS (continue)
Reconciliation of net profit after tax to net cash flows from operations
Net profit	7,933	7,052
Adjustments for:
Depreciation of non-current assets	77	72
Amortisation of Intangible Asset	450	334
Interest Received classified in Investing Activities	(705)	(660)
Changes in assets and liabilities
(Increase)/decrease in trade and other receivables	543	(1,989)
(Increase)/decrease in inventory	—	31
(Increase)/decrease in future income tax benefit	12	(13)
(Increase)/decrease in prepayments	(23)	(13)
(Decrease)/increase in deferred income	(24)	9
(Decrease)/increase in trade and other creditors	355	(94)
(Decrease)/increase in tax provision	(178)	943
(Decrease)/increase in deferred income tax liability	339	10
(Decrease)/increase in goods and services tax payable	73	79
(Decrease)/increase in employee entitlements	(42)	44
Net cash flow from operations	8,810	5,805
10. TRADE AND OTHER RECEIVABLES (CURRENT)
Trade receivables	3,792	4,335
Provision for impairment	—	—
	3,792	4,335

Terms and conditions relating to the above financial instruments

Trade receivables are on 30 day trading terms.

Fair value approximates carrying value due to the short term nature of trade receivables.

a) Allowance for impairment loss

No provision for impairment loss is recognised at 30 June 2008 (2007: nil) as all bad debts have been written of at balance date. All remaining debts are considered collectable.

At June 30, the ageing analysis of trade debtors is as follows:

	Total	days	31-60 days	61-90 days	+91 days
			PDNI*	PDNI*	PDNI*
2008	3,792	2,109	137	199	1,347
2007	4,335	2,721	193	215	1,206

* Past due not impaired (‘PDNI’)

Pro medicus Annual Report 2008

Notes to the Financial Statements For the Year ended 30 June 2008

	2008	2007
	$’000	$’000
11. PLANT AND EQUIPMENT
Property Improvements
Year ended 30 June
As at 1 July
Net of accumulated depreciation and impairment	44	55
Additions	4	—
Disposals	—	—
Depreciation charge for the year	(11)	(11)
At 30 June net of accumulated depreciation and impairment	37	44
At 1 July
Cost	238	238
Accumulated depreciation and impairment	(194)	(182)
Net carrying amount	44	56
At 30 June
Cost	242	238
Accumulated depreciation and impairment	(205)	(194)
Net carrying amount	37	44
Motor Vehicles
Year ended 30 June
As at 1 July
Net of accumulated depreciation and impairment	67	87
Additions	—	—
Disposals	—	—
Depreciation charge for the year	(16)	(20)
At 30 June net of accumulated depreciation and impairment	51	67
At 1 July
Cost	480	480
Accumulated depreciation and impairment	(413)	(394)
Net carrying amount	67	86
At 30 June
Cost	480	480
Accumulated depreciation and impairment	(429)	(413)
Net carrying amount	51	67
Office Equipment
Year ended 30 June
As at 1 July
Net of accumulated depreciation and impairment	41	55
Additions	45	6
Disposals	—	—
Depreciation charge for the year	(22)	(20)
At 30 June net of accumulated depreciation and impairment	64	41
At 1 July
Cost	213	207
Accumulated depreciation and impairment	(172)	(152)
Net carrying amount	41	55

	2008	2007
	$’000	$’000
11. PLANT AND EQUIPMENT (continue)
At 30 June
Cost	258	213
Accumulated depreciation and impairment	(194)	(172)
Net carrying amount	64	41
Furniture & Fittings
Year ended 30 June
As at 1 July
Net of accumulated depreciation and impairment	4	2
Additions	—	3
Disposals	—	—
Depreciation charge for the year	(1)	(1)
At 30 June net of accumulated depreciation and impairment	3	4
At 1 July
Cost		219216
Accumulated depreciation and impairment	(215)	(214)
Net carrying amount	4	2
At 30 June
Cost	219	219
Accumulated depreciation and impairment	(216)	(215)
Net carrying amount	3	4
Research & Development Equipment
Year ended 30 June
As at 1 July
Net of accumulated depreciation and impairment	58	29
Additions	13	49
Disposals	—	—
Depreciation charge for the year	(27)	(20)
At 30 June net of accumulated depreciation and impairment	44	58
At 1 July
Cost		184135
Accumulated depreciation and impairment	(126)	(106)
Net carrying amount	58	29
At 30 June
Cost		196184
Accumulated depreciation and impairment	(152)	(126)
Net carrying amount	44	58
TOTAL PLANT AND EQUIPMENT
Year ended 30 June
As at 1 July
Net of accumulated depreciation and impairment	214	228
Additions	62	58
Disposals	—	—
Depreciation charge for the year	(77)	(72)
At 30 June net of accumulated depreciation and impairment	199	214

Pro medicus Annual Report 2008

Notes to the Financial Statements For the Year ended 30 June 2008

		Notes	2008	2007
			$’000	$’000
11. PLANT AND EQUIPMENT (continue)
At 1 July
Cost			1,334	1,276
Accumulated depreciation and impairment			(1,120)	(1,048)
Net carrying amount			214	228
At 30 June
Cost			1,395	1,334
Accumulated depreciation and impairment			(1,196)	(1,120)
Net carrying amount			199	214
	Notes	$’000	$’000	$’000
12. INTANGIBLE ASSETS
	Development		Software	Total
		Costs	Licences
		$’000	$’000	$’000
At 1 July
Cost (gross carrying amount)		1,936	75	2,011
Accumulated amortisation and impairment		(443)	(45)	(488)
Net carrying amount		1,493	30	1,523
Year ended 30 June
At 1 July net of accumulated amortisation and impairment		1,493	30	1,523
Additions – internal development		1,236	—	1,236
Amortisation		(435)	(15)	(450)
At 30 June net of accumulated amortisation and impairment		2,294	15	2,309
At 30 June
Cost (gross carrying amount)		3,172	75	3,247
Accumulated amortisation and impairment		(878)	(60)	(938)
Net carrying amount		2,294	15	2,309

Development costs have been capitalised at cost. This intangible asset has been assessed as having a finite life and is amortised using the straight line method over a period of 10 years. If an impairment indication arises, the recoverable amount is estimated and an impairment loss is recognised to the extent that the recoverable amount is lower than the carrying amount.

Software licences have been assessed as having a finite life and are amortised using the straight line method over a period of 5 years.

	Notes	$’000	$’000	$’000
12. INTANGIBLE ASSETS (continue)
	Development		Software	Total
		Costs	Licences
		$’000	$’000	$’000
At 1 July 2006
Cost (gross carrying amount)		1,224	75	1,299
Accumulated amortisation and impairment		(124)	(30)	(154)
Net carrying amount		1,100	45	1,145
Year ended 30 June 2007
At 1 July 2006, net of accumulated amortisation and impairment		1,100	45	1,145
Additions – internal development		712	—	712
Amortisation		(319)	(15)	(334)
At 30 June 2007, net of accumulated amortisation and impairment		1,493	30	1,523
At 30 June 2007
Cost (gross carrying amount)		1,936	75	2,011
Accumulated amortisation and impairment		(443)	(45)	(488)
Net carrying amount		1,493	30	1,523
13. TRADE AND OTHER PAYABLES (CURRENT)
Trade payables			188	93
Other creditors and accruals			736	424
			924	517
Deferred Income			72	96
			996	613

(i) Trade payables are non-interest bearing and are normally settled on 30-day terms.

(ii) Other creditors are non-interest bearing and have an average term of 30 days.

Fair value approximates carrying value due to the short term nature of trade and other payables

Pro medicus Annual Report 2008

Notes to the Financial Statements For the Year ended 30 June 2008

14. PROVISIONS

14. PROVISIONS
		Long
	Annual	Service	Total
	Leave	Leave
	$’000	$’000	$’000
At 1 July 2007
Arising during the year	59	33	92
Utilised	(56)	(78)	(134)
	512	386	898
Current 2008	512	338	850
Non-current 2008	—	48	48
	512	386	898
Current 2007	509	135	644
Non-current 2007	—	296	296
	509	431	940
		2008	2007
		$’000	$’000
15. CONTRIBUTED EQUITY AND RESERVES
(i) Ordinary shares		331	32
Issued and fully paid		331	32
Fully paid ordinary shares carry one vote per share and carry the right to dividends
(ii) Movements in shares on issue
		Number of	2008
		Shares	$’000
At 1 July 2007		100,020,000	32
Issued on 4 July 2007 for cash on exercise of options		260,000	299
At 30 June 2008		100,280,000	331
		Number of	2007
		Shares	$’000
At 1 July 2006		100,020,000	32
At 30 June 2007		100,020,000	32
		2008	2007
		$’000	$’000
Share Reserve*
Balance 1 July 2007		—	—
Share options expensed		21	—
Balance 30 June 2008		21	—
Retained earnings
Balance 1 July 2007		14,225	13,174
Net profit for the year		7,933	7,052
Dividends		(6,767)	(6,001)
Balance 30 June 2008		15,392	14,225

15. CONTRIBUTED EQUITY AND RESERVES (continue)

16. SHARE BASED PAYMENT PLAN

Employee Share Option Scheme

* Share Reserve

The share reserve is used to record the value of share based payments provided to employees, including KMP, as part of their remuneration. Refer to note 16 for further details of these plans.

Capital Management

When managing capital, management's objective is to ensure the entity continues as a going concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders. Management also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity.

Management review the capital structure to take advantage of favourable costs of capital or high returns on assets. As the market is constantly changing, management may change the amount of dividends to be paid to shareholders, return capital to shareholders, or issue new shares.

An employee share incentive scheme was established on 25th August 2000 whereby directors and staff of the Company were issued with options over the ordinary shares of Pro Medicus Limited. The options, issued for nil consideration, have an exercise price of $1.15. Options vest at 20% per annum commencing on the first anniversary of issue. The options cannot be transferred and will not be quoted on the ASX. There are currently 14 staff members, 3 executive directors and 3 non-executive directors eligible for this scheme.

A further 200,000 shares were granted as options to Peter Kempen on becoming a Director of the company under a separate agreement. The shares have an exercise price of $1.25 and they vest at 20% per annum commencing on the first anniversary of issue.

Information with respect to the number of options granted under the employee share incentive scheme is as follows:

During the year, the company paid dividends of $6,767,000 (2007: $6,001,000).

	2008		2007
	Number of	Weighted	Number of	Weighted
	Options	average	Options	average
		exercise		exercise
		price		price
Outstanding at the beginning of the year	2,450,000		2,450,000	$1.15
- granted	200,000	$1.25	—	—
- forfeited	(90,000)	$1.15	—	—
- exercised	(260,000)	$1.15	—	—
- expired	—	—	—	—
Outstanding at the end of the year	2,300,000	$1.16	2,450,000	$1.15
Exercisable at end of year	2,300,000	$1.16	2,450,000	$1.15

All options above, except 200,000 granted during the year to Peter Kempen, have not been recognised in accordance with AASB 2 as the options were granted before 7 November 2002. These options have not subsequently been modified and therefore do not need to be accounted for in accordance with AASB 2.

The outstanding balance as at 30 June 2008 is represented by:

2,100,000 options over ordinary shares with an exercise price of $1.15 each and
200,000 options over ordinary shares with an exercise price of $1.25 each, exercisable until 12 March 2018.

Weighted average remaining contractual life

The weighted average remaining contractual life for share options outstanding at 30 June 2008 is 2.9 years (2007: 3.2 Years)

Range of exercise price

The range of exercise prices for options outstanding at the end of the year was $1.15 - $1.25 (2007: $1.15).

Weighted average fair value

The weighted average fair value of options granted during the year was $1.15 (2007: $1.15).

Pro medicus Annual Report 2008

Notes to the Financial Statements For the Year ended 30 June 2008

16. SHARE BASED PAYMENT PLAN (continue)

18. EVENTS AFTER THE BALANCE SHEET DATE

Option pricing model

On 26 August 2008, the directors of Pro Medicus Limited declared a final dividend on ordinary shares in respect of the 2008 financial year. This dividend comprises a normal dividend of 2.75.cents per share. The total amount of the dividend is $3,259,100 which represents a fully franked dividend of a total of 3.25 cents per share. The dividend has not been provided for in the 30 June 2008 financial statements.

The fair value of the equity-settled share options granted is estimated as at the date of the grant using a Binomial Model taking into account the terms and conditions upon which the options were granted.

The following table lists the inputs to the models used for the year ended 30 June 2008 (2007: nil):

Dividend yield 5.13% Expected volatility 40.0% Risk-free interest rate 7.0% Expected life of options 10 years Option exercise price $1.25 Weighted average share price at measurement date $1.15 17. COMMITMENTS AND CONTINGENCIES a)Oeratin lease commitments – Coman as	19. AUDITORS’ REMUNERATION 2008 2007 $ $
	Amounts received or due and receivable by Ernst & Young for: - an audit or review of the financial report of the Company 85,000 71,000 - other services in relation to the Company 37,535 5,500
	122,535 76,500

a) Operating lease commitments – Company as lessee

The Company has entered into a commercial property lease for office premises. This lease has a life of 5 years with an option for a further 5 year period. There is no restriction placed upon the lessee by entering into this lease.

20. DIRECTOR AND EXECUTIVE DISCLOSURES

(a) Compensation for key management personnel

Future minimum rentals payable under non-cancellable operating lease as at 30 June are as follows:

	2008	2007
	$	$
Short-term employee benefits	1,199,376	1,076,874
Post-employment benefits	325,221	339,335
Other long-term benefits	—	—
Termination benefits	—	—
Share-based payment	90,765	—
Total compensation	1,703,062	1,416,209

	2008	2007
- Within one year	169	182
- After one year and not more
than five years	678	731
-After more than five years	—	—
TOTAL	847	913

b) Remuneration commitments

Commitments for the payment of salaries and other remuneration under long-term employment contracts in existence at the reporting date but not recognised as liabilities, payable:

liabilities, payable:
	2008	2007
	$’000	$’000
Within one year	435	—
After one year but not more than
5 years	1,051	—
After more than 5 years	—	—
TOTAL	1,486	—

20. DIRECTOR AND EXECUTIVE DISCLOSURES (continue)

(b) Option holdings of Key Management Personnel

	Balance at	Granted as	Options	Net	Balance at		Vested at 30	June 2008
beginning of year		Remuneration	Exercised	Change	end of year
30 June 2008	1July 2007			Other #	30 June 2008	Total	Not exercisable	Exercisable
Directors
M K Ward	400,000	—	—	—	400,000	400,000	—	400,000
P D Jonson	200,000	—	—	—	200,000	200,000	—	200,000
P G Molyneux	200,000	—	—	—	200,000	200,000	—	200,000
S A Hupert	425,000	—	—	—	425,000	425,000	—	425,000
A B Hall	425,000	—	—	—	425,000	425,000	—	425,000
D Chambers	—	—	—	—	—	—	—	—
P T Kempen	—	200,000	—	—	200,000	200,000	—	200,000
Executives
B Duscher	120,000	—	(30,000)	(90,000)	—	—	—	—
G W Holden	85,000	—	(85,000)	—	—	—	—	—
D Tauber	350,000	—	—	—	350,000	350,000	—	350,000
Total	2,205,000	200,000	(115,000)	(90,000)	2,200,000	2,200,000 —		2,200,000

# Includes forfeitures

	Balance at	Granted as	Options	Net	Balance at		Vested at 30	June 2007
beginning of year		Remuneration	Exercised	Change	end of year
30 June 2007	1July 2006			Other #	30 June 2007	Total	Not exercisable	Exercisable
Directors
M K Ward	400,000	—	—	—	400,000	400,000	—	400,000
P D Jonson	200,000	—	—	—	200,000	200,000	—	200,000
P G Molyneux	200,000	—	—	—	200,000	200,000	—	200,000
S A Hupert	425,000	—	—	—	425,000	425,000	—	425,000
A B Hall	425,000	—	—	—	425,000	425,000	—	425,000
Executives
B Duscher	120,000	—	—	—	120,000	120,000	—	120,000
G W Holden	85,000	—	—	—	85,000	85,000	—	85,000
D Tauber	350,000	—	—	—	350,000	350,000	—	350,000
Total	2,205,000	—	—	—	2,205,000	2,205,000	—	2,205,000

# Includes forfeitures

Pro medicus Annual Report 2008

Notes to the Financial Statements For the Year ended 30 June 2008

20. DIRECTOR AND EXECUTIVE DISCLOSURES (continue)

(c) Shareholdings of Key Management Personnel

Shares held in	Balance 1 July 2007	Granted as	On Exercise of	Net Change	Balance
ProMedicus Limited		Remuneration	Options	Other	30 June 2008
(number)
30 June 2008	Ordinary	Ordinary	Ordinary	Ordinary	Ordinary
Directors
M K Ward	50,000	—	—	—	50,000
P D Jonson	50,000	—	—	—	50,000
P G Molyneux	25,000	—	—	—	25,000
S A Hupert	30,072,660	—	—	—	30,072,660
A B Hall	30,068,500	—	—	—	30,068,500
D Chambers	—	50,000	—	—	50,000
P T Kempen	—	—	—	30,000	30,000
Executives
B Duscher	—		30,000	(30,000)	—
G W Holden	35,000	—	85,000	(120,000)	—
D Tauber	150,000	—	—	—	150,000
Total	60,451,160	50,000	115,000	(120,000)	60,496,160
Shares held in	Balance 1 July 2006	Granted as	On Exercise of	Net Change	Balance
ProMedicus Limited		Remuneration	Options	Other	30 June 2007
(number)
30 June 2007	Ordinary	Ordinary	Ordinary	Ordinary	Ordinary
Directors
M K Ward	50,000	—	—	—	50,000
P D Jonson	50,000	—	—	—	50,000
P G Molyneux	25,000	—	—	—	25,000
S A Hupert	30,072,660	—	—	—	30,072,660
A B Hall	30,068,500	—	—	—	30,068,500
Executives
G W Holden	35,000	—	—	—	35,000
D Tauber	413,453	—	—	(263,453)	150,000
Total	60,714,613	—	—	(263,453)	60,451,160

(d) Loans to Key Management Personnel

No loans are made to Key Personnel or staff.

(e) Other transactions and balances with Key Management Personnel

Purchases

During the year lease payments of $168,931 (2007: $178,507) in respect of the Company’s operating premises at 450 Swan Street Richmond were paid to Champagne Properties Pty. Ltd., an entity controlled by S. Hupert and A. Hall. Commercial arrangements on an ‘arms length basis’ have been determined by an independent assessment of rental and lease terms.

Directors’ Declaration

In accordance with a resolution of the directors of Pro Medicus Limited, I state that:

(1) In the opinion of the directors:
(a) the financial report and the additional disclosures included in the directors’ report designated as audited, of the company are in accordance with the Corporations Act 2001, including:
- (i) giving a true and fair view of the company’s financial position as at 30 June 2008 and of its performance for the year ended on that date; and
- (ii) complying with Accounting Standards and Corporations Regulations 2001; and
(b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.
(2) This declaration has been made after receiving the declarations required to be made to the directors in accordance with section 295A of the Corporations Act 2001 for the financial period ending 30 June 2008.

On behalf of the Board

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M K Ward CHAIRMAN

Melbourne, 26 August 2008

Pro medicus Annual Report 2008

Independent Audit Report For the Year ended 30 June 2008

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Pro medicus Annual Report 2008

ASX Additional Information

Additional information required by the Australian Stock Exchange Ltd and not shown elsewhere in this report is as follows.

(a) Distribution of equity securities

The number of shareholders, by size of holding, in each class of share are:

	Ordinary shares	Ordinary shares
	Number of holders		Number of shares
1 – 1,000		178	124,380
1,001 – 5,000		540	1,725,841
5,001 – 10,000		314	2,530,292
10,001– 100,000		361	9,771,520
100,001 and Over		22	86,127,967
		1,415	100,280,000
The number of shareholders holding less than a marketable parcel of 224 shares are:		38	8,516

(b) Twenty largest shareholders

The names of the twenty largest holders of quoted shares are:

		Listed	ordinary shares
			Percentage
	Number of shares		of ordinary shares
1	Dr S Hupert (multiple shareholdings)	30,072,660	29.99%
2	Mr A Hall (multiple shareholdings)	30,068,500	29.98%
3	RBC Dexia Investor Services Australia Nominees P/L	8,465,935	8.44%
4	Citicorp Nominees Pty Ltd	6,605,439	6.59%
5	RBC Dexia Investor Services Australia Nominees P/L	5,963,602	5.95%
6	Mirrabooka Investments Limited	1,500,000	1.50%
7	Invia Custodian Pty Limited	1,075,000	1.07%
8	ANZ Nominees Limited	303,800	0.30%
9	Mr Peter Propert Birrell Mrs Dinny Mary Birrell	227,000	0.23%
10	Narlack Pty Ltd<Piperoglou Pension A/C	226,699	0.23%
11	Mr S G Wilson & Ms D A Prandi	203,000	0.20%
12	Mrs Tung Yueh-Ying Tsai	173,500	0.17%
13	Mrs Nelly Michelle Cunningham	172,742	0.17%
14	Mr D Tauber	150,000	0.15%
15	Mr John Charles Plummer	150,000	0.15%
16	Mr E P Clucas & Mr L J Weston	146,500	0.15%
17	Mr Simon Gautier Hannes	146,250	0.15%
18	Mr Timothy John Hannigan & Mrs Kerrie Helen Hannigan<Clubnet Super Fund A/C	140,000	0.14%
19	Mellett Super Pty Ltd	125,000	0.12%
20	Crosbie Holding A/S	120,000	0.12%
		86,035,027	85.80%

(c) Substantial shareholders

The names of substantial shareholders who have notified the Company in accordance with section 671B of the Corporations Law are:

of the Corporations Law are:
	Number of shares
S. Hupert	30,072,660
A Hall	30,068,500
Perpetual Limited RBC Dexia Investor Services Australia Nominees P/L	14,429,537
Commonwealth Bank of Australia	6,605,439

(d) Voting rights

All ordinary shares carry one vote per share without restriction.

Pro medicus Annual Report 2008

Corporate governance

The Board of Directors of Pro Medicus Limited is responsible for the corporate governance of the entity. The Board guides and monitors the business and affairs of Pro Medicus Limited on behalf of the shareholders by whom they are elected and to whom they are accountable.

To ensure the Board is well equipped to discharge its responsibilities it supports, and has adopted where considered appropriate, the principles set out in the ASX Corporate Governance Council “Principles of Good Corporate Governance and Best Practice Recommendations” dated March 2003. Pro Medicus Limited corporate governance practices were in place throughout the year ended 30 June 2008 and except where noted in this report, were compliant with the Council’s best practice recommendations.

For further information on corporate governance policies adopted by Pro Medicus Limited, refer to our website: www.promedicus.com.au

Structure of the Board

The skills, experience and expertise relevant to the position of director held by each director in office at the date of the annual report is included in the Directors’ Report.

The composition of the Board was determined in accordance with the following principles and guidelines:

The Board should comprise at least five directors and should maintain a majority of non-executive directors;
The Chairperson must be a non-executive director and not occupy the role of CEO;
The Board should comprise directors with an appropriate range of qualifications and expertise; and
The Board shall meet monthly and follow meeting guidelines set down to ensure all directors are made aware of, and have available all necessary information, to participate in an informed discussion of all agenda items.

Directors of Pro Medicus Limited are considered to be independent when they are independent of management and free from any business or other relationship that could materially interfere with – or could reasonably be perceived to materially interfere with the exercise of their unfettered and independent judgement.

In the context of director independence, “materiality” is considered from both the company and individual

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director perspective. The determination of materiality requires consideration of both quantitative and qualitative elements. An item is presumed to be quantitatively immaterial if it is equal or less than 5% of the appropriate base amount. It is presumed to be material (unless there is qualitative evidence to the contrary) if it is equal to or greater than 10% of the appropriate base amount. Qualitative factors considered include whether a relationship is strategically important, the competitive landscape, the nature of the relationship and the contractual or other arrangements governing it and other factors which point to the actual ability of the director in question to shape the direction of the company’s loyalty.

In accordance with the definition of independence above, and the materiality thresholds set, the following directors of Pro Medicus Limited are considered to be independent:

Name

Position

M K Ward CHAIRMAN, NON-EXECUTIVE DIRECTOR P D Jonson NON-EXECUTIVE DIRECTOR P T Kempen NON-EXECUTIVE DIRECTOR, CHAIRMAN AUDIT COMMITTEE

The board has codified a list of its responsibilities consistent with the recommendations and details are disclosed on the company website.

The Board wishes to advise that it continues to maintain responsibility for the actions of the chief executive officer and any tasks delegated to the management by the Board.

Directors’ Appointment Letters have not been revised in the prescribed format as the board considered this unnecessary given the small number of fairly recently appointed current directors who understand their roles and responsibilities. The board has undertaken that the recommended format should be used for any future director appointments.

Mr. Ward and Mr. Peter Jonson have been directors of Pro Medicus Limited since it's ASX listing in 2000 however Mr. Sam Hupert and Mr. Anthony Hall were directors in Pro Medicus Pty Ltd since incorporation in 1983. Mr D Chambers was appointed in December 2007 and Mr. Peter Kempen was appointed in March 2008.

Pro medicus Annual Report 2008

Code of Conduct and Securities Trading Policy

The board has developed a “Code of Conduct” and a “Securities Trading Policy” consistent with the recommendations and details are disclosed on the company website.

Committees

The current Board of five Directors was appointed on April 4, 2000. Due to the small number of Directors, the Board decided it was more appropriate to handle nomination and remuneration issues at full Board level. No Committees for these functions have been established at this time.

In addition the full Board handles any matters as and when they arise concerning environmental issues, occupational health and safety, finance and treasury. In order to maintain good corporate governance the Non-Executive Directors will assume responsibility for determining and reviewing compensation arrangements for the Chief Executive Officer and Technology Director who will in turn review the terms for the Non-Executive Directors. The full Board will review the terms of employment for the Company Secretary.

The Board has delegated the responsibility of executive remuneration to the management who will assess the appropriateness of the nature and amount of emoluments of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality executive team. Independent experts have been consulted to provide appropriate information to ensure decisions are soundly based.

The appointment of appropriately skilled Non-Executive Directors, together with a broadly unchanged business base has meant no new director nominations have been required to date.

Strategic planning has been an important objective of the Board. Meetings are scheduled so that all Board members can attend and are conducted in an informal fashion to allow non-executive directors to gain enhanced industry, customer, product and research knowledge.

Audit Committee

The board has established an audit committee, which operates under a charter approved by the Board.

It is the Board’s responsibility to ensure that an effective internal control framework exists within the entity. This includes internal controls to deal with both the

effectiveness and efficiency of significant business processes. This also includes the safeguarding of assets, the maintenance of proper accounting records, and reliability of financial information as well as non-financial considerations such as the benchmarking of operational key performance indicators. The Board has delegated the responsibility for the establishment and maintenance of a framework of internal control and ethical standards for the management of the entity to the audit committee.

The committee also provides the board with additional assurance regarding the reliability of financial information for inclusion in the financial reports. The members of the audit committee are: P T Kempen Chairman M K Ward P D Jonson S A Hupert A B Hall D Chambers

The audit committee is also responsible for nomination of the external auditor and reviewing the adequacy of the scope and quality of the annual statutory audit and half yearly audit review.

A copy of the Audit Committee Charter is posted on the company website.

The Company is small with a total staff at present of twenty full time people so it should be understood that the Chief Executive Officer and Chief Financial Officer play key roles in all financial aspects of the business. Both people will provide a written assurance to the board in the prescribed format.

Board Responsibilities

As the Board acts on behalf of and is accountable to the shareholders, it seeks to identify the expectations of the shareholders, as well as other regulatory and ethical expectations and obligations. In addition, the Board is responsible for identifying areas of significant business risk and ensuring arrangements are in place to adequately manage those risks. The Board seeks to discharge these responsibilities in a number of ways.

The Board has delegated responsibility for the operation and administration of the entity to the Chief Executive Officer and the executive team. The Board ensures that this team is appropriately qualified and experienced to discharge their responsibilities and has in place procedures to assess the performance of the Chief Executive and the executive team.

The Board is responsible for ensuring that management’s objectives and activities are aligned with the expectations and risks identified by the Board. The Board has a number of mechanisms in place to ensure this is achieved. In addition to the establishment of the committee referred to above, these mechanisms include the following:

approval of strategic plans, which encompass the entity’s vision, mission and strategy statements, designed to meet stakeholders’ needs and manage business risk;
involvement in developing the strategic plan (a dynamic document) and approving initiatives and strategies designed to ensure the continued growth and success of the entity;
overseeing implementation of operating plans and budgets by management and monitoring of progress against budget - this includes the establishment and monitoring of key performance indicators (both financial and non-financial) for all significant business processes; and
utilising appropriately skilled professionals to provide advice on relevant discussion topics and procedures to allow Directors, in the furtherance of their duties, to seek independent professional advice at the Company’s expense.

In order to ensure that the Board continues to discharge its responsibilities in an appropriate manner, the Chairman annually reviews the performance of all Directors who will be asked to retire from the board if not performing in a satisfactory manner.

Monitoring of the Board’s Performance and Communication to Shareholders - Continuous Disclosure Policy

The board has developed a written policy to ensure compliance with the ASX Listing Rules on continuous disclosure and has adopted measures to ensure the market and shareholders are fully informed. The measures in place require all potential market sensitive matters are discussed with the Chief Executive Officer who in conjunction with the Chairman and other relevant directors decide whether to make an appropriate announcement to the market.

the annual report which is distributed to all shareholders registered to receive copies;
the annual general meeting and other meetings so called to obtain approval for Board action as appropriate;
an up to date website - www.promedicus.com.au ;
email contact with registered users; and
special written communications to shareholders distributed with the dividend notifications.

The company is adopting procedures to ensure that any material given to a particular group is available to all interested parties via the company website. This includes any material presented at the Annual General Meeting.

A representative of the external auditors Ernst & Young will continue to attend the Annual General Meeting.

Risk Management Policies

The Company up until late in the financial period was not exposed to any interest rate or significant currency sensitive loans or debts. Given the increase in overseas operations there is now an increased currency risk as a consequence of contracts written in and cash being held in foreign currencies. This change in risk profile has been noted by the board and action is being taken to manage this risk.

The Board oversees appropriate backup procedures for important company data.

Detailed annual review of insurance policies in force to ensure cover is at appropriate levels to safeguard key executives, Company assets and operations.

The Board regularly considers succession planning to ensure staff of appropriate skill and experience are available to the Company.

Only nominated authorised persons have the authority to release these communications to the ASX. This policy is displayed on the company website.

Shareholder Communication

The Board of Directors aims to ensure that the shareholders, on behalf of whom they act, are informed of all information necessary to assess the performance of the Directors. Information is communicated to the shareholders through:

Pro medicus Annual Report 2008

Corporate information

Directors

The names of the Directors of the Company in office during the year and until the date of this report are: Melvyn Keith Ward CHAIRMAN

Dr Peter David Jonson NON-EXECUTIVE DIRECTOR

Dr Sam Aaron Hupert DEPUTY CHAIRMAN & EXECUTIVE DIRECTOR Anthony Barry Hall EXECUTIVE DIRECTOR & TECHNOLOGY DIRECTOR David Chambers CHIEF EXECUTIVE OFFICER & MANAGING DIRECTOR Peter Kempen NON-EXECUTIVE DIRECTOR

Company Secretary

Alexander McKendrick

B.Juris LLB; Barrister & Solicitor, Supreme Court of Victoria Registered Office 450 Swan Street Richmond, VIC, 3121 (03) 9429 8800

Internet Address

www.promedicus.com.au www.promedicus.com

Share Registry

Link Market Services Limited Level 12, 680 George Street Sydney NSW 2000 Australia

Mailing address:

Link Market Services Limited Locked Bag A14 Sydney South NSW 1235 Australia

Solicitors

Innovation Law

Bankers

Westpac Banking Corporation

Telephone +612 8280 7111 Toll free 1300 554 474 Facsimile +612 9287 0303 Facsimile (proxy forms only) +612 9287 0309 E-mail: [email protected] Website: www.linkmarketservices.com.au

Auditors

Ernst & Young

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YOU CAN DO SO MUCH MORE ONLINE

Did you know that you can access – and even update – information about your holdings in Pro Medicus Limited via the Internet.

Visit Link Market Services’ website

www.linkmarketservices.com.au and access a wide variety of holding information, make some changes online or download forms. You can:

Better still, why not have us do your banking for you. Wouldn’t you prefer to have immediate access to your dividend payment? Your dividend payments can be credited directly into any nominated bank, building society or credit union account in Australia as cleared funds on dividend payment date – and we will still mail [(or email if you prefer)] you a dividend advice confirming your payment details. Not only can we do your banking for you, but payment by direct credit eliminates the risk of cheque fraud.

Check your current and previous holding balances
Choose your preferred annual report delivery option
Update your address details
Update your bank details
Lodge, or confirm lodgement of, your Tax File Number (TFN), Australian Business Number (ABN) or exemption
Check transaction and dividend history
Enter your email address
Check the share prices and graphs
Download a variety of instruction forms
Subscribe to email announcements

You can access this information via a security login using your Securityholder Reference Number (SRN) or Holder Identification Number (HIN) as well as your surname (or company name) and postcode (must be the postcode recorded on your holding record).

Top 5 tips for Pro Medicus Limited investors visiting Link’s (our registry) website

1. Bookmark www.linkmarketservices.com.au

to bookmark, click on ‘Favourites’ on the menu bar at the top of your browser then select ‘Add to Favourites’
Create a portfolio for your holding or holdings and you don’t have to remember your SRN or HIN every time you visit
Lodge your email via the ‘Communications Options’ and benefit from the online communications options Pro Medicus Limited offers its investors
Check out the ‘FAQs’ page (accessible via the orange menu bar) for answers to frequently asked questions
Use the ‘Client List’ page (accessible via the orange menu bar) to link to Pro Medicus Limited website and the website of the other Link clients in which you invest.

Don’t miss out on your dividends

Dividend cheques that are not banked are required to be handed over to the State Trustee under the Unclaimed Monies Act. You are reminded to bank cheques immediately.

Contact Information

You can also contact the Pro Medicus Limited share registry by calling

612 8280 7111 or Toll Free 1300 554 474

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Pro Medicus Limited

450 Swan Street, Richmond Victoria 3121 Australia T: 03 9429 8800 F: 03 9429 9455 E: [email protected] www.promedicus.com.au

AI assistant

PRO MEDICUS LIMITED — Annual Report 2008

65579_rns_2008-10-14_54e57bb9-7a28-479a-8113-73014bfde3bb.pdf

Pro medicus annual report 2008

Highlights 2007/2008

financial highlights

business highlights

Financial summary

CEO &Chairman’s Letter

Dear Shareholders,

Business Background

CORE BUSINESS

E-HEALTH

DIGITAL IMAGING

Year in review

australia

CORE BUSINESS

E-health

Digital imaging

‘08

united states

canada

Into the future

Financial statements

contents

DIRECTORS

and until the date of this report are as follows Directors’ report

Melvyn Keith Ward AO CHAIRMAN

Dr Peter David Jonson NON-EXECUTIVE DIRECTOR

Anthony Barry Hall EXECUTIVE DIRECTOR & TECHNOLOGY DIRECTOR B.Sc.(Hons), M.Sc.

Peter Kempen NON-EXECUTIVE DIRECTOR

Directors’ report cont.

INTERESTS IN THE SHARES AND OPTIONS OF THE COMPANY

OPERATING AND FINANCIAL REVIEW Corporate Structure

Nature of operations and principal activities

REVIEW AND RESULTS OF OPERATIONS Investment Activities

Performance Indicators

Dynamics of the Business

Operating Results for the Period

Shareholder Returns

Directors’ report cont.

Investments for Future Performance

Cash from Operations

Liquidity and Funding

Risk Management

REVIEW OF FINANCIAL CONDITION

Capital Structure

Treasury Policy

Corporate Governance

Statement of Compliance

ENVIRONMENTAL REGULATION AND PERFORMANCE

SHARE OPTIONS

Un-issued Shares

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

SIGNIFICANT EVENTS AFTER THE BALANCE DATE

Shares Issued as a Result of the Exercise of Options

LIKELY DEVELOPMENTS AND EXPECTED RESULTS

INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS

Directors’ report cont.

REMUNERATION REPORT (AUDITED) Remuneration Report

DETAILS OF KEY MANAGEMENT PERSONNEL

Remuneration committee

Remuneration philosophy

Senior manager and executive director remuneration

Objective

Remuneration structure

Structure

Non-executive director remuneration

Objective

Structure

Fixed Remuneration

Objective

Directors’ report cont.

Company performance

Employment Contracts

Objective

Structure

Variable Pay – Short Term Incentive (STI)

STI bonus for 2008

Key Performance Indicators

PRO MEDICUS LIMITED Annual Report 2008