PRO MEDICUS LIMITED — Annual Report 2016

Aug 18, 2016

Pro Medicus Limited

Annual Financial Report - 30 June 2016

Contents to Financial Report

Contents to Financial Report	Contents to Financial Report	Contents to Financial Report
Directors’ Report			2
Auditor’s Independence Declaration			15
Statement of Comprehensive Income			16
Statement of Financial Position			17
Statement of Changes in Equity			18
Statement of Cash Flows			19
Notes to the Financial Statements			20
Note	1	Corporate Information	20
Note	2	Summary of Significant Accounting Policies	20
Note	3	Significant Accounting Judgements, Estimates and Assumptions	35
Note	4	Financial Risk Management Objectives and Policies	36
Note	5	Operating Segments	39
Note	6	Income and Expenses	40
Note	7	Income Tax	41
Note	8	Earnings per Share	42
Note	9	Dividends Paid and Proposed	42
Note	10	Cash and Cash Equivalents	43
Note	11	Trade and Other Receivables (Current)	43
Note	12	Inventory	44
Note	13	Plant and Equipment	47
Note	14	Intangible Assets	46
Note	15	Trade and Other Payables	47
Note	16	Provisions	47
Note	17	Contributed Equity and Reserves	48
Note	18	Share based Payment Plan	49
Note	19	Commitments	50
Note	20	Events after the Balance Sheet Date	51
Note	21	Auditors’Remuneration	51
Note	22	Key Management Personnel	51
Note	23	Related Party Disclosure	51
Note	24	Contingencies	52
Note	25	Parent Entity Information	52
Directors’ Declaration			53
Independent Auditor’s Report			54
ASX Additional Information			56
Corporate Governance Statement			57
Corporate Information			66

1

Directors’ Report

Your Directors submit their report for the year ended 30 June 2016.

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:

Peter Terence Kempen	Peter Kempen joined Pro Medicus Limited as a Director on 12 March 2008. He is
F.C.A, F.A.I.C.D	Chairman of Ivanhoe Grammar School and Chairman of Australasian Leukaemia and
(Chairman)	Lymphoma Group. He is also a Director of the Yara Pilbara group of companies, a Trustee of the Barr Family Foundation and a member of the Council of St Hilda’s
	College, University of Melbourne.
	Peter has previously been Chairman of Patties Food Limited, Chairman of Danks
	Holdings Limited and Managing Partner of Ernst & Young Corporate Finance Australia.
	Peter is a Fellow of the Institute of Chartered Accountants in Australia and a Fellow of
	the Australian Institute of Company Directors.
	Peter became Chairman in August 2010 before which he served as a Non-Executive
	Director of the company.
	Peter is also Chairman of the audit committee.
Dr Sam Aaron Hupert	Co-founder of Pro Medicus Limited in 1983, Sam Hupert is a Monash University Medical
M.B.B.S. (Managing Director and Chief	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
Executive Officer)	himself full time to managing the Group.
	Sam served as CEO from the time he co-founded the company until October 2007 at
	which time he stepped down to become an executive director. Sam resumed full time
	CEO activities in October of 2010.
Anthony Barry Hall	Co-founder of Pro Medicus Limited in 1983, Anthony Hall has been principal architect
B.Sc. (Hons), M.Sc.	and developer of the core software systems. His current focus is the transition to and
(Executive Director and	development of the company’s next generation RIS systems.
Technology Director)
Roderick Lyle	Roderick joined Pro Medicus Limited as a Director on 23 November 2010. He is the
LL.B., B.Com, LL.M (Lond), MBA (Melb) (Non-Executive	Senior Corporate Advisor in the Melbourne office of Clayton Utz and is a former Managing Partner of that office.
Director)
	Roderick is a member of the Law Institute of Victoria, a member of the Law Society of
	New South Wales and a member of the Law Society London.
	Roderick is recognised as one of Australia’s leading commercial lawyers. He has been
	a key advisor in a large number of significant mergers and acquisitions and equity
	capital markets transactions throughout Australia, and internationally, for more than
	three decades.
	Roderick is also a Guest Lecturer (Mergers & Acquisitions) Melbourne Business School,
	MBA and EMBA courses.
	Roderick also serves on the audit committee.
Anthony Glenning	Anthony joined Pro Medicus Limited as a Director on 1 May 2016. He is Investment
B.CS, B.EE, M.EE (Non- Executive Director)	Director of Starfish Ventures and sits on the board of a number of private Starfish portfolio companies.

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Anthony is the founder and previously the CEO of Tonic Systems and founding NonExecutive Director of Cameron Systems

Anthony holds bachelor degrees in Computer Science and Electrical Engineering from University of Melbourne and holds a Master’s degree in Electrical Engineering from Stanford University California.

Anthony also serves on the audit committee

Company Secretary

Clayton James Hatch Clayton was appointed Company Secretary on 1 July 2009. CPA

Clayton has strong experience in financial and management accounting having worked in a Finance role for several years. Clayton joined Pro Medicus in June 2008 and has progressed through the company to his current position of Chief Financial Officer which he assumed on 1 July 2012.

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:

	Ordinary Shares	Options over Ordinary Shares
A. B. Hall	30,068,500	NIL
S. A. Hupert	30,107,660	NIL
P. T. Kempen	578,082	100,000
R. Lyle	140,000	200,000
A. Glenning	NIL	NIL

Earnings per share

Earnings per share
	Cents
Basic earnings per share		6.28
Diluted earningsper share		6.16

Dividends
OrdinaryShares	Cents	$’000
Final dividends recommended:
Normal dividendplan	1.5	1,526
Dividends paid in the year:
Interim for theyear	1.5	1,526
Final dividend for 2015 shown as recommended in the 2015 report:
Normal dividend plan	1.0	1,006

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Directors’ Report continued

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 Group during the year were the supply of healthcare imaging products and services to hospitals, diagnostic imaging groups and other health related entities in Australia, North America and Europe. These products and services include:

Radiology Information Systems (RIS)

• Innovative proprietary medical software for practice management (RIS);

• Training, installation and professional services;

• After sale support and service products;

• Promedicus.net secure email; and

• Digital radiology integration products

Visage 7.0

• Innovative medical imaging software that provides radiologist and clinicians with advanced visualisation capability for rapidly viewing 2-D, 3-D and 4-D medical images;

• PACS/Digital imaging software that is sold directly and to original equipment manufacturers (OEM);

• Training, installation and professional services;

• Service and support products;

The Group undertakes research and development (R&D) in Australia for its Practice Management (RIS) and promedicus.net products including R&D for Visage RIS, its new technology platform.

The R&D for the Visage Imaging product set is carried out in Europe. The Group has continued development of both the RIS products and the Visage 7.0 product line throughout the period.

REVIEW AND RESULTS OF OPERATIONS

Investment Activities

Surplus funds which are held in several currencies are invested by the Group in a cash management account and term deposits to maximise the interest return.

Performance Indicators

Management and the Board monitor overall performance, from the strategic plan through to the performance of the Group 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 Group’s performance.

Dynamics of the Business

Australia

The Group’s Australian employees undertake research and development of Pro Medicus products (RIS) as well as sales and service/support functions.

The Group’s Australian revenue was 3.6% above last year as a result of new sales of both the Visage PACS and Visage RIS products with many sales being for the combined product offering.

Promedicus.net, the company’s e-health offering, continued to hold its market position despite increasing competition.

North America

The growing North American team fulfil sales, marketing and professional services roles. Revenue from North America increased by 90.0% compared to the previous year. This was largely attributable to new sales and an increase in transaction based revenue from sales of Visage technology as more contracts came on stream.

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Europe

The Group’s employees in its Berlin office undertake research and development of Visage Imaging products worldwide as well as sales, marketing and service/support functions for the Group's European operations. Revenue from our European operations increased by 77.1% from last year, due to a large capital sale to a German government hospital.

Financials

Reported profit after tax for the period was $6.37m an increase of $3.15m (97.9%) from the previous year.

Full year revenue of the Group increased from $17.58m to $27.58m, an increase of 56.9%.

The key drivers of the profit increase was the significant increase in the performance of the North American operations which was supplemented by a capital sale in Europe and a modest increase in Australian sales.

As the Group’s costs are relatively fixed, an increase in sales has a positive impact on profitability.

Investments for Future Performance

The Company will continue to direct resources into the development of new products and is committed to the continued development of its Visage RIS and Visage 7.0 product sets.

It is anticipated that this strategy of ongoing development will continue to position Pro Medicus as a market leader and enable the Group to further leverage its expanded product portfolio and geographical spread.

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

The Directors express their gratitude for the efforts of the management team and all employees in achieving this year’s result.

REVIEW OF FINANCIAL CONDITION

Capital Structure

The Company has a sound capital structure with a strong financial position, with no debt.

Treasury Policy

With the increase in overseas operations there is an increased currency risk as a consequence of contracts written in and cash being held in foreign currencies. Whilst this is offset to a degree by having operations in North America and Europe, this change in risk profile has been noted by the Board and action is being taken to manage this risk.

The treasury function, co-ordinated within Pro Medicus Limited, is limited to maximising interest return on surplus funds and 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.

Cash from Operations

Net cash flows from operating activities for the current period was a positive $11.25m, with receipts from customers totalling $24.43m compared with payments of $13.49m to suppliers and employees. During the year the Company paid out a total of $2.53m in dividends, the net result being total cash assets of $17.11m; an increase of 32.3% from last year.

Liquidity and Funding

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

Risk Management

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 Group’s objectives and activities are aligned with the risks and opportunities identified by the Board.

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;

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• Implementation of Board approved operating plans and budgets and Board monitoring of progress against these budgets, including the establishment and monitoring of KPIs;

• Overseeing of appropriate backup procedures for important company data; and

• Routine review by key executives of its established Quality Assurance program and corrective action recommendations stemming from it.

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.

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

Shareholders’ equity increased by 24.8% from $21.94 to $27.39m. This movement was largely the result of profit during the year, offset by dividends paid out during the year.

SIGNIFICANT EVENTS AFTER THE BALANCE DATE

A Final Dividend of 1.5 cents per share has been declared post 1 July. Please refer Note 9.

LIKELY DEVELOPMENTS AND EXPECTED RESULTS

The Directors anticipate that the 2017 financial year will see more opportunity crystallise for the company due to improved prospects in North America and the continued commercialisation and roll out of Visage RIS, the company’s new technology RIS platform.

Key components that are likely to affect the performance of the company are:

• Increased revenue being generated from recently won transaction based contracts which are scheduled to come on stream in the 2017 financial year.

• Continued strong interest in the Visage 7.0 suite of products in the North American market has resulted in a number of sales opportunities that the Company is actively pursuing.

• The ability of the expanded Visage 7.0 product set to address key market segments such as large Health Systems and Hospitals in addition to the private radiology and teleradiology markets.

• Market dynamics that favour the adoption of Visage 7.0 technology such as trend towards modular, best in breed solutions.

• Improved sales prospects for Visage RIS, the company’s new technology RIS platform as the rollout of this new platform continues.

As a result, it is anticipated that the 2017 financial year will show a continuing improvement in operational results, however this is dependent upon many market factors over which the Directors have limited or no control.

ENVIRONMENTAL REGULATION AND PERFORMANCE

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

SHARE OPTIONS

Un-issued Shares

As at the date of this report, there were 725,000 un-issued ordinary shares under options refer to Note 18 of the financial statements for further details of the options outstanding.

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, 500,000 share options were exercised by current employee and no share options expired. A further 450,000 share options were exercised by Directors or key management personnel in the current year to acquire fully paid ordinary shares in Pro Medicus Limited.

PERFORMANCE RIGHTS

Un-issued Shares

As at the date of this report, there were 1,471,719 un-issued ordinary shares under performance rights refer to Note 18 of the financial statements for further details of the performance rights outstanding.

Rights holders do not have any right, by virtue of the right, to participate in any share issue of the Company. Shares Issued as a Result of the Exercise of Performance Rights

During the financial year, 153,000 performance rights were exercised by current employee and no performance rights expired. A further 384,000 performance rights were exercised by key management personnel in the current year to acquire fully paid ordinary shares in Pro Medicus Limited.

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INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS

During the year, Pro Medicus Limited indemnified Clayton Utz and each one or more of the past, present or future partners of Clayton Utz (other than Mr. Lyle) against any liability (including a liability incurred by Clayton Utz to pay legal costs) arising out of Mr. Lyle's activities as a Director of Pro Medicus Limited.

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.

Disclosure of the amount of insurance and the terms of this cover is prohibited by the insurance policy.

INDEMNIFICATION OF AUDITORS

To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial year.

REMUNERATION REPORT (audited)

This remuneration report for the year ended 30 June 2016 outlines the remuneration arrangements of the Group in accordance with the requirements of the Corporations Act 2001 and its Regulations. This information has been audited as required by section 308(3C) of the Act.

The remuneration report details the remuneration arrangements for key management personnel (KMP) who are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any director (whether executive or otherwise) of the Group.

For the purposes of this report, the term ‘executive’ includes the Chief Executive Officer (CEO), executive directors and other senior executives of the Group.

(i) Non – executive directors Peter Terence Kempen Chairman Roderick Lyle Director (non-executive) Anthony Glenning Director (non-executive) (ii) Executive directors Dr Sam Aaron Hupert Managing Director and CEO Anthony Barry Hall Technology Director (iii) Other Executives Danny Tauber General Manager – Pro Medicus Limited Malte Westerhoff Managing Director – Visage Imaging GmbH Brad Levin General Manager – Visage Imaging Inc Sean Lambright Global Head of Sales – Visage Imaging Inc

Remuneration committee

Remuneration and nomination issues are handled at the full Board level. Due to the small number of Directors no Committee has been established for this purpose.

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 Executive Directors of the Group. The Executive Directors in turn are responsible for determining and reviewing the compensation arrangements for the Non-Executive Directors. The CEO, in conjunction with the full Board reviews the terms of employment for all executives.

The assessment considers the appropriateness of the nature and amount of remuneration of such executives 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 Group depends upon the quality of its Directors and Executives. To prosper, the Company must attract, motivate and retain highly skilled Directors and Executives.

To this end, the Company provides competitive rewards to attract high calibre Executives.

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REMUNERATION REPORT (audited) (continued)

Remuneration structure

In accordance with best practice corporate governance, the structure of Non-Executive Director and Executive’s remuneration is separate and distinct.

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 fees paid to Non-Executive Directors of comparable companies when undertaking the annual review process.

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 they sit.

The remuneration of Non-Executive Directors for the period ended 30 June 2016 is detailed in Table 1 of this report.

Executives (including Executive Directors remuneration)

Objective

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

• align the interests of Executives with those of shareholders;

• ensure total remuneration is competitive by market standards.

Structure

Employment Contracts have been entered into with all Executives of the Group. Details of these contracts are provided on page 9.

Remuneration consists predominately of fixed remuneration. Variable remuneration is provided occasionally at the Board’s discretion including both short term incentives (STI) and long term incentives (LTI).

The Company does not have a policy regarding Executives entering into contracts to hedge their exposure to share options granted as part of their remuneration package.

The Board engaged external consultants throughout the year to undertake a review of the remuneration of Executives.

Fixed Remuneration

Objective

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 consists of a review of Group 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.

Executives, including Executive Directors 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 Group.

The fixed remuneration is detailed in Table 1 of this report.

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REMUNERATION REPORT (audited) (continued)

Variable Remuneration – Long Term Incentive (LTI)

Employee Share Option Scheme

Roderick Lyle was granted options on becoming a Director of the company in 2011 under a separate agreement. The share options have a 5 year vesting period, and exercise price of ($0.55 per option) and expire in 2021.

Performance Rights

A long term incentive plan was established during 2011-12 whereby Senior Executives of the Group were offered performance rights over the ordinary shares of Pro Medicus Limited. The performance rights, issued for nil consideration, are offered over a 5 year period and vest 4 years after grant date on completion of service. This long term incentive plan includes performance hurdles related to profitability (EBIT – 75%) which is set on an annualised basis by the Board and individual performance (25%). These measures have been selected and set to align to Company performance and to reflect individual contribution to the Company.

The fair value of the equity-settled performance rights is estimated using a Black-Scholes model at grant date taking into account the terms and conditions upon which the performance rights were granted. For further details of valuation of options, models and assumptions used please refer to note 18 of the financial statements.

The table below outlines the proportion of LTI that were granted since the plan was established.

	2016	2015	2014	2013
75% EBIT targets met	85%*	25%	90%	0%
25% Individual targets met	60-100%*	92%	87%	96%

• subject to Board approval

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 2016

For the 2016 financial year, the total amount of STI cash bonus either paid or accrued at year end was $935,868. The maximum amount payable under STI was $935,868.

Key Performance Indicators

Actual STI payments granted to key staff depended on the extent to which specific targets set at the time of employment were met. The targets consist of a number of Key Performance Indicators (KPIs) covering both financial (Sales Targets) and non-financial measures of performance, including client satisfaction, patent filings and employee satisfaction.

Shareholder Returns

The Directors are confident that the holdings of reserve cash is sufficient to underpin the development and expansion needs of the Company as the business looks to increase its penetration of existing markets.

The return on net assets and equity are shown in the table below.

	2016	2015	2014	2013	2012
Basic earnings per share – reported	6.3	3.2	1.5	5.1	1.8
(cents)
Return on assets (%)	24.3	17.6	8.4	25.6	11.3
Return on equity (%)	23.3	14.7	7.3	24.2	11.2
Dividend payout ratio (%) – normal	47.9	62.3	132.8	39.7	84.0
dividend plan
Dividend payout ratio (%) – total dividend	47.9	62.3	132.8	39.7	84.0
Available franking credits ($’000)	0	0	782	1,641	2,638

Employment Contracts

Executive Directors

Executive Service Contracts, on similar terms and conditions, have been prepared for all Executive Directors of the Company.

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REMUNERATION REPORT (audited) (continued)

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 and Group’s confidential information and provide that any inventions or discoveries of an Executive become the property of the Group;

• 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.

Executives (excluding Executive Directors)

All Executives have rolling contracts. The Group may terminate the Executive’s employment agreement by providing six months written notice or providing payment in lieu of the notice period (based on the fixed component of the Executive’s remuneration). The Group may terminate the contract at any time without notice if serious misconduct has occurred. Where termination with cause occurs the Executive is only entitled to that portion of remuneration that is fixed, and only up to the date of termination. On termination with cause any unvested options will immediately be forfeited.

Remuneration of key management personnel of the Company and the Group

Table 1: Remuneration of key management personnel for the year ended 30 June 2016

30 June 2016 ($) Directors P T Kempen S A Hupert A B Hall R. Lyle A. Glenning Executives D Tauber M Westerhoff B Levin S Lambright*

Short-Term Post Employment Long Term Share-Based Payment Total Total Performance Related (%) Salary and Fees Cash Bonus Non- Monetary benefits Superannuation Long Service Leave Performance Rights Options 63,172 - 1,828 35,000 - - - 100,000 - 465,000 110,000 - 35,000 114,858 - - 724,858 - 340,000 47,500 - 35,000 52,026 - - 474,526 - 45,662 - - 4,338 - - 1,226 51,226 - 15,221 - - 723 - - - 15,944 - 321,871 - - 13,129 10,810 51,272 - 397,082 13.6% 424,140 114,311 17,373 2,670 - 92,959 - 651,453 31.7% 279,962 68,670 - - - 35,309 - 383,941 27.2% 233,478 595,387 - - - 55,173 - 884,038 73.6% 2,188,506 935,868 19,201 125,860 177,694 234,713 1,226 3,683,068

• S Lambright was appointed to the role of Global Head of Sales on 1 July 2015.

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

At reporting date 84,313 rights with a fair value of $166,940 ($1.98 per performance right) were granted as performance rights to Malte Westerhoff with a grant date of 22 September 2015. The performance rights have a 4 year vesting period from grant date and are automatically exercised upon completion of the vesting period.

At reporting date 45,750 rights with a fair value of $90,585 ($1.98 per performance right) were granted as performance rights to Danny Tauber with a grant date of 22 September 2015. The performance rights have a 4 year vesting period from grant date and are automatically exercised upon completion of the vesting period.

At reporting date 39,781 rights with a fair value of $78,766 ($1.98 per performance right) were granted as performance rights to Brad Levin with a grant date of 22 September 2015. The performance rights have a 4 year vesting period from grant date and are automatically exercised upon completion of the vesting period.

At reporting date 21,563 rights with a fair value of $42,694 ($1.98 per performance right) were granted as performance rights to Sean Lambright with a grant date of 22 September 2015. The performance rights have a 4 year vesting period from grant date and are automatically exercised upon completion of the vesting period.

An additional 50,000 rights with a fair value of $44,500 ($0.89 per performance right) were granted as performance rights to Sean Lambright in relation to STI commission due for the 2014-15 financial year with a grant date 25 August 2015. The performance rights have a 12 month vesting period from grant date and are automatically exercised upon completion of the vesting period.

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REMUNERATION REPORT (audited) (continued)

Table 2: Remuneration of key management personnel for the year ended 30 June 2015

30 June 2015 ($) Directors P T Kempen S A Hupert A B Hall R. Lyle Executives D Tauber M Westerhoff B Levin

Short-Term Post Employment Long Term Share-Based Payment Total Total Performance Related (%) Salary and Fees Cash Bonus Non- Monetary benefits Superannuation Long Service Leave Performance Rights Options 56,360 - 8,640 35,000 - - - 100,000 - 245,000 - - 35,000 3,655 - - 283,655 - 245,000 - - 35,000 3,655 - - 283,655 - 45,662 - - 4,338 - - 3,084 53,084 - 315,204 - - 13,129 11,909 37,626 958 378,826 10.2% 405,602 179,613 12,981 2,517 - 61,724 - 662,437 36.4% 228,152 60,040 - - - 15,617 - 303,809 24.9% 1,540,980 239,653 21,621 124,984 19,219 114,967 4,042 2,065,466

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

At reporting date 72,188 rights with a fair value of $59,848 ($0.83 per performance right) were granted as performance rights to Malte Westerhoff with a grant date of 27 October 2014. The performance rights have a 4 year vesting period from grant date and are automatically exercised upon completion of the vesting period.

An additional 185,000 rights with a fair value of $126,964 ($0.69 per performance right) were granted as performance rights to Malte Westerhoff in relation to the 2013-14 financial performance with a grant date of 27 March 2014. The performance rights have a 4 year vesting period from grant date and are automatically exercised upon completion of the vesting period.

At reporting date 33,750 rights with a fair value of $27,981 ($0.83 per performance right) were granted as performance rights to Danny Tauber with a grant date of 27 October 2014. The performance rights have a 4 year vesting period from grant date and are automatically exercised upon completion of the vesting period.

An additional 107,250 rights with a fair value of $73,605 ($0.69 per performance right) were granted as performance rights to Danny Tauber in relation to the 2013-14 financial performance with a grant date of 27 March 2014. The performance rights have a 4 year vesting period from grant date and are automatically exercised upon completion of the vesting period.

At reporting date 20,625 rights with a fair value of $17,099 ($0.83 per performance right) were granted as performance rights to Brad Levin with a grant date of 27 October 2014. The performance rights have a 4 year vesting period from grant date and are automatically exercised upon completion of the vesting period.

An additional 61,250 rights with a fair value of $42,035 ($0.69 per performance right) were granted as performance rights to Brad Levin in relation to the 2013-14 financial performance with a grant date of 27 March 2014. The performance rights have a 4 year vesting period from grant date and are automatically exercised upon completion of the vesting period.

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Directors’ Report continued

REMUNERATION REPORT (audited) (continued)

Table 3: Option holdings of Key Management Personnel

	Balance at	Granted as		Options	Balance at
	beginning of	Remuneration		Exercised	end of year
	year
30 June 2016	1 July 2015				30 June	Not vested	Vested/	Total
(Number)					2016		Exercisable
Directors
P T Kempen	200,000		-	100,000	100,000	-	100,000	100,000
S A Hupert	-		-	-	-	-	-	-
A B Hall	-		-	-	-	-	-	-
R Lyle	200,000		-	-	200,000	40,000	160,000	200,000
A Glenning	-		-	-	-	-	-	-
Executives
D Tauber	350,000		-	-	350,000	-	350,000	350,000
M Westerhoff	350,000		-	350,000	-	-	-	-
B Levin	-		-	-	-	-	-	-
S Lambright	-		-	-	-	-	-	-
Total	1,100,000		-	450,000	650,000	40,000	610,000	650,000

Table 4: Shareholdings of Key Management Personnel

Shares held in Pro	Balance at	Balance at	On Exercise	On Exercise	Net Change	Balance
Medicus Limited	beginning of		of	of Options	Other	30 June 2016
(Number)	year		Performance
	1 July	2015	rights
30 June 2016	Ordinary		Ordinary	Ordinary	Ordinary	Ordinary
Directors
P T Kempen		478,082	-	100,000*	-	578,082
S A Hupert	30,107,660		-	-	-	30,107,660
A B Hall	30,068,500		-	-	-	30,068,500
R Lyle		140,000	-	-	-	140,000
A Glenning		-	-	-	-	-
Executives
D Tauber		150,000	108,000	-	(129,000)	129,000
M Westerhoff		-	126,000	350,000**	(443,300)	32,700
B Levin		-	-	-	-	-
S Lambright		-	150,000	-	-	150,000
Total	60,944,242		384,000	450,000	(572,300)	61,205,942

• Peter Kempen exercised 100,000 share options throughout the year at $1.25 per share option. The intrinsic value of the share options at exercise date was $96,000 ($0.96 per share option).

** Malte Westerhoff exercised 350,000 share options throughout the year at $1.00 per share option. The intrinsic value of the share options at exercise date was $402,500 ($1.15 per share option).

12

Directors’ Report continued

REMUNERATION REPORT (audited) (continued)

Table 5: Performance rights of Key Management Personnel

	Balance at	Balance at	Granted as	Performance	Balance
	beginning of		Remuneration	rights	at end of
	year			Exercised	year
30 June 2016	1 July	2015			30 June	Not vested	Vested/		Total
(Number)					2016		Exercisable
Directors
P T Kempen		-	-	-	-	-		-	-
S A Hupert		-	-	-	-	-		-	-
A B Hall		-	-	-	-	-		-	-
R Lyle		-	-	-	-	-		-	-
A Glenning		-	-	-	-	-		-	-
Executives
D Tauber		287,750	51,272	(108,000)	231,022	231,022		-	231,022
M Westerhoff		437,438	84,313	(126,000)	395,751	395,751		-	395,751
B Levin		91,875	39,781	-	131,656	131,656		-	131,656
S Lambright		150,000	71,563	(150,000)	71,563	71,563		-	71,563
Total		967,063	246,929	(384,000)	829,992	829,992		-	829,992

Loans to Key Management Personnel

No loans are made to Key Management Personnel or staff.

Other transactions and balances with Key Management Personnel

Purchases

During the year lease payments of $169,476 (2015: $169,476) in respect of the Group’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 ‘arm’s length basis’ have been determined by an independent assessment of rental and lease terms.

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:	9		2
Number of meetings attended:
P. T. Kempen	9	9	2	2
R. Lyle	9	9	2	2
A. Glenning	2	2	0	0
A. B. Hall	9	9	2	2
S. A. Hupert	9	9	2	2

Committee membership

As at 30 June 2016, the company had an Audit Committee comprising the 3 Non-Executive Directors and 2 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 Corporations (Rounding in Financial/Directors Reports) instrument 2016/191. 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).

13

Directors’ Report continued

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 $54,969

Signed in accordance with a resolution of the Directors.

==> picture [111 x 77] intentionally omitted <==

P T Kempen Director Melbourne, 19 August 2016

14

Ernst & Young 8 Exhibition Street Melbourne VIC 3000 Australia GPO Box 67 Melbourne VIC 3001

==> picture [71 x 81] intentionally omitted <==

Tel: +61 3 9288 8000 Fax: +61 3 8650 7777 ey.com/au

Auditor’s Independence Declaration to the Directors of Pro Medicus Limited

As lead auditor for the audit of Pro Medicus Limited for the financial year ended 30 June 2016, I declare to the best of my knowledge and belief, there have been:

• a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit ; and

• b) no contraventions of any applicable code of professional conduct in relation to the audit.

==> picture [131 x 63] intentionally omitted <==

Ernst & Young

==> picture [105 x 59] intentionally omitted <==

Paul Gower Partner

19 August 2016

A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation

Consolidated Statement of Comprehensive Income

		Consolidated	Consolidated
FOR THE YEAR ENDED 30 JUNE 2016	Notes	2016	2015
		$’000	$’000
Revenue	5	27,521	17,490
Finance Revenue		56	87
Revenue		27,577	17,577
Cost of Sales		(619)	(223)
Gross Profit		26,958	17,354
Other Income/(Expenses)	6(a)	(89)	1,654
Accounting and Secretarial Fees		(527)	(534)
Advertising and Public Relations		(944)	(757)
Depreciation and Amortisation	6(b)	(3,828)	(3,116)
Insurance		(595)	(528)
Legal Costs		(842)	(580)
Operating Lease Expense		(474)	(375)
Other Expense		(707)	(486)
Salaries and Employee Benefits Expense	6(b)	(8,599)	(6,863)
Travel and Accommodation		(856)	(657)
Profit before tax		9,497	5,112
Income tax expense	7	(3,129)	(1,895)
Profit for the year	17	6,368	3,217
Other Comprehensive Income
Items that may be reclassified subsequently to
profit and loss
Foreign Currency translation		198	(363)
Other comprehensive income for the year		198	(363)
TOTAL COMPREHENSIVE INCOME FOR THE		6,566	2,854
YEAR, NET OF TAX
Earnings per share (cents per share)	8
- Basic for net profit for the year		6.3¢	3.2¢
- Diluted for net profit for the year		6.2¢	3.1¢

16

Consolidated Statement of Financial Position

		Consolidated
AS AT 30 JUNE 2016	Notes	2016	2015
		$’000	$’000
ASSETS
Current Assets
Cash and cash equivalents	10	17,107	12,935
Trade and other receivables	11	4,771	3,731
Accrued revenue		2,258	210
Inventories	12	86	129
Prepayments		531	321
Total Current Assets		24,753	17,326

Non-current Assets Deferred tax assets 7 Plant and equipment 13 Intangible assets 14 Prepayments	757 854 382 341 13,512 11,552 - 21
Total Non-current Assets	14,651 12,768
TOTAL ASSETS	39,404 30,094
LIABILITIES Current Liabilities Trade and other payables 15 Income tax payable Provisions 16	2,994 2,762 2,747 495 1,826 1,504
Total Current Liabilities	7,567 4,761
Non-current Liabilities Trade and other payables 15 Deferred tax liabilities 7 Provisions 16	- 10 4,386 3,298 66 87
Total Non-current Liabilities	4,452 3,395
TOTAL LIABILITIES	12,019 8,156
NET ASSETS	27,385 21,938
EQUITY Contributed equity 17 Share Reserve 17 Foreign Currency Translation Reserve 17 Retained earnings 17	1,302 327 1,104 666 117 (81) 24,862 21,026
TOTAL EQUITY	27,385 21,938

17

Consolidated Statement of Changes in Equity

FOR THE YEAR ENDED 30 JUNE 2016

FOR THE YEAR ENDED 30 JUNE 2016
	Issued Capital $’000	Consolidated	Retained Earnings Total Equity $’000 $’000
		Share Reserve Foreign Currency Translation Reserve
		$’000 $’000
At 1 July 2014 Profit for the year Other comprehensive income Total comprehensive income for the period Transaction with owners in their capacity as owners Share Based Payment Dividends At 30 June 2015 At 1 July 2015 Profit for the year Other comprehensive income Total comprehensive income for the period Transaction with owners in their capacity as owners Share Based Payment Exercise of share options Dividends At 30 June 2016	327		19,814 20,707
		284 282
	- -		3,217 3,217 - (363)
		- -
		- (363)
	- - -	- (363)	3,217 2,854 - 382 (2,005) (2,005)
		382 -
		- -
	327	666 (81)	21,026 21,938
	327		21,026 21,938
		666 (81)
	- -		6,368 6,368 - 198
		- -
		- 198
	- - 975 -	- 198	6,368 6,566 - 438 - 975 (2,532) (2,532)
		438 -
		- -
		- -
	1,302	1,104 117	24,862 27,385

18

Consolidated Statement of Cash Flows

		Consolidated	Consolidated
FOR THE YEAR ENDED 30 JUNE 2016		2016	2015
	Notes	$’000	$’000
Cash flows from operating activities
Receipts from customers		24,432	16,987
Payments to suppliers and employees		(13,486)	(8,607)
Income tax(paid)/refunded		308	(4,197)
Net cash flows from operating activities	10	11,254	4,183
Cash flows from investing activities
Capitalised development costs	14	(5,607)	(5,365)
Interest received		56	87
Purchase of plant and equipment	13	(222)	(201)
Proceeds from disposal ofplant and equipment	13	-	5
Net cash flows used in investing activities		(5,773)	(5,474)
Cash flows from financing activities
Payment of dividends on ordinary shares	9	(2,532)	(2,005)
Proceeds from issuingshares		975	-
Net cash flows used in financing activities		(1,557)	(2,005)
Net increase/(decrease) in cash and cash equivalents		3,924	(3,296)
Net foreign exchange differences		248	972
Cash and cash equivalents at beginningofperiod		12,935	15,259
Cash and cash equivalents at end ofperiod	10	17,107	12,935

19

Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2016

1. CORPORATE INFORMATION

The financial report of Pro Medicus Limited (the Company) for the year ended 30 June 2016 was authorised for issue in accordance with a resolution of directors on 19 August 2016.

Pro Medicus Limited is a for profit company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange.

The nature of the operations and principal activities of the Group are described in the Directors’ Report.

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 , Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards board. The financial report has also been prepared on a historical cost basis.

The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($000) unless otherwise stated.

(b) Statement of compliance with IFRS

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

(c) New accounting standards and interpretations

(i) Changes in Accounting policy and disclosures

The accounting policies adopted are consistent with those of the previous financial year except as follows:

The Group has adopted the following new and amended Australian Accounting Standards and AASB Interpretations as of 1 July 2015. Adoption of these standards did not have any effect on the financial position or performance of the Group. The necessary disclosures have been updated to reflect amended accounting standards.

Reference	Title	Application	Application
		date of standard*	date for Group*
AASB 2013-9	Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments The Standard contains three main parts and makes amendments to a number of Standards and Interpretations. Part A of AASB 2013-9 makes consequential amendments arising from the issuance of AASB CF 2013-1. Part B makes amendments to particular Australian Accounting Standards to delete references to AASB 1031 and also makes minor editorial amendments to various other standards. Part C makes amendments to a number of Australian Accounting Standards, including incorporating Chapter 6 Hedge Accounting_into AASB 9_Financial Instruments.	1 January 2015	1 July 2015
AASB 2015-3	Amendments to Australian Accounting Standards arising from the Withdrawal of AASB 1031 Materiality The Standard completes the AASB’s project to remove Australian guidance on materiality from Australian Accounting Standards.	1 July 2015	1 July 2015

(ii) Accounting Standards and Interpretation issued but not yet effective

Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Group for the annual reporting period ending 30 June 2016. These are outlined in the table below.

20

FOR THE YEAR ENDED 30 JUNE 2016

Notes to the Financial Statements

Reference	Title	Summary	Application	Impact on Group financial report	Application
			date of		date for
			standard*		Group*
AASB 9	Financial Instruments	AASB 9 (December 2014) is a new standard which replaces AASB 139. This new version supersedes AASB 9 issued in December 2009 (as amended) and AASB 9 (issued in December 2010) and includes a model for classification and measurement, a single, forward- looking ‘expected loss’ impairment model and a substantially-reformed approach to hedge accounting. AASB 9 is effective for annual periods beginning on or after 1 January 2018. However, the Standard is available for early adoption. The own credit changes can be early adopted in isolation without otherwise changing the accounting for financial instruments. Classification and measurement AASB 9 includes requirements for a simpler approach for classification and measurement of financial assets compared with the requirements of AASB 139. There are also some changes made in relation to financial liabilities.	1 January 2018	No impact	1 July 2018
AASB 2014-3	Amendments to Australian Accounting Standards – Accounting for Acquisitions of Interests in Joint Operations [AASB 1 & AASB 11]	AASB 2014-3 amends AASB 11 Joint Arrangements_to provide guidance on the accounting for acquisitions of interests in joint operations in which the activity constitutes a business. The amendments require: (a) the acquirer of an interest in a joint operation in which the activity constitutes a business, as defined in AASB 3_Business Combinations, to apply all of the principles on business combinations accounting in AASB 3 and other Australian Accounting Standards except for those principles that conflict with the guidance in AASB 11; and (b) the acquirer to disclose the information required by AASB 3 and other Australian Accounting Standards for business combinations.	1 January 2016	No impact	1 July 2016
		This Standard also makes an
		editorial correction to AASB 11
AASB 2014-4	Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to AASB 116 and AASB 138)	AASB 116_Property Plant and_	1 January 2016	No impact	1 July 2016
		_Equipment_and AASB 138
		_Intangible Assets_both establish the
		principle for the basis of
		depreciation and amortisation as
		being the expected pattern of
		consumption of the future economic
		benefits of an asset.

21

Notes to the Financial Statements

FOR THE YEAR ENDED 30 JUNE 2016

Reference	Title	Summary	Application date of standard*	Impact on Group financial report	Application date for Group*
		The IASB has clarified that the use
		of revenue-based methods to
		calculate the depreciation of an
		asset is not appropriate because
		revenue generated by an activity
		that includes the use of an asset
		generally reflects factors other than
		the consumption of the economic
		benefits embodied in the asset.
		The amendment also clarified that
		revenue is generally presumed to
		be an inappropriate basis for
		measuring the consumption of the
		economic benefits embodied in an
		intangible asset. This presumption,
		however, can be rebutted in certain
		limited circumstances.
AASB 15	Revenue from Contracts with Customers	AASB 15_Revenue from Contracts_ with Customers_replaces the existing revenue recognition standards AASB 111_Construction Contracts, AASB 118_Revenue_and related Interpretations (Interpretation_13 Customer Loyalty_ Programmes, Interpretation 15 Agreements for the Construction of Real Estate,_Interpretation 18 _Transfers of Assets from Customers, Interpretation 131 Revenue—Barter Transactions Involving Advertising Services_and Interpretation 1042_Subscriber Acquisition Costs in the Telecommunications Industry). AASB 15 incorporates the requirements of IFRS 15_Revenue_ from Contracts with Customers issued by the International Accounting Standards Board (IASB) and developed jointly with the US Financial Accounting Standards Board (FASB). AASB 15 specifies the accounting treatment for revenue arising from contracts with customers (except for contracts within the scope of other accounting standards such as leases or financial instruments).The core principle of AASB 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core principle by applying the following steps: (a) Step 1: Identify the contract(s) with a customer	1 January 2018	The Group will continue to assess the impact on the change in standard, if any	1 July 2018

22

Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2016

Reference	Title	Summary	Application	Impact on Group financial report	Application
			date of		date for
			standard*		Group*
		(b) Step 2: Identify the performance obligations in the contract (c) Step 3: Determine the transaction price (d) Step 4: Allocate the transaction price to the performance obligations in the contract (e) Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation
		AASB 2015-8 amended the AASB
		15 effective date so it is now
		effective for annual reporting
		periods commencing on or after 1
		January 2018. Early application is
		permitted.
		AASB 2014-5 incorporates the
		consequential amendments to a
		number Australian Accounting
		Standards (including Interpretations)
		arising from the issuance of AASB
		15.
		AASB 2016-3_Amendments to_
		Australian Accounting Standards –
		_Clarifications to AASB 15_amends
		AASB 15 to clarify the requirements
		on identifying performance
		obligations, principal versus agent
		considerations and the timing of
		recognising revenue from granting a
		licence and provides further
		practical expedients on transition to
		AASB 15.
AASB 1057	Application of Australian Accounting Standards	This Standard lists the application paragraphs for each other Standard (and Interpretation), grouped where they are the same. Accordingly, paragraphs 5 and 22 respectively specify the application paragraphs for Standards and Interpretations in general. Differing application paragraphs are set out for individual Standards and Interpretations or grouped where possible. The application paragraphs do not affect requirements in other Standards that specify that certain paragraphs apply only to certain types of entities.	1 January 2016	No impact	1 July 2016
AASB 2014-9	Amendments to Australian Accounting Standards – Equity Method in Separate Financial Statements	AASB 2014-9 amends AASB 127 Separate Financial Statements, and consequentially amends AASB 1 First-time Adoption of Australian Accounting Standards_and AASB 128_Investments in Associates and Joint Ventures, to allow entities to use the equity method of accounting for investments in subsidiaries, joint ventures and associates in their separate financial statements.	1 January 2016	No impact	1 July 2016

23

Notes to the Financial Statements

FOR THE YEAR ENDED 30 JUNE 2016

Reference	Title	Summary	Application	Impact on Group financial report	Application
			date of		date for
			standard*		Group*
		AASB 2014-9 also makes editorial corrections to AASB 127. AASB 2014-9 applies to annual reporting periods beginning on or after 1 January 2016. Early adoption permitted.
AASB 2014- 10	Amendments to Australian Accounting Standards – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture	AASB 2014-10 amends AASB 10 C_onsolidated Financial Statements_ and AASB 128 to address an inconsistency between the requirements in AASB 10 and those in AASB 128 (August 2011), in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The amendments require: (a) A full gain or loss to be recognised when a transaction involves a business (whether it is housed in a subsidiary or not) (b) A partial gain or loss to be recognised when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. AASB 2014-10 also makes an editorial correction to AASB 10. AASB 2015-10 defers the mandatory effective date (application date) of AASB 2014-10 so that the amendments are required to be applied for annual reporting periods beginning on or after 1 January 2018 instead of 1 January 2016.	1 January 2018	No impact	1 July 2018
AASB 2015-1	Amendments to Australian Accounting Standards – Annual Improvements to Australian Accounting Standards 2012–2014 Cycle	The subjects of the principal amendments to the Standards are set out below: AASB 5_Non-current Assets Held for_ Sale and Discontinued Operations: • Changes in methods of disposal – where an entity reclassifies an asset (or disposal group) directly from being held for distribution to being held for sale (or visa versa), an entity shall not follow the guidance in paragraphs 27–29 to account for this change. AASB 7_Financial Instruments: _Disclosures: • Servicing contracts - clarifies how an entity should apply the guidance in paragraph 42C of AASB	1 January 2016	The Group will amend the future financial reports to comply with AASB 2015-1	1 July 2016

24

Notes to the Financial Statements

FOR THE YEAR ENDED 30 JUNE 2016

Reference	Title	Summary	Application date of standard*	Impact on Group financial report	Application date for Group*
		7 to a servicing contract to decide whether a servicing contract is ‘continuing involvement’ for the purposes of applying the disclosure requirements in paragraphs 42E–42H of AASB 7. • Applicability of the amendments to AASB 7 to condensed interim financial statements - clarify that the additional disclosure required by the amendments to AASB 7 Disclosure–Offsetting Financial Assets and Financial Liabilities_is not specifically required for all interim periods. However, the additional disclosure is required to be given in condensed interim financial statements that are prepared in accordance with AASB 134_Interim Financial Reporting_when its inclusion would be required by the requirements of AASB 134. AASB 119_Employee Benefits: • Discount rate: regional market issue - clarifies that the high quality corporate bonds used to estimate the discount rate for post- employment benefit obligations should be denominated in the same currency as the liability. Further it clarifies that the depth of the market for high quality corporate bonds should be assessed at the currency level.
AASB 2015-2	Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101	The Standard makes amendments to AASB 101_Presentation of_ _Financial Statements_arising from the IASB’s Disclosure Initiative project. The amendments are designed to further encourage companies to apply professional judgment in determining what information to disclose in the financial statements. For example, the amendments make clear that materiality applies to the whole of financial statements and that the inclusion of immaterial information can inhibit the usefulness of financial disclosures. The amendments also clarify that companies should use professional	1 January 2016	The Group will amend the future financial reports to comply with AASB 2015-2	1 July 2016

25

Notes to the Financial Statements

FOR THE YEAR ENDED 30 JUNE 2016

Reference	Title	Summary	Application	Impact on Group financial report	Application
			date of		date for
			standard*		Group*
		judgment in determining where and in what order information is presented in the financial disclosures.
AASB 2015-9	Amendments to Australian Accounting Standards – Scope and Application Paragraphs [AASB 8, AASB 133 & AASB 1057]	This Standard inserts scope paragraphs into AASB 8 and AASB 133 in place of application paragraph text in AASB 1057. This is to correct inadvertent removal of these paragraphs during editorial changes made in August 2015. There is no change to the requirements or the applicability of AASB 8 and AASB 133.	1 January 2016	No impact	1 July 2016
AASB 16	Leases	The key features of AASB 16 are as follows: Lessee accounting • Lessees are required to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. • A lessee measures right-of- use assets similarly to other non-financial assets and lease liabilities similarly to other financial liabilities. • Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes non-cancellable lease payments (including inflation-linked payments), and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. • AASB 16 contains disclosure requirements for lessees. Lessor accounting • AASB 16 substantially carries forward the lessor accounting requirements in AASB 117. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently.	1 January 2019	The Group will amend the future financial reports to comply with AASB 16	1 July 2019

26

Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2016

Reference	Title	Summary	Application	Impact on Group financial report	Application
			date of		date for
			standard*		Group*
		• AASB 16 also requires enhanced disclosures to be provided by lessors that will improve information disclosed about a lessor’s risk exposure, particularly to residual value risk. AASB 16 supersedes: (a) AASB 117 Leases (b) Interpretation 4 Determining whether an Arrangement contains a Lease (c) SIC-15 Operating Leases— Incentives (d) SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease The new standard will be effective for annual periods beginning on or after 1 January 2019. Early application is permitted, provided the new revenue standard, AASB 15 Revenue from Contracts with Customers, has been applied, or is applied at the same date as AASB 16.
2016-1	Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for Unrealised Losses [AASB 112]	This Standard amends AASB 112 Income Taxes(July 2004) and AASB 112_Income Taxes_(August 2015) to clarify the requirements on recognition of deferred tax assets for unrealised losses on debt instruments measured at fair value.	1 January 2017	The Group will amend the future financial reports to comply with AASB 2016-1	1 July 2017
IFRS 2 (Amendments)	Classification and Measurement of Share-based Payment Transactions [Amendments to IFRS 2]	This standard amends to IFRS 2 Share-based Payment, clarifying how to account for certain types of share-based payment transactions. The amendments provide requirements on the accounting for: ► The effects of vesting and non-vesting conditions on the measurement of cash- settled share-based payments ► Share-based payment transactions with a net settlement feature for withholding tax obligations A modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled	1 January 2018	The Group will amend the future financial reports to comply with IFRS 2	1 July 2018

27

Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2016

(d) Basis of consolidation

The consolidated financial statements comprise the financial statements of Pro Medicus Limited and its subsidiaries as at 30 June each year (the Group). Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has:

• Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee)

• Exposure, or rights, to variable returns from its involvement with the investee, and

• The ability to use its power over the investee to affect its returns.

When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

• The contractual arrangement with the other vote holders of the investee

• Rights arising from other contractual arrangements

• The Group’s voting rights and potential voting rights

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains a control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it:

• Derecognises the assets (including goodwill) and liabilities of the subsidiary.

• Derecognises the carrying amount of any non-controlling interest.

• Derecognises the cumulative translation differences, recorded in equity.

• Recognises the fair value of the consideration received.

• Recognises the fair value of any investment retained.

• Recognises any surplus or deficit in profit or loss.

• Reclassifies the parent's share of components previously recognised in OCI to profit or loss or retained earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with AASB 139 Financial Instruments: Recognition and Measurement either in profit or loss or in other comprehensive income. If the contingent consideration is classified as equity, it shall not be remeasured.

(e) Operating segments

An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), whose operating results are regularly reviewed by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. This includes start-up operations which are yet to earn revenues. Management will also consider other factors in determining operating segments such as the existence of a line manager and the level of segment information presented to the board of directors.

Operating segments have been identified based on the information provided to the chief operating decision makers – being the executive management team.

The group aggregates two or more operating segments when they have similar economic characteristics and the segments are similar in each of the following respects:

• Nature of the products and services

• Type or class of customer for the products and services

• Nature of the regulatory environment

28

Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2016

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

Operating segments that meet the quantitative criteria as prescribed by AASB 8 are reported separately. However, an operating segment that does not meet the quantitative criteria is still reported separately where information about the segment would be useful to users of the financial statements

Information about other business activities and operating segments that are below the quantitative criteria are combined and disclosed in a separate category for “all other segments”.

(f) Revenue recognition

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

Rendering of services

Revenue generated from pay-per-view contracts is recognised based on the number of image views undertaken by the customer, multiplied by the contracted view rate.

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 as a percentage of the total services to be provided for each contract, which is determined by a quotation with the customer.

Service Revenue is recognised over the term of the contract. Where revenue is received in advance, revenue is recognised in the period during which the service is provided.

Where the contract outcome cannot be reliably measured, revenue is recognised only to the extent that costs have been incurred.

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.

(g) 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 dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

Group 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 statement of comprehensive income on a straightline basis over the lease term.

(h) Cash and cash equivalents

Cash and cash equivalents in the statement of financial position comprise cash at bank and in hand and short term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes of value.

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

(i) Trade and other receivables

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

A provision for impairment is made when there is objective evidence that Pro Medicus will not be able to collect the debts. Financial difficulty of the debtors is considered objective evidence by the Group. Bad debts are written off when identified.

(j) Inventories

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

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.

29

Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2016

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(k) Derivative financial instruments and hedging

The Group has not transacted any derivative financial instruments to hedge its risk associated foreign currency and interest rate fluctuations.

(l) Investments and other financial assets

Investments and financial assets in the scope of AASB 139 Financial Instruments: Recognition and Measurement are categorised as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired or originated. Designation is re-evaluated at each reporting date, but there are restrictions on reclassifying to other categories. When financial assets are recognised initially, they are measured at fair value, plus, in the case of assets not at fair value through profit or loss, directly attributable transaction costs.

Recognition and derecognition

All regular way purchases and sales of financial assets are recognised on the trade date i.e., the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets under contracts that require delivery of the assets within the period established generally by regulation or convention in the market place. Financial assets are derecognised when the right to receive cash flows from the financial assets has expired or when the entity transfers substantially all the risks and rewards of the financial assets. If the entity neither retains nor transfers substantially all of the risks and rewards, it derecognises the asset if it has transferred control of the assets.

Subsequent measurement

(i) Financial assets at fair value through profit or loss

Financial assets classified as held for trading are included in the category “financial assets at fair value through profit or loss”. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term with the intention of making a profit. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on financial assets held for trading are recognised in profit or loss and the related assets are classified as current assets in the statement of financial position.

(ii) Loans and receivables

Loans and receivables including loan notes and loans to key management personnel are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest rate method. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired. These are included in current assets, except for those with maturities greater than 12 months after reporting date, which are classified as non-current.

(m) Foreign currency translation

(i) Functional and presentation currency

Both the functional and presentation currency of Pro Medicus Limited and its Australian subsidiaries are Australian dollars ($). The United States subsidiaries’ functional currency is United States Dollars. The subsidiary in Germany has a functional currency of Euro. Foreign subsidiaries are translated to presentation currency (see Note 2 (n) (iii) for consolidated reporting).

(ii) Transactions and balances

Transactions in foreign currencies are initially recorded in the functional currency by applying 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 reporting date.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

(iii) Translation of Group Companies’ functional currency to presentation currency

The results of the United States and German subsidiaries are translated into Australian dollars (presentation currency) using an average exchange rate for the trading period. Assets and liabilities are translated at exchange rates prevailing at reporting date.

Exchange variations resulting from the translation are recognised in the foreign currency translation reserve in equity.

On consolidation, exchange differences arising from the translation of the net investments in foreign subsidiaries are taken to the foreign currency translation reserve. If a foreign subsidiary were sold, the proportionate share of exchange differences would be transferred out of equity and recognised in profit or loss.

(n) 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 reporting date.

30

Notes to the Financial Statements

FOR THE YEAR ENDED 30 JUNE 2016

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

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

Deferred income tax liabilities are recognised for all taxable temporary differences, except:

• where the deferred income tax liability 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.

• when the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

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.

• when the deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised.

The carrying amount of deferred income tax assets is reviewed at each reporting 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.

Unrecognised deferred income tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

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 reporting date.

Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.

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

Tax consolidation legislation

Pro Medicus Limited and its wholly-owned Australian controlled entities implemented the tax consolidation legislation as of 1 July 2009.

The head entity, Pro Medicus Limited and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. The Group has applied the Group allocation approach to determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax consolidated group.

In addition to its own current and deferred tax amounts, Pro Medicus Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group.

Pro Medicus Limited and its 100% owned Australian resident subsidiaries formed a tax consolidated group with effect from 1 January 2009. Pro Medicus Limited is the head entity of the tax consolidated group. An allocation of income tax liabilities between the entities of the tax consolidated group will be made should the head entity default on its tax payment obligations. No such amounts have been recognised in the financial statements on the basis that the possibility of default is remote.

(o) 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 statement of financial position.

31

Notes to the Financial Statements

FOR THE YEAR ENDED 30 JUNE 2016

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

Cash flows are included in the Statement of Cash Flows 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.

(p) Plant and equipment

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:

	2016		2015
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

An item of 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 de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the statement of comprehensive income 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. 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.

(q) Intangible assets

Intangible assets acquired separately are initially measured at cost. The cost of an intangible asset acquired in a business combination is its fair value as at date of acquisition. Following initial recognition, intangible assets with a finite life are carried at cost less any accumulated amortisation and any accumulated impairment losses.

Amortisation is calculated on a straight-line basis over the estimated useful life of the asset.

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 unit level. The recoverable amount is estimated and an impairment loss is recognised to the extent that the recoverable amount is lower than the carrying value.

The amortisation period and method is renewed at each financial year end and adjustments, where applicable, are made on a prospective basis.

Research and development costs

Research costs are expensed as incurred.

An intangible asset arising from development expenditure on an internal project is recognised only when the group 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 on a straight line basis over the period of expected benefit from the related project (5 years).

32

Notes to the Financial Statements

FOR THE YEAR ENDED 30 JUNE 2016

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

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.

Intellectual Property – Software

Three separately identifiable intangible assets, in the form of software intellectual property, have previously been identified in the business acquisition of Visage Imaging;

• Visage PACS

• Visage MagicWeb and

• Amira

Following initial recognition, Intellectual property is measured at cost less any accumulated amortisation. A useful life of 5 years has been determined.

Software Licenses

The Group identified a separate intangible asset in the form of software licenses, in the business acquisition of Visage Imaging.

Following initial recognition, software licenses are measured at cost less any accumulated amortisation. A useful life of 4 years has been determined.

Customer List

The Group identified a separate intangible asset in the form of a customer list, in the business acquisition of Visage Imaging.

Following initial recognition, the customer list is measured at cost less any accumulated amortisation. A useful life of 4 years has been determined.

(r) Trade and other payables

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

(s) Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

When the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of comprehensive income net of any reimbursement.

Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the reporting date.

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.

(t) Employee leave benefits

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

(i) Annual leave and sick leave

The liability for annual leave is recognised 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, using the projected unit credit method. 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 high quality corporate bonds with terms to maturity and currencies that match, as closely as possible the estimated future cash outflows.

Expenses for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid.

33

Notes to the Financial Statements

FOR THE YEAR ENDED 30 JUNE 2016

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(ii) Long service leave

The liability for long service leave is recognised 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, using the projected unit credit method. 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 high quality corporate bonds with terms to maturity and currencies that match, as closely as possible the estimated future cash outflows.

(u) Share based payment transactions

(i) Equity settled transactions:

The Group 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.

• The Long Term Incentive Plan (LTIP), which provides benefits to senior executives.

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 using a Black Scholes model, further details of which are given in note 18.

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 statement of comprehensive income is the product of:

• (i) The grant date fair value of the award;

• (ii) For options with non-market vesting conditions, 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 statement of comprehensive income 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.

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.

The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share (see note 8).

(v) 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.

(w) Earnings per share

Basic earnings per share is calculated as net profit attributable to members of the Group, 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 Group 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 and

• Dilutive potential ordinary shares adjusted for any bonus element.

and then divided by the weighted average number of ordinary shares.

34

Notes to the Financial Statements

FOR THE YEAR ENDED 30 JUNE 2016

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(x) Comparatives

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

(y) Government grants

Research and Development tax credits are recognised in accordance with AASB 120: Accounting for Government Grants and Government Assistance . The Research and development tax credit is recognised when there is reasonable assurance that the grant will be received and all conditions have been complied with. The Grant is recognised as a reduction to the cost base of the intangible and released to income as a reduction in amortisation expense over the expected useful life of the related asset. The amount recognised for the period to 30 June 2016 is nil (2015: $436,918).

3. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS

The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements and estimates on historical experience and on other various factors it believes to be reasonable under the circumstances, the result of which form the basis of the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.

Management has identified the following critical accounting policies for which significant judgements, estimates and assumptions are made. Actual results may differ from these estimates under different assumptions and conditions and may materially affect financial results or the financial position reported in future periods.

Further details of the nature of these assumptions and conditions may be found in the relevant notes to the financial statements.

(i) Significant accounting judgements

Recovery of deferred tax assets:

Deferred tax assets are recognised for un-recouped tax losses and 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 Group 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.

Impairment of non-financial assets

The Group assesses impairment of all assets at each reporting date by evaluating conditions specific to the Group and to the particular asset that may lead to impairment. If an impairment trigger exists the recoverable amount of the asset is determined. Given the current uncertain economic environment management considered that the indicators of impairment were significant enough and as such these assets have been tested for impairment in this financial period.

Taxation

The Group's accounting policy for taxation requires management's judgement as to the types of arrangements considered to be a tax on income in contrast to an operating cost. Judgement is also required in assessing whether deferred tax assets and certain deferred tax liabilities are recognised on the statement of financial position. Deferred tax assets, including those arising from un-recouped tax losses, capital losses and temporary differences, are recognised only where it is considered more likely than not that they will be recovered, which is dependent on the generation of sufficient future taxable profits. Deferred tax liabilities arising from temporary differences in investments, caused principally by retained earnings held in foreign tax jurisdictions, are recognised unless repatriation of retained earnings can be controlled and are not expected to occur in the foreseeable future.

Assumptions about the generation of future taxable profits and repatriation of retained earnings depend on management's estimates of future cash flows. These depend on estimates of future sales volumes, operating costs, capital expenditure, dividends and other capital management transactions. Judgements are also required about the application of income tax legislation. These judgements and assumptions are subject to risk and uncertainty, hence there is a possibility that changes in circumstances will alter expectations, which may impact the amount of deferred tax assets and deferred tax liabilities recognised on the statement of financial position and the amount of other tax losses and temporary differences not yet recognised. In such circumstances, some or all of the carrying amounts of recognised deferred tax assets and liabilities may require adjustment, resulting in a corresponding credit or charge to the statement of comprehensive income.

35

Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2016

3. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS (cont’d)

Net investment in foreign operations

The Group maintains inter-company loans it assesses to represent a part of its net investment in its foreign operations. The judgements made in assessing these loans to represent net investments are on the basis the loans are neither planned nor likely to be settled within the foreseeable future, the loans do not include trade receivables or trade payable and the loans represent a return of funds from their investment in the respective subsidiaries.

(ii) Significant accounting estimates and assumptions

Capitalisation of development costs

The capitalisation of development costs includes an overhead rate which has been estimated from total costs. The estimated development overheads rate has been calculated by dividing the development labour costs over total labour costs to give a percentage of development labour rate. The development labour rate is then applied against the total overheads of the company, to give an estimate of the amount of overheads that relates to development.

Share-based payments

The Group measures the cost of equity-settled transactions with employees by reference to the fair value of equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option/performance rights, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating fair value of share-based payment transactions are disclosed in Note 18.

4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

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

The main purpose of these financial instruments is to provide finance for the Group’s operations. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. The main risks arising from the Group’s financial instruments are foreign currency risk, interest risk and credit risk. The Board manages each of these risks as detailed below.

Foreign currency risk

The Group has transactional currency exposure, which arise from sales made in currencies other than the Group’s presentational currency.

Approximately 76% (2015: 64%) of the Group’s sales are denominated in currencies other than the presentational currency, and these sales would be predominately offset by currency exposure on costs. Foreign bank accounts have also been established, to create a natural hedge and reduce the need for regular transfers from the presentational currency (AUD) cash holdings.

At 30 June the Group had the following exposure to US$ foreign currency that is not designated in cash flow hedges or recorded in the functional currency of the subsidiary

Financial assets Cash and cash equivalents Financial liabilities Trade and other payables Net exposure	Consolidated 2016 2015 $000 $000
	2,114 640
	2,114 640
	- -
	2,114 640

At 30 June the Group had the following exposure to CAD$ foreign currency that is not designated in cash flow hedges or recorded in the functional currency of the subsidiary

Financial assets Cash and cash equivalents Financial liabilities Trade and other payables Net exposure	Consolidated 2016 2015 $000 $000
	842 847
	842 847
	- -
	842 847

36

Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2016

4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (cont’d)

At 30 June the Group had the following exposure to GBP₤ foreign currency that is not designated in cash flow hedges or recorded in the functional currency of the subsidiary

hedges or recorded in the functional currency of	the subsidiary
Financial assets Cash and cash equivalents Financial liabilities Trade and other payables Net exposure	Consolidated 2016 2015 $000 $000
	126 390
	126 390
	- -
	126 390

At 30 June the Group had the following exposure to EUR€ foreign currency that is not designated in cash flow hedges or recorded in the functional currency of the subsidiary

Financial assets Cash and cash equivalents Financial liabilities Trade and other payables Net exposure	Consolidated 2016 2015 $000 $000
	600 3,226
	600 3,226
	- -
	600 3,226

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 (excluding retained profits) would have been affected as follows:

Judgements of reasonably possible movements:	Post Tax Profit		Other comprehensive	Other comprehensive
	Higher/(Lower)		income
			Higher/(Lower)
	2016	2015	2016	2015
	$’000	$’000	$’000	$’000
AUD/USD +10%	(211)	(64)	(78)	(70)
AUD/USD – 5%	106	32	39	35
AUD/CAD +10%	(84)	(85)	-	-
AUD/CAD – 5%	42	42	-	-
AUD/GBP +10%	(13)	(39)	-	-
AUD/GBP – 5%	6	20	-	-
AUD/EUR +10%	(60)	(323)	(156)	(126)
AUD/EUR – 5%	30	161	78	63

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

Credit risk

Credit risk arises from the financial instruments of the Group, which comprise cash and cash equivalents and trade and other receivables. The Group’s exposure to credit risk arises from potential defaults of the counterparty, with a maximum exposure equal to the carrying amount of the financial assets.

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

It is the Group’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 Group’s exposure to bad debts is not significant.

As the Group trades predominantly within the Diagnostic Imaging market there is a concentration of credit risk. Given the underlying Government funding support for Radiology in Hospital settings and the Imaging Centre and Diagnostic Imaging market, and the commercial successes achieved by the Group to date, credit risk is considered to be minimal.

37

Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2016

4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (cont’d)

Cash and cash equivalents are held with several financial institutions, with the majority held with the Westpac Banking Corporation and Wells Fargo Bank N.A., both AA rated banks.

Interest risk

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

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

Cash and Cash equivalents in the Group ($’000’s) $17,107 (2015: $12,935).

The Group’s policy is to place cash balances in either 30 day term deposits or commercial bills that earn higher interest rates.

At 30 June 2016, if interest rates had moved, as illustrated in the table below, with all other variables held constant, post-tax profit and equity (excluding retained profits) would have been affected as follows:

Consolidated
Judgements of reasonably	Post Tax Profit		Other comprehensive	income
possible movements:	Higher/(Lower)		Higher/(Lower)
	2016	2015	2016	2015
	$’000	$’000	$’000	$’000
+1% (100 basis points)	171	129	-	-
– 0.5% (50 basis points)	(86)	(65)	-	-

Liquidity risk

The Group has minimal liquidity risk as it has cash reserves of $17.1m, with no borrowings.

These cash reserves are deemed to be adequate and the Board believes they will underpin the ongoing growth of the business.

The table below reflects all contractually fixed pay-offs for settlement and repayments resulting from recognised financial liabilities. Cash flows for financial liabilities without fixed amount of timing are based on the conditions existing at 30 June 2016.

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

	Consolidated
	2016	2015
	$’000	$’000
<30 days	1,015	688
31-60 days	204	135
61-90 days	189	145
Over90 days	1,586	1,804
TOTAL	2,994	2,772

38

Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2016

5. OPERATING SEGMENTS

The Group has identified its operating segments based on the internal reports that are reviewed and used by the executive management team (the chief operating decision makers) in assessing performance and in determining the allocation of resources.

The operating segments are identified by management based on country of origin. Discrete financial information is reported to the executive management team on at least a monthly basis.

Impairment is not monitored at segment level.

Types of products and services

The Group produces integrated software applications for the health care industry. In addition, the Group provides services in the form of installation and support.

Accounting policies and inter-segment transactions

The accounting policies used by the Group in reporting segments internally is the same as those contained in note 2 to the financial statements and in the prior periods.

Inter-entity sales

Inter-entity sales are recognised based on an internally set transfer price. The price aims to reflect what the business operation could achieve if they sold their output and services to external parties at arm’s length.

Operating segments

Operating segments
Revenue Sales to external customers Inter-segment sales Total segment revenue Inter-segment elimination Total consolidation revenue Results Segment result Interest revenue Non segment expenses Income tax expense Net profit Assets Non-current assets Deferred tax asset Current assets Segment assets Inter-segment elimination Total assets Liabilities Segment liabilities Inter-segment elimination Total liabilities Other segment information Capital expenditure Depreciation and amortisation Cash flow information Net cash flow from operating activities Net cash flow from investing activities Net cash flow from financing activities	Australia Europe North America 2016 2015 2016 2015 2016 2015 $’000 $’000 $’000 $’000 $’000 $’000 6,486 6,261 4,166 2,35216,869 8,877 10,399 4,158 4,830 4,718 - -	Total Operations 2016 2015 $’000 $’000 27,521 17,490 15,229 8,876
	16,885 10,419 8,996 7,070 16,869 8,877	42,750 26,366 (15,229) (8,876)
	7,281 3,718 1,735 1,227 425 80
		27,521 17,490
		9,441 5,025 56 87 (3,129) (1,895)
	17,574 15,562 149 158 93 74 431 395 - - - 114 28,366 26,663 23,370 20,485 16,747 10,470
		6,368 3,217
		17,816 15,794 431 509 68,483 57,618
	46,371 42,620 23,519 20,643 16,840 10,658	86,730 73,921 (47,652) (44,172)
	37,339 36,975 2,275 1,190 16,095 10,201
		39,078 29,749
		55,709 48,366 (44,016) (40,555)
	5,677 5,122 79 353 73 86 3,686 2,693 88 374 54 49
		11,693 7,811
		5,829 5,561 3,828 3,116
	5,367 7,815 (1,419) (6,349) 7,306 2,717 11,254 4,183 (5,621) (5,035) (79) (353) (74) (86) (5,774) (5,474) (1,557) (2,005) - - - - (1,557) (2,005)

39

Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2016

5. OPERATING SEGMENTS (cont’d)

Product information

Revenue from external customers

Notes	Consolidated 2016 2015 $’000 $’000
Radiology Information Systems (RIS) Picture Archiving Communications Systems (Visage 7/PACS) Other income Total revenue per statement of comprehensive income	6,032 6,245 21,468 11,223 21 22
	27,521 17,490

Revenue from major customers

Included in North American revenue are revenues of 13.4% (2015: nil) from one party. No other customer contributed 10% or more to the Group’s revenue for 2016

6 . INCOME AND EXPENSES

.INCOME AND EXPENSES
(a) Other Income Net currency gains Net currency (loss) Other Total other income/(expense) (b) Expenses Depreciation and amortisation Motor vehicles 13 Office equipment 13 Furniture and fittings and property improvements 13 Amortisation on capitalised development costs 14 Amortisation on computer software 14 Total depreciation and amortisation expense Salaries and employee benefits expense Wages and salaries Long service leave provision Share-based payment Defined contribution plan expense Total salaries and employee benefits expense			1,760 (1,849) -	2,029 (380) 5
			(89)	1,654
			7 155 19 3,646 1	3 144 11 2,955 3 3,116 5,581 50 382 850 6,863
			3,828
			7,013 244 438 904
			8,599

40

Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2016

	Consolidated 2016 2015 $’000 $’000 2,015 949 (71) (5) 1,185 951 3,129 1,895 9,497 5,112 2,201 1,142 145 27 523 370 (71) (5) 326 315 5 46 3,129 1,895 Consolidated Statement of Financial Position Consolidated Statement of Comprehensive Income 2016 2015 2016 2015 $’000 $’000 $’000 $’000
7. INCOME TAX The major components of income tax expense are: Statement of Comprehensive Income Current income tax Current income tax charge Prior year adjustment Deferred income tax Relating to origination and reversal of temporary differences Income tax expense reported in the statement of comprehensive income A reconciliation between tax expense and the product of accounting profit before income tax multiplied by the Group’s applicable income tax rate is as follows: Accounting profit before tax At the applicable statutory income tax rate in each country - Australia - United States of America - Germany Prior year adjustment Expenditure not allowable for income tax purposes Other Income tax expense reported in the statement of comprehensive income Deferred income tax Deferred income tax at 30 June relates to the following: Deferred tax liabilities Foreign currency exchange gain Capitalised development expenses Other Deferred income tax liabilities Deferred tax assets Employee entitlements Intellectual property expenses Tax losses in subsidiaries Audit fee accrual Other Deferred income tax assets
	886 914 28 (369) 3,500 2,384 (1,116) (449) - - - 2
	4,386 3,298 (1,088) (814)
	411 326 85 31 326 345 (19) (19) - 114 (114) (185) 16 24 (8) (3) 4 45 (41) 41
	757 854 (97) (135)

Unrecognised temporary differences

At 30 June 2016, there are no temporary differences associated with the Group's investments in subsidiaries being recognised as the parent is able to control the timing of the reversal of any temporary differences and it is not probable any temporary difference will reverse in the foreseeable future.

Tax consolidation

Pro Medicus Limited and its 100% owned Australian resident subsidiaries formed a tax consolidated group with effect from 1 January 2009. Pro Medicus Limited is the head entity of the tax consolidated group.

41

Notes to the Financial Statements

FOR THE YEAR ENDED 30 JUNE 2016

8. 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

Consolidated

2016	2015
$	$
6,368,722	3,217,197

Weighted average number of ordinary shares for basic earnings per share Effect of dilution: Share options Performance rights Weighted average number of ordinary shares adjusted for the effect of dilution 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	Number Number 101,378,835 100,263,406 686,563 463,889 1,379,441 1,752,036 103,444,839 102,479,331 Consolidated 2016 2015 $’000 $’000 1,006 1,003 1,526 1,002 2,532 2,005 1,526 1,002 1,526 1,002 - - - - - - - - - -
9. DIVIDENDS PAID AND PROPOSED Declared and paid during the year: Dividends on ordinary shares Final unfranked dividend for 2015: 1.0 cent (2014: 1.0 cent) Interim unfranked dividend for 2016: 1.5 cent (2015: 1.0 cent unfranked) Proposed for approval by directors (not recognised as a liability as at 30 June): Dividends on ordinary shares: Final unfranked dividend for 2016: 1.5 cents (2015: 1.0 cents unfranked) Total dividends proposed Franking credit balance – franking account balance as at the end of the financial year at 30% (2015: 30%) – franking credits that will arise from the payment of income tax payable as at the end of the financial year – 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 – prior period adjustment 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
	- - - -
	- -

The tax rate at which paid dividends have been franked is 0% (2015: 0%). Dividends proposed will be unfranked.

42

Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2016

	Consolidated 2016 2015 $’000 $’000
10. CASH AND CASH EQUIVALENTS Cash at bank and in hand Short-term deposits	15,577 12,935 1,530 -
	17,107 12,935

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

Short term deposits are made for varying periods of between 30 days and 120 days, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates.

The fair value of cash and cash equivalents is their carrying value.

Reconciliation of net profit after tax to net cash flows from operations Net profit Adjustments for: Depreciation of property, plant and equipment Amortisation of intangible assets Interest received classified in investing activities Foreign currency (gain)/loss Share option expense Changes in assets and liabilities (Increase)/decrease in trade and other receivables (Increase)/decrease in inventory (Increase)/decrease in deferred tax asset (Increase)/decrease in prepayments (Increase)/decrease in accrued revenue (Decrease)/increase in deferred income (Decrease)/increase in trade and other payables (Decrease)/increase in tax provision (Decrease)/increase in deferred tax liability (Decrease)/increase in employee entitlements Net cash flow from operations 11. TRADE AND OTHER RECEIVABLES (CURRENT) Trade receivables Provision for impairment Research and development tax receivable Other receivables	6,368 3,217 181 158 3,647 2,958 (56) (87) 89 (1,649) 438 382 (1,040) (432) 43 (29) 78 116 (189) 16 (2,048) (75) 178 440 (95) 1,394 2,252 (3,253) 1,107 835 301 192
	11,254 4,183
	3,533 3,155 - (140)
	3,533 3,015 989 437 249 279
	4,771 3,731

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

a) Allowance for impairment loss

Movements in the provision for impairment loss were as follows:

At 1 July Charge to/(write back of) provision for the year Utilised during the year Foreign exchange translation At 30 June	140 97 - 43 (140) - - -
	- 140

43

Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2016

11. TRADE AND OTHER RECEIVABLES (CURRENT) (cont’d)

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

		Total	0-30	days	31-60 days	61-90 days	+91 days	+91 days
					PDNI*	PDNI*	PDNI*	CI**
2016	Consolidated	3,533		1,471	391	393	1,278	-
2015	Consolidated	3,155		2,167	410	277	161	140

• Past due not impaired (‘PDNI’)

** Considered Impaired (‘CI’)

Payment terms on $526,379 (2015: $138,519) of trade receivables have been renegotiated. The Company has been in direct contact with these debtors and is satisfied that payment will be received in full.

Notes	Consolidated 2016 2015 $’000 $’000
12. INVENTORIES (CURRENT) Finished goods (at lower of cost and net realisable value)	86 129

Inventory write downs recognised as an expense total nil (2015: nil)

44

Notes to the Financial Statements

FOR THE YEAR ENDED 30 JUNE 2016

13 PLANT & EQUIPMENT Notes Year ended 30 June 2016 At 1 July 2015 net of accumulated depreciation Additions Disposals Exchange differences Depreciation charge for the year At 30 June 2016 net of accumulated depreciation At 30 June 2016 Cost Accumulated depreciation and impairment Net carrying amount Notes Year ended 30 June 2015 At 1 July 2014 net of accumulated depreciation Additions Disposals Exchange differences Depreciation charge for the year At 30 June 2015 net of accumulated depreciation At 30 June 2015 Cost Accumulated depreciation and impairment Net carrying amount	Property Improvements Motor Vehicles Office Equipment Furniture & Fittings Research & Development Equipment Total $’000 $’000 $’000 $’000 $’000 $’000 22 48 248 23 - 341 - - 163 53 - 216 - - - - - - - - 6 - - 6 (3) (7) (155) (16) - (181) 19 41 262 60 - 382 329 488 2,183 401 209 3,610 (310) (447) (1,921) (341) (209) (3,228) 19 41 262 60 - 382 Consolidated Property Improvements Motor Vehicles Office Equipment Furniture & Fittings Research & Development Equipment Total $’000 $’000 $’000 $’000 $’000 $’000 Consolidated
	25 8 240 29 - 302 - 43 141 2 - 186 - - - (1) - (1) 1 - 11 - - 12 (4) (3) (144) (7) - (158) 22 48 248 23 - 341 328 488 2,036 346 209 3,407 (306) (440) (1,788) (323) (209) (3,066)
	22 48 248 23 - 341

45

Notes to the Financial Statements

FOR THE YEAR ENDED 30 JUNE 2016

14 INTANGIBLE ASSETS			Consolidated	Consolidated
	Notes	Intellectual	Development	Software	Total
		Property	Costs	Licenses
		i)	ii)	iii)
		$’000	$’000	$’000	$’000
Year ended 30 June 2016
At 1 July 2015 net of accumulated		-	11,549	3	11,552
amortisation and impairment
Additions - internal development		-	5,607	-	5,607
Disposals		-	-	-	-
Exchange differences		-	-	-	-
Amortisation charge for the year		-	(3,646)	(1)	(3,647)
At 30 June 2016 net of accumulated		-	13,510	2	13,512
amortisation and impairment
At 30 June 2016
Cost		1,848	32,655	296	34,799
Accumulated amortisation and		(1,848)	(19,145)	(294)	(21,287)
impairment
Net carrying amount		-	13,510	2	13,512
Year ended 30 June 2015
At 1 July 2014 net of accumulated		-	9,139	6	9,145
amortisation and impairment
Additions - internal development		-	5,365	-	5,365
Disposals		-	-	-	-
Exchange differences		-	-	-	-
Amortisation charge for the year		-	(2,955)	(3)	(2,958)
At 30 June 2015 net of accumulated		-	11,549	3	11,552
amortisation and impairment
At 30 June 2015
Cost		1,848	27,048	288	29,184
Accumulated amortisation and		(1,848)	(15,499)	(285)	(17,632)
impairment
Net carrying amount		-	11,549	3	11,552

i) Intellectual property was acquired in 2009 through the Visage Imaging business combination and is carried at cost less accumulated amortisation. Three separately identifiable intangible assets, in the form of software intellectual property, have been identified in the business acquisition of Visage Imaging; Visage CS, Visage PACS and Amira. These intangible assets have been assessed as having a finite life and have been fully amortised using the straight line method over a period of 5 years, commencing February 2009. Amira was sold in July 2012.

ii) 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 5 years. As at 30 June 2016 the carrying values of capitalised development costs are Visage PACS ($8,905,697) RIS ($4,047,582) and Visage MagicWeb ($556,512), all sit within the Australian operating segment.

The Group undertook an impairment assessment of the capitalised development costs as at 30 June 2016. The recoverable amount of development costs have been determined based on a value in use calculation using cash flow projections from financial budgets approved by the Board of Directors covering a five-year period. The projected cash flows were updated to reflect the change in forecast revenues and a post-tax discount rate of 17% (30 June 2015:17%) was applied. Cash flows beyond a 5 year period have been extrapolated using a 2.5% growth rate (30 June 2015: 2.5%). All other assumptions remained consistent with those disclosed in Note 2(s). The Groups recoverable value was in excess of the carrying value using the value in use calculation and as such no impairment charges were recorded at 30 June 2016.

Key assumptions used in value in use calculations

The calculation of value in use for development costs is most sensitive to the following assumptions:

• Revenue forecasts

• Discount rates

• Growth rates used to extrapolate cash flows beyond the forecast period

Revenue forecasts – Revenue forecasts are based on current year consolidated budgets for each geographical segment. Estimated growth rates are then used to forecast the following 4 years revenue for each product used in each geographical segment. Total forecast segment growth rates range from (1%) to 22% across the 4 year period.

46

Notes to the Financial Statements

FOR THE YEAR ENDED 30 JUNE 2016

14. INTANGIBLE ASSETS (cont’d)

Discount rates – The discount rate applied to the cash flow projections have been assessed to reflect the time value of money and the perceived risk profile of the industry in which each cash generating unit (CGU) operates. The post-tax discount rate applied was 17% (2015:17%).

Growth rate estimates – rates are based on industry based customer price index (CPI) forecasts. The long term rate of 2.5% was used in the current assessment.

Sensitivity to changes in assumptions

With regard to the assessment of value in use of development costs, the estimated recoverable amount is in excess of its carrying value for each product, however adverse changes in assumptions could result in an impairment loss. Management has considered the possible change in each of the key assumptions applied to the respective capitalised development costs recoverable amount assessments. A reasonably possible adverse change in the revenue forecasts for the RIS product could have the potential to give rise to circumstances where the recoverable amount may be lower than the carrying amount. To illustrate the sensitivity of this assumption, if forecast revenues of the RIS product were to decrease materially, that is in the range of 6 – 10%, across the five year forecast period without the implementation of mitigation plans, cost reductions or restructure which management would look to do if such decreases were to arise, this could lead to a future impairment write-down of approximately $0.2 - $1.5 million.

iii) Software Licences have been assessed as having a finite life and are amortised using the straight line method over a period of 4 years.

15 TRADE AND OTHER PAYABLES Note	Consolidated 2016 2015 $’000 $’000
Current Trade payables Other payables and accruals Deferred Income Non-current Deferred Income	676 404 1,383 1,611
	2,059 2,015 935 747
	2,994 2,762
	- 10 - 10

(i) Trade payables are non-interest bearing and are normally settled on 30-day terms. (ii) Other payables, other than inter-company payables 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.

16 PROVISIONS

	Consolidated 2016 2015 $’000 $’000
Current Long service leave Annual leave Non-current Long service leave	799 535 1,027 969
	1,826 1,504
	66 87
	66 87

(i) Long Service Leave

Refer to note 2 (v)(ii) for the relevant accounting policy and a discussion of the significant estimations and assumptions applied in the measurement of this provision.

47

Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2016

OR THE YEAR ENDED 30 JUNE 2016
17. CONTRIBUTED EQUITY AND RESERVES (i) Ordinary shares Issued and fully paid	Consolidated 2016 2015 $’000 $’000 1,302 327
	1,302 327

Fully paid ordinary shares carry one vote per share and carry the right to dividends

(ii) Movements in shares on issue

At 1 July 2015 Cancellation for share buy-back Issued for cash on exercise of options Vesting of performance rights At 30 June 2016 At 1 July 2014 Cancellation for share buy-back Issued for cash on exercise of options At 30 June 2015	Number of Shares 2016 $’000
	100,263,406 327 - - 950,000 975 537,000 -
	101,750,406 1,302
	2015 Number of Shares $’000
	100,263,406 327 - - - -
	100,263,406 327

Share Reserve (i) Balance at 1 July Share options expensed Performance rights expensed Balance at 30 June Foreign Currency Translation Reserve (ii) Balance at 1 July Foreign Currency Movement Balance at 30 June Retained Earnings Balance at 1 July Net profit for the year Dividends Balance at 30 June	Consolidated 2016 2015 $’000 $’000
	666 284 1 5 437 377
	1,104 666
	(81) 282 198 (363)
	117 (81)
	21,026 19,814 6,368 3,217 (2,532) (2,005)
	24,862 21,026

(i) 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 18 for further details of these plans.

(ii) Foreign Currency translation reserve

The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries and for exchange differences arising from long term loan accounts resulting from net investment in subsidiaries.

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.

During the year, the company paid dividends of $2,532,142 (2015: $2,005,268).

48

Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2016

18. SHARE BASED PAYMENT PLAN

Employee Share Option Scheme

An employee share incentive scheme was established on 25 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, had an exercise price of $1.15 and 2,100,000 share options expired under the scheme on 25 August 2010. Options vested at 20% per annum commencing on the first anniversary of issue. The options cannot be transferred and will not be quoted on the ASX.

200,000 shares were granted as options to Peter Kempen on becoming a Director of the company in 2008 under a separate agreement. 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 $40,852 ($0.13 - $0.29 per option). The options have a first exercise date of 12 March 2009 and can be exercised at anytime through to expiry date of 12 March 2018. The options vest over a 5 year period on completion of service. At reporting date all options had vested and 100,000 (50%) options were exercised during the year.

900,000 shares were granted as options to key Visage Imaging GmbH employees under a separate agreement. The options had a grant date of 1 April 2010 and an exercise price of $1.00. The fair value of the options at grant date was $67,278 ($0.07 per option). The options have a first exercise date of 1 April 2011 and can be exercised at anytime through to expiry date of 1 April 2020. The options vest over a 5 year period on completion of service. At reporting date all options had vested and 175,000 (19%) options had expired. 700,000 (78%) options were exercised during the year.

550,000 shares were granted as options to Key Executives under a separate agreement. The options had a grant date of 25 August 2010 and an exercise price of $1.00. The fair value of the options at grant date was $54,109 ($0.10 per option). The options have a first exercise date of 25 August 2011 and can be exercised at anytime through to expiry date of 25 August 2020. The options vest over a 5 year period on completion of service. At reporting date all options had vested and 150,000 (27%) options were exercised during the year.

200,000 shares were granted as options to Roderick Lyle on becoming a Director of the company in 2011 under a separate agreement. The options had a grant date of 18 November 2011 and an exercise price of $0.55. The fair value of the options at grant date was $45,116 ($0.23 per option). The options have a first exercise date of 18 November 2012 and can be exercised at anytime through to expiry date of 18 November 2021. The options vest over a 5 year period on completion of service. At reporting date 160,000 (80%) options had vested. No options were exercised during the year.

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

	2016		2015
	Number of	Weighted	Number of	Weighted
	Options	average	Options	average
		exercise		exercise price
		price
Outstanding at the beginning of the year	1,675,000	$0.98	1,675,000	$0.98
- granted	-	-	-	-
- forfeited	-	-	-	-
- exercised	(950,000)	$1.03	-	-
- expired	-	-	-	-
Outstandingat the end of theyear	725,000	$0.91	1,675,000	$0.98
Exercisable at end ofyear	685,000	$0.93	1,485,000	$0.98

All options above have been recognised in accordance with AASB 2 as the options were granted after 7 November 2002.

The outstanding balance as at 30 June 2016 is represented by:

• 100,000 options over ordinary shares with an exercise price of $1.25 each, exercisable until 12 March 2018

• 25,000 options over ordinary share with an exercise price of $1.00 each, exercisable until 1 April 2020

• 400,000 options over ordinary share with an exercise price of $1.00 each, exercisable until 25 August 2020

• 200,000 options over ordinary shares with an exercise price of $0.55 each, exercisable until 18 November 2021

Weighted average remaining contractual life

The weighted average remaining contractual life for share options outstanding at 30 June 2016 is 4.14 years (2015: 4.94 Years)

Range of exercise price

The range of exercise prices for options outstanding at the end of the year was $0.55 - $1.25 (2015: $0.55 - $1.25).

Weighted average fair value

The weighted average fair value of options granted during the year was nil (2015: nil).

Option pricing model

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

49

Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2016

18. SHARE BASED PAYMENT PLAN (cont’d)

Performance Rights

A long term incentive plan was established on 18 November 2011 whereby Senior Executives of Group were offered performance rights over the ordinary shares of Pro Medicus Limited. The performance rights, issued for nil consideration, are offered for a 5 year period and vest 4 years after granting date on completion of service. The performance rights cannot be transferred and will not be quoted on the ASX. This long term incentive plan includes performance hurdles related to the company and vesting conditions relating to the employee's period of service.

At reporting date 414,375 performance rights had been granted during the year with a grant date of 22 September 2015. 364,375 performance rights vest over 4 years from grant date on completion of service. The fair value of the 364,375 performance rights at grant date was $721,463 ($1.98 per performance right). The remaining 50,000 performance rights vest in September 2016 and the fair value of these rights was $44,500 ($0.89 per performance right).

397,469 performance rights were granted in prior periods in relation to the 2014-15 financial performance. 247,469 performance rights vest over 4 years from grant date on completion of service. The fair value of the 247,469 performance rights at grant date was $205,166 ($0.83 per performance right). The remaining 150,000 performance rights vest in September 2015 and the fair value of these rights was $133,737 ($0.89 per performance right).

633,500 performance rights were granted in prior periods in relation to the 2013-14 financial performance. The performance rights had a grant date of 27 March 2014 and vest over 4 years from grant date on completion of service. The fair value of the performance rights at grant date was $434,766 ($0.69 per performance right).

176,375 performance rights were granted in prior periods in relation to the 2012-13 financial year. The performance rights had a grant date of 15 September 2013 and vest over 3 years on completion of service. The fair value of the performance rights at grant date was $44,094 ($0.25 per performance right).

387,000 performance rights were granted in prior periods in relation to the 2011-12 financial year. The performance rights had a grant date of 1 July 2012 and vest over 3 years on completion of service. The fair value of the performance rights at grant date was $96,750 ($0.25 per performance right).

Information with respect to the number of performance rights granted under the long term incentive scheme is as follows:

	2016	2015
	Number of	Number of
	Performance	Performance
	Rights	Rights
Outstanding at the beginning of the year	1,594,344	563,375
- granted	414,375	1,030,969
- forfeited	-	-
- exercised	(537,000)	-
- expired	-	-
Outstandingat the end of theyear	1,471,719	1,594,344
Exercisable at end ofyear	-	-

Weighted average remaining contractual life

The weighted average remaining contractual life for performance rights at 30 June 2016 is 2.2 years (2015: 2.4 Years)

Performance rights pricing model

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

The following table lists the inputs to the models used for the year ended 30 June 2016

Dividend yield Expected volatility Risk-free interest rate Expected life of performance rights Performance rights exercise price Weighted average share price at measurement date	2016 2015 1.2% 2.42%-3.22% 0% 0% 0% 0% 1-4 years 1-4 years $0.00 $0.00 $0.89-$1.98 $0.69-$0.89

19 COMMITMENTS

a) Operating lease commitments – Group as lessee

The US operations have entered into a commercial property lease for office premises from 1 December 2015 for a 5 year period. The German operations have entered into a commercial property lease for office premises and can give notice to vacate 6 months prior to 31 March each year, whereby they sign into another 12 months.

The German operations also have several motor vehicle leases which expire at various stages between December 2017 and September 2018.

50

Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2016

Future minimum rentals payable under non-cancellable operating lease as at 30 June are as follows: – Within one year – After one year and not more than five years – After more than five years	Consolidated 2016 2015 $ $ 356 186 679 89 - -
	1,035 275

20 EVENTS AFTER THE BALANCE SHEET DATE

On 19 August 2016, the directors of Pro Medicus Limited declared a final dividend on ordinary shares in respect of the 2016 financial year. This dividend comprises a normal dividend of 1.5 cents per share. The total amount of the dividend is $1,526,256 which represents an unfranked dividend of a total of 1.5 cents per share. The dividend has not been provided for in the 30 June 2016 financial statements.

21. AUDITOR’S REMUNERATION

21. AUDITOR’S REMUNERATION
	Consolidated 2016 2015 Consolidated 2016 2015 $ $ 168,313 161,445 46,480 121,228 214,793 282,673 53,221 63,192 8,489 5,681 276,503 351,546
22. KEY MANAGEMENT PERSONNEL (a) Compensation for key management personnel Amounts received or due and receivable by Ernst & Young (Australia) for: – an audit or review of the financial report of the Company and any other entity in the Consolidated Group – other services in relation to the Company or Group Amounts received or due and receivable by related practices of Ernst & Young (Australia): - audit of the financial report of Visage Imaging GmbH – other services in relation to Visage Imaging GmbH	$ 168,313 46,480
	214,793 53,221 8,489
	276,503
Short-term employee benefits Post-employment benefits Other long-term benefits Share-based payment Total compensation		3,143,575 1,802,254 125,860 124,984 177,694 19,219 235,939 119,009
		3,683,068 2,065,466

(b) Loans to Key Management Personnel

No loans are made to Key Management Personnel or staff.

(c) Other transactions and balances with Key Management Personnel

Purchases

During the year lease payments of $169,476 (2015: $169,476) in respect of the Group’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 ‘arm’s length basis’ have been determined by an independent assessment of rental and lease terms.

23. RELATED PARTY DISCLOSURE

(a) Subsidiaries

The consolidated financial statements include the financial statements of Pro Medicus Limited and the subsidiaries listed in the following table.

% Equity interest Name Country of incorporation 2016 2015	Investment $000 2016 2015
Promed (USA) Pty Ltd Australia 100 100 PME IP Australia Pty Ltd Australia 100 100 Visage Imaging (Aust) Pty Ltd Australia 100 100 Pro Medicus (USA) LLC United States 100 100 Visage Imaging Inc United States 100 100 Visage Imaging GmbH Germany 100 100	- - - - - - - - 2,389 2,389 3,638 3,638
	6,027 6,027

(b) Ultimate parent

Pro Medicus Limited is the ultimate Australian parent entity and the ultimate parent of the Group.

51

Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2016

(c) Key management personnel

Details relating to KMPs, including remuneration paid, are included in note 22.

(d) Transactions with related parties

The following table provides the total amount of transactions that were entered into with related parties for the relevant financial year.

year.
					Other
		Sales to related		Purchases from	transactions
		parties		related parties	with related
		$000		$000	parties$000
Related party
Consolidated
Champagne Properties Pty Ltd – Rental lease	2016		-	169		-
Champagne Properties Pty Ltd – Rental lease	2015		-	169		-

Terms and conditions of transactions with related parties

Sales to and purchases from related parties are made in arm’s length transactions both at normal market prices and on normal commercial terms.

Outstanding balances at year end are unsecured, interest free and payable on demand.

Entities within the Group that own the intellectual property earn a royalty between 30% - 97% from the sales made by other entities within the Group.

Development costs undertaken by the German operations are reimbursed by the parent on commercial terms.

24. CONTINGENCIES

Tax related contingencies

Amended assessments from the Australian Taxation Office (ATO)

As a result of the ATO’s program of routine and regular tax audit, the Group anticipates that ATO audits may occur in the future. The Group is similarly subject to routine tax audits in certain overseas jurisdictions. The ultimate outcome of any future tax audits cannot be determined with an acceptable degree of reliability at this time. Nevertheless, the Group believes that it is making adequate provision for its taxation liabilities (including amounts shown as deferred and current tax liabilities) and is taking reasonable steps to address potentially contentious issues with the ATO. However, there may be an impact to the Group of any of the revenue authority investigations results in an adjustment that increases the Group’s taxation liabilities.

Ongoing transactions – transfer pricing

The Group has offshore operations in the United States and Germany (note 23). As disclosed in note 23, there are extra Group transactions, which include the Company and its US and German based subsidiaries Visage Imaging Inc and Visage Imaging GmbH and Pro Medicus Limited. These transactions are on an arm’s length basis and are conducted at normal market prices and on normal commercial terms.

Whilst there are no investigations currently in progress, such transactions are not subject to any statutory limit in Australia.

25. PARENT ENTITY INFORMATION

Information relating to Pro Medicus Limited	2016 $000 2015 $000
Current assets Total assets Current liabilities Total liabilities Issued capital Retained earnings Foreign currency translation reserve Share reserve Total shareholders’ equity Profit/(loss) of the parent entity Total comprehensive income of parent entity	28,366 26,663 37,465 35,181 27,826 23,973 29,312 24,919 1,302 327 8,088 11,228 (2,341) (1,959) 1,104 666
	8,153 10,262
	(607) 689 (607) 689

The parent entity has not entered into any guarantees in relation to the debts of its subsidiaries. There are no contingent liabilities held against the parent entity. The parent entity does not have any contractual commitments for the acquisition of property, plant and equipment.

52

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 statements, notes and the additional disclosures included in the directors’ report designated as audited, of the consolidated entity are in accordance with the Corporations Act 2001, including:

  • (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2016 and of the performance for the year ended on that date; and

  • (ii) complying with Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and

• (b) there are reasonable grounds to believe that the consolidated entity will be able to pay its debts as and when they become due and payable.

• (c) the financial statements and notes comply with International Financial Reporting Standards (IFRS) as disclosed in Note 2(b).

• (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 year ended 30 June 2016.

On behalf of the Board

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P T Kempen Chairman

Melbourne, 19 August 2016

53

Ernst & Young 8 Exhibition Street Melbourne VIC 3000 Australia GPO Box 67 Melbourne VIC 3001

Tel: +61 3 9288 8000 Fax: +61 3 8650 7777 ey.com/au

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Independent auditor's report to the members of Pro Medicus Limited

Report on the financial report

We have audited the accompanying financial report of Pro Medicus Limited, which comprises the consolidated statement of financial position as at 30 June 2016, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors' declaration of the consolidated entity comprising the company and the entities it controlled at the year's end or from time to time during the financial year.

Directors' responsibility for the financial report

The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal controls as the directors determine are necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 2, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards.

Auditor's responsibility

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

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

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

Independence

In conducting our audit we have complied with the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report.

A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation

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Opinion

In our opinion:

• a. the financial report of Pro Medicus Limited is in accordance with the Corporations Act 2001 , including:

• i giving a true and fair view of the consolidated entity's financial position as at 30 June 2016 and of its performance for the year ended on that date; and

• ii complying with Australian Accounting Standards and the Corporations Regulations 2001 ; and

• b. the financial report also complies with International Financial Reporting Standards as disclosed in Note 2.

Report on the remuneration report

We have audited the Remuneration Report included in pages 7 to 13 of the directors' report for the year ended 30 June 2016. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

Opinion

In our opinion, the Remuneration Report of Pro Medicus Limited for the year ended 30 June 2016, complies with section 300A of the Corporations Act 2001.

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Ernst & Young

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Paul Gower Partner Melbourne

19 August 2016

A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation

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 Number of holders Number of shares
1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and Over		755 434,319 995 2,639,858 303 2,370,362 314 8,737,452 44 87,568,415
		2,411 101,750,406
The number of shareholders holding less than a marketableparcel are:		43 688

(b) Twenty largest shareholders

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

		Listed ordinary shares	Listed ordinary shares
		Number of	Percentage
		shares	of ordinary
			shares
1	Dr S Hupert (multiple shareholdings)	30,107,660	29.59%
2	Mr A Hall (multiple shareholdings)	30,068,500	29.55%
3	J P Morgan Nominees Australia Limited	4,504,561	4.43%
4	UBS Nominees Pty Ltd	4,028,466	3.96%
5	RBC Investor Services Australia Pty Ltd	3,345,610	3.29%
6	Citicorp Nominees Pty Ltd	3,121,667	3.07%
7	National Nominees Limited	2,008,535	1.97%
8	BNP Paribas Noms Pty Ltd	1,841,195	1.81%
9	Mr Bram Vander Jagt & Mrs Maaike Vander Jagt	1,000,000	0.98%
10	Grain Exporters (Australia) Pty Ltd	779,091	0.77%
11	Mr Peter Terence Kempen & Mrs Elaine Margaret Kempen	578,082	0.57%
12	Mr Kenneth John Vander Jagt & Mrs Tanya Vander Jagt	400,000	0.39%
13	Mr Evan Philip Clucas & Ms Leanne Jane Weston	368,217	0.36%
14	Mr John Charles Plummer	365,000	0.36%
15	HSBC Custody Nominees (Australia) Limited	340,463	0.33%
16	Mr Stephen Geoffrey Wilson & Ms Denise Adele Prandi	337,537	0.33%
17	Mr Alan Graham Rochford	300,000	0.29%
18	Mr Michael Wu	275,912	0.27%
19	Mr Colin Gregory Organ	271,000	0.27%
20	Indicorp Consulting Group Pty Limited	270,000	0.27%
		84,311,496	80.95%

(c) Substantial shareholders

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

(c) Substantial shareholders The names of substantial shareholders who have notified the the Corporations Law are:	Company in accordance with section 671B of
	Number of shares
S. Hupert	30,107,660
A Hall	30,068,500
Commonwealth Bank of Australia	5,935,942

(d) Voting rights

All ordinary shares carry one vote per share without restriction.

56

Corporate Governance Statement FOR THE YEAR ENDED 30 JUNE 2016

The Board of Directors of Pro Medicus Limited is responsible for the corporate governance of the entity having regard to the ASX Corporate Governance Council (CGC) published guidelines as well as its corporate governance principles and recommendations. 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.

The table below summaries the Group’s compliance with the CGC’s recommendations.

		Comply	Reference/
	Recommendation	Yes/No	explanation
Principle 1 - Lay solid foundations for management and oversight
1.1	A listed entity should disclose: a) roles and responsibilities of its board and management; and b) those matters expressively reserved to the board and those delegated tomanagement.	Yes	Page 61
1.2	A listed entity should: a) undertake appropriate checks before appointing a person, or putting forward to security holders a candidate for election, as a director; and b) provide security holders with all material information in its possession relevant to a decision on whether or not to elect or re- elect a director.	Yes	Page 61
1.3	A listed entity should have written agreement with each director and senior executive setting out the terms oftheiragreement.	No	Page 61
1.4	The company secretary of a listed entity should be accountable directly to the board, through the chair, on all matters to do with the proper functioning of the board.	Yes	Page 61
1.5	A listed entity should: a) have a diversity policy which includes requirements for the board or a relevant committee of the board to set measurable objectives for achieving gender diversity and to assess annually both the objectives and the entity’s progress in achieving them; b) disclose that policy or a summary c) disclose as at the end of each reporting period the measurable objectives for achieving gender diversity set by the board or a relevant committee of the board in accordance with the entity’s diversity policy and its progress towards achieving them, and either: 1) the respective proportions of men and women on the board, in senior executive positions and across the whole organisation (including how the entity has defined “senior executive” for these purposes); or 2) if the entity is a “relevant employer” under the Workplace Gender Equality Act, the entity’s most recent “Gender Equality Indicators”, as definedinand published underthatAct.	Yes	Page 62
1.6	A listed entity should: a) have and disclose a process for periodically evaluation the performance of the board, its committees and individual directors; and b) disclose, in relation to each reporting period, whether a performance evaluation was undertaken in the reporting period in accordance withthat process.	Yes	Page 62
1.7	A listed entity should: a) have and disclose a process for periodically evaluating the performance of its senior executives; and b) disclose, in relation to each reporting period, whether a performance evaluation was undertaken in the reporting period in accordance withthat process.	Yes	Page 62

57

Corporate Governance Statement FOR THE YEAR ENDED 30 JUNE 2016

		Comply	Reference/
	Recommendation	Yes/No	Explanation
Principle 2 - Structure the board to add value
2.1	The board of a listed entity should: a) have a nomination committee which: 1) has at least three members, a majority of whom are independent directors; and 2) is chaired by an independent directors, and disclose 3) the charter of the committee; 4) the members of the committee; and 5) as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at this meetings; or b) if it does not have a nomination committee, disclose the fact and the process it employs to address board succession issues and to ensure that the board has the appropriate skills, knowledge, experience, independence and diversity to enable it to discharge its duties andresponsibilities effectively.	No	Page 63
2.2	A listed entity should have and disclose a board skills matrix setting out the mix of skills and diversity that the board currently has or is looking to achieve in itsmembership.	Yes	Directors Report
2.3	A listed entity should disclose: a) the names of the directors considered by the board to be independent directors; b) if a director has an interest, position, association or relationship of the type described in Box 2.3 but the board is of the opinion that it does not compromise the independence of the director, the nature of the interest, position, association or relationship in question and an explanation of why the board is of that opinion; and c) thelengthofservice ofeachdirector.	Yes	Page 61
2.4	A majority ofthe board ofalisted entity should beindependent directors.	Yes	Page 61
2.5	The chair of the board of a listed entity should be an independent directors and,inparticular, shouldnot be the same personas the CEO ofthe entity.	Yes	Page 61
2.6	A listed entity should have a program for inducting new directors and provide appropriate professional development opportunities for directors to develop and maintain the skills and knowledge needed to perform their role as a directors effectively.	Yes	Page 61
Principle 3 - Act ethically and responsibly
3.1	A listed entity should: a) have a code of conduct for its directors, senior executives and employees; and b) disclose that code ora summary of it.	Yes	Page 65
Principle 4 - Safeguard integrity in corporate reporting
4.1	The board of a listed entity should: a) have an audit committee which: 1) has at least three members, all of whom are non-executive directors and a majority of whom are independent directors; and 2) is chaired by an independent director, who is not the chair of the board; and disclose 3) the charter of the committee 4) the relevant qualifications and experience of the members of the committee; and	No	Page 63

58

Corporate Governance Statement FOR THE YEAR ENDED 30 JUNE 2016

	5) in relation to each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or b) if it does not have an audit committee, disclose that fact and the processes it employs that independently verify and safeguard the integrity of its corporate reporting, including the processes for the appointment and removal of external auditor and the rotation of the audit engagement partner.
		Comply	Reference/
	Recommendation	Yes/No	Explanation
4.2	The board of a listed entity should, before it approves the entity’s financial statements for a financial period, receive from its CEO and CFO a declaration that, in their opinion, the financial records of the entity have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the entity and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively.	Yes	Page 64
4.3	A listed entity that has an AGM should ensure that its external auditor attends its AGM and is available to answer questions from security holders relevant to the audit.	Yes	Page 64
Principle 5 - Make timely and balanced disclosure
5.1	A listed entity should: a) have a written policy for complying with its continuous disclosure obligations under the Listing Rules; and b) disclose that policy ora summary of it.	Yes	Page 64
Principle 6 - Respect the rights of security holders
6.1	A listed entity should provide information about itself and its governance to investorsviaitswebsite.	Yes	Page 64
6.2	A listed entity should design and implement an investor relations program to facilitate effective two-way communication with investors.	No	Page 64
6.3	A listed entity should disclose policies and progress it has in place to facilitate and encourage participationatmeetings ofsecurityholders.	Yes	Page 64
6.4	A listed entity should give security holders the option to receive communications from, and send communications to, the entity and its securityregistry electronically.	Yes	Page 64
Principle 7 - Recognise and manage risk
7.1	The board of a listed entity should: a) have a committee or committees to oversee risk, each of which: 1) has at least three members, a majority of whom are independent directors; and 2) is chaired by an independent director; and disclose 3) the charter of the committee 4) the members of the committee; and 5) as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or b) if it does not have a risk committee or committees that satisfy (a) above, disclose that fact and the processes it employs for overseeing the entity’srisk managementframework.	No	Page 65

59

Corporate Governance Statement FOR THE YEAR ENDED 30 JUNE 2016

7.2	The board or a committee of the board should: a) review the entity’s risk management framework at least annually to satisfy itself that it continues to be sound; and b) disclose, in relation to each reporting period, whether such a review has takenplace.	Yes	Page 65
7.3	A listed entity should disclose: a) if it has an internal audit function, how the function is structured and what role it performs; or b) if it does not have an internal audit function, that fact and the processes it employs for evaluation and continually improving effectiveness of itsrisk management andinternalcontrolprocesses.	No	Page 65
7.4	A listed entity should disclose whether it has any material exposure to economic, environmental and social sustainability risks and, if it does, how it manages or intends tomanage thoserisks.	Yes	Page 65
Principle 8 – Remunerate fairly and responsibly
8.1	The board of a listed entity should: a) have a remuneration committee which: 1) has at least three members, a majority of whom are independent directors; and 2) is chaired by an independent director; and disclose 3) the charter of the committee 4) the members of the committee; and 5) as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or if it does not have a remuneration committee, disclose that fact and the processes it employs for setting the level and composition of remuneration for directors and senior executives and ensuring that such remuneration is appropriate andnot excessive.	No	Page 63
8.2	A listed entity should separately disclose its policies and practices regarding the remuneration of non-executive directors and the remuneration of executive directors and otherseniorexecutives.	Yes	Page 63
8.3	A listed entity which has an equity-based remuneration scheme should: a) have a policy on whether participants are permitted to enter into transactions (whether through the use of derivatives or otherwise) which limit the economic risk of participating in the scheme; and b) disclose that policy or a summary of it.	No	Page 63

60

Corporate Governance Statement FOR THE YEAR ENDED 30 JUNE 2016

Pro Medicus Limited’s corporate governance practices were in place throughout the year ended 30 June 2016.

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 four directors and should maintain a majority of non-executive directors, or at least a 50/50 ratio of non-executives and 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 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
P T Kempen	Chairman, Non-Executive Director, Chairman Audit Committee
R Lyle	Non-Executive Director
A Glenning	Non-Executive Director

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.

The appointment of appropriately skilled Non-Executive Directors, together with a broadly unchanged business base has meant one new director nomination has occurred this year.

Executive 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.

Non-Executive Directors and senior executives have a written employment agreement with the Company setting out the terms of their appointment.

Mr. Sam Hupert and Mr. Anthony Hall were directors in Pro Medicus Pty Ltd since incorporation in 1983. Mr. Peter Kempen was appointed in March 2008, Mr Roderick Lyle was appointed in November 2010 and Mr Glenning was appointed in May 2016.

Company Secretary

The Company Secretary is accountable to the Board on all matters to do with the proper functioning of the Board. The Company Secretary, who is also the Chief Financial Officer, attends all Board meetings and ensures that the business at Board meetings is accurately captured in the minutes of these meetings.

Board Functions

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.

61

Corporate Governance Statement FOR THE YEAR ENDED 30 JUNE 2016

The Board has delegated responsibility for the operation and administration of the group to the Chief Executive Officer and the executive team (as detailed in Note 22). 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. 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.

Performance

The performance of the board and key executives is reviewed regularly against both measurable and qualitative indicators. During the reporting period the board conducted performance evaluations that involved an assessment of each board member’s and key executive’s performance against specific and measurable qualitative and quantitative performance criteria.

The performance criteria against which directors and executives are assessed are aligned with the financial and non-financial objectives of Pro Medicus Limited.

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.

Diversity

The Group recognises the value contributed to the organisation by employing people with varying skills, cultural backgrounds, ethnicity and experience. Pro Medicus believes its diverse workforce is the key to its continued growth, improved productivity and performance.

We actively value and embrace the diversity of our employees and are committed to creating an inclusive workplace where everyone is treated equally and fairly, and where discrimination, harassment and inequity are not tolerated. While Pro Medicus is committed to fostering diversity at all levels, gender diversity has been and continues to be a priority for the Group.

The Group has established a diversity policy outlining the board’s measureable objectives for achieving diversity. This is assessed annually to measure the progress towards achieving those objectives.

The table below outlines the diversity objectives established by the board, the steps taken during the year to achieve these objectives and the outcomes.

Objectives

Steps taken/Outcome

Increase the number of women in the workforce, including senior management positions and at board level.

 There were no key senior female appointments made during the year as there were no key senior appointments made during the year.  Pro Medicus did not appoint any females in managerial roles as there were no managerial appointments made during the year  As at 30 June 2016, women represented 22% in the Group’s workforce (2015:20%), 20% in key executive positions (2015:20%) and 0% at board level (2015:0%)

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Corporate Governance Statement FOR THE YEAR ENDED 30 JUNE 2016

• Women represented 33% of new hires during the year (2015:20%)

For the upcoming financial year, the Group targets to increase female representation in the Group’s workforce to 25-30%

Promote an inclusive culture that		Pro Medicus has set a zero tolerance policy against
treats the workforce with fairness and respect.		discrimination of employees at all levels. The company also
		provides avenues for employees to voice their concerns or
		report any discrimination.
		No cases of discrimination were reported during the year
		(2015: nil).
Objectives	Steps	taken/Outcome
Provide career development		Whilst Pro Medicus place focus on gender diversity, career
opportunities for every employee, irrespective of any		development opportunities are equal for all employees.
cultural, gender or other differences.		During the year, representation at training and development
		programs was based on performance of the employees.

The achievement of the measurable objectives in the current financial year was taken into consideration in assessing bonuses for employees. The Group will continue to review and update the measureable objectives to promote diversity for the upcoming year.

Committees

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 assume responsibility for determining and reviewing compensation arrangements for the Executive Directors of the Group. The Executive Directors in turn are responsible for determining and reviewing the compensation arrangements for the Non-Executive Directors. The CEO, in conjunction with the full Board reviews the terms of employment for all executives.

The Board has delegated the responsibility of executive remuneration to the management who will assess the appropriateness of the nature and amount of remuneration of such executives 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.

The Company does not have a policy in regards to whether participants are permitted to enter into transactions (whether through derivatives or otherwise) which limit the economic risk of participating in the scheme, however the Board are in the process of evaluating a policy for such issues.

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

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Corporate Governance Statement FOR THE YEAR ENDED 30 JUNE 2016

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 members of the audit committee are:

P T Kempen Chairman

S A Hupert

A B Hall R Lyle

A Glenning

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.

Due to the small number of Directors, the Committee does not meet the requirements of Recommendation 4.1 as all members of the Board serve on the Audit Committee, whilst the Board Chairman is also the Audit Committee Chairman as his area of expertise is in Accounting and Finance.

The number of meetings held and individual attendance of Committee members at those meetings are disclosed in the Directors Report.

Prior to approval of the Company’s annual financial statements, the Board obtains a declaration from the Chief Executive Officer and Chief Financial Officer that, in their opinion, the financial records of the entity have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the entity and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively.

A representative of the external auditors Ernst & Young will continue to attend the Annual General Meeting and is available to answer questions from security holders relevant to the audit.

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.

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:

• the annual report which is distributed to all shareholders registered to receive copies;

• through the release of information to the market via the ASX

• 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 ensures 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. Shareholders are encouraged to receive communications electronically as requested and can elect to do so through the company’s share registry.

A copy of the Corporate Governance Statement is also available of the Company’s website – www.promedicus.com.au.

The Company has not yet designed a specific investor relations program to facilitate effective two-way communication with shareholders.

Trading policy

Under the group’s security trading policy, an executive, director, or any employee of the group, must not trade in any securities of the parent company at any time when they are in possession of unpublished, pricesensitive information in relation to those securities.

Executives, directors and employees of the group may only trade in the securities of the parent company during an open period.

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Corporate Governance Statement FOR THE YEAR ENDED 30 JUNE 2016

Only in exceptional circumstances will approval be forthcoming outside of an open period which is 30 days after:-

• One day following the announcement of the half-yearly and full year results as the case may be.

• One day following the holding of the annual general meeting.

• One day after any other form of earnings forecast update is given to the market.

As required by the ASX listing rules, the Group notifies the ASX of any transaction conducted by directors in the securities of the parent company.

Code of Conduct

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

Risk Management Policies

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

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.

Whilst the Company has not established an internal audit function, it is committed to the identification; monitoring and management of risks associated with its business activities and has included in its management and reporting systems a number of risk management controls, such as:

• Annual budgeting and monthly reporting systems for all operations which enable the monitoring of progress against performance targets and to evaluate trends

• Guidelines and limits on capital expenditure and purchasing authority matrix

• Executive approvals for staffing requirements

• Detailed monthly management reports including cash flow reports, and to identify any foreign currency risks associated with contracts written in and cash being held in foreign currencies

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.

A review of the Company risk management policy was not undertaken during the year.

The Board does not believe the Company has any material exposure to economic, environmental and social sustainability risks at the present time.

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Corporate Information

ABN 25 006 194 752

Directors

The names of the Directors of the Company in office during the year and until the date of this report are: Peter Terence Kempen Chairman/Non-Executive Director/Chairman Audit Committee Dr Sam Aaron Hupert Chief Executive Officer/Managing Director Anthony Barry Hall Technology Director Roderick Lyle Non-Executive Director Anthony Glenning Non-Executive Director

Company Secretary

Clayton James Hatch

Registered Office

450 Swan Street Richmond, VIC, 3121 (03) 9429 8800

Internet Address www.promedicus.com.au www.promedicus.com www.visageimaging.com

Solicitors

Sci-Law Strategies Morrison Foerster

Bankers Westpac Banking Corporation

Auditors

Ernst & Young

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

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

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Corporate Information

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:

• 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 Security holder 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).

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.

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.

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’

2. Create a portfolio for your holding or holdings and you don’t have to remember your SRN or HIN every time you visit

3. Lodge your email via the ‘Communications Options’ and benefit from the online communications options Pro Medicus Limited offers its investors

4. Check out the ‘FAQs’ page (accessible via the orange menu bar) for answers to frequently asked questions

5. 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.

Contact Information

You can also contact the Pro Medicus Limited share registry by calling +61 2 8280 7111 or Toll Free 1300 554 474

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