PRO MEDICUS LIMITED — Interim / Quarterly Report 2012

Feb 23, 2012

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----- Start of picture text ----- Attention ASX Company Announcements PlatformLodgement of Open Briefing []----- End of picture text -----

ASX ANNOUNCEMENT: 24 February 2012

CEO on Turnaround

Open Briefing with CEO Sam Hupert

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Pro Medicus Limited 450 Swan Street Richmond, Victoria 3121

In this Open Briefing[®] , Sam discusses:

o Turnaround reflects organisational changes, lower costs

o Positioned for revenue growth

o Reinstatement of dividend, launch of share buy-back

Open Briefing interview:

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Pro Medicus Limited today reported net profit after tax of $1.09 million for the first half ended 31 December 2011, up from $0.65 million for the previous corresponding period, on revenue of $7.43 million, down 1 percent. Excluding the impact of foreign exchange gains/losses, profit before tax was $1.18 million, up 13 percent, and a turnaround from the 2011 second half pre-tax loss of $0.12 million. Is the turnaround sustainable?

CEO Sam Hupert

Yes, we feel the turnaround is sustainable. Sure we still face challenges ahead but as we said at our AGM last November, we felt the 2011 financial year was most likely a low point for us. We’re in a better position than we were this time last year both financially and in terms of the market readiness of our products. Whilst it is still early days we’re starting to see the business move in the right direction and we’re hopeful we can sustain that.

The new treatment of the R&D tax concession also had a net effect of reducing our overall profit in the first half. On a like for like basis, our profit before tax would have been up 22 percent had the treatment remained unchanged.

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Given the slight contraction in revenue, the turnaround was largely due to cost reductions, with cash costs down 14 percent versus the previous corresponding period. Can you maintain costs at this level if revenue growth is re-established?

CEO Sam Hupert

We believe so. While a lot of our costs have been for R&D, we’ve been able to reduce other operating costs with little impact on performance. We believe we can maintain the cost base close to the current level and gain a greater return on our investment in R&D.

Open Briefing® | Pro Medicus Limited | 24 February 2012

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Revenue in Australia and North America was down 28 percent and 18 percent respectively to $2.63 million and $1.35 million, while European revenue was up 54 percent to $3.45 million. Which product areas underperformed in Australia and North America? What was the performance of your Visage products across the three markets and to what extent did they drive the growth in Europe?

CEO Sam Hupert

The delay in releasing our new RIS technology platform has impacted new sales, contributing to the fall in revenue in Australia. This will hopefully be reversed as our new technology comes to market.

In the US, the drop in revenue was due to a number of factors. Currency played a part, but mostly it was due to our sales coming towards the end of the half and many of those sales being based on an operational or per-transaction model rather than upfront licence fees. We won’t see the full impact on revenue coming from these sales until the sites are fully operational and transaction volumes build, however the plus side of this model is that it gives us ongoing revenue from these sites, so the more we have going forward, the bigger the recurring revenue base it will provide.

In Europe we’re very happy with the performance of our Visage and the Amira products, with sales on a par or exceeding the previous corresponding period.

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The new Pro Medicus radiology information system (RIS), which was expected to be launched during the first half, remains in pre-release. What’s behind the recent delay? When are you now expecting to launch the product and how has the competitive landscape changed during the delay period?

CEO Sam Hupert

Given the magnitude of the changes compared with our existing product, we felt it was prudent to test out all of the functionality before releasing the new RIS more broadly. It’s important to point out that when we say pre-release, we’re not talking about test mode but rather full operating mode, albeit at a small site.

The site went live late in the first half and so far the results have been very encouraging. We think we’re well positioned now to go to the next step of installing the product in a larger, more comprehensive practice. If that goes well, we can then roll it out to all our existing sites, starting with the smaller ones and migrating towards the bigger ones.

Obviously the longer it takes to roll out our new product, the harder it will be for us competitively. We’ve lost fewer clients than might have been expected. Most of our key clients who’ve seen the new product are very positive about it and looking forward to its release. We also have a number of potential new clients that are also looking very closely at our new RIS platform.

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Investment in product development totalled $1.66 million in the first half, down only 16 percent from the previous corresponding period. This is equivalent to 22 percent of sales, a

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relatively high level in industry terms. Apart from the new RIS product, where is the investment going? How is product development investment expected to trend in the medium term and when can shareholders expect a return from this investment?

CEO Sam Hupert

We have three key development streams: the Visage 3D/digital imaging products and Amira, our life sciences platform, both developed out of Berlin, and the new RIS technology platform being developed here in Australia. All three programs have been going at full pace.

We’re hopeful we’ll see a far better return on our R&D investment in the short to medium term. Once the new RIS technology platform is released, and we get more traction with the Visage products, we should be able to achieve an ongoing increase in revenue without a significant increase in R&D costs. So although the absolute amount of R&D is unlikely to change greatly, the ratio of sales going into R&D should come down over time as revenue grows.

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Pro Medicus booked EBIT of $1.10 million in its Australian operations in the first half, up from $0.25 million in the previous corresponding period. Excluding the impact of foreign exchange gains/losses, EBIT was $0.65 million, up 34 percent. In light of lower sales, what was the reason for the earnings growth? How dependent is your future revenue growth in Australia on the successful release of the new RIS product?

CEO Sam Hupert

Excluding the impact of the inter-company IP transfer charge EBIT was down in line with revenue. The core of our revenue in Australia has traditionally come from our RIS product and from promedicus.net, with some revenue in recent periods also coming from Visage products. RIS revenues are particularly important to us in terms not only of product sales but also of the ongoing maintenance revenue we derive from our installed base.

Our new RIS product is fundamentally different from our existing product, and a step up from other products in the market. It should help us to meet the needs of our client base and importantly, it will also help us address new segments of the market – not only private radiology practices but some of the larger public institutions.

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In North America Pro Medicus booked EBIT of $0.14 million in the first half, a turnaround from a loss of $0.49 million in the previous corresponding period. After the recent restructuring of your North American operations, do you have adequate capacity to grow revenue in this market? What is your competitive position in North America?

CEO Sam Hupert

We had the wrong structure and mix of capabilities in our North American operation and one of my first jobs coming back as CEO was to get the right foundation in terms of management and people. Also, while we’d built up a large amount of interest in the Visage product, it wasn’t until late in the first half that we saw some actual sales in North America. Hopefully that’s only the beginning of bigger future sales, but we’re now confident we have the right base from which to grow.

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We have many competitors in the North American market, which you would expect given its size, but we believe our product is significantly different and cuts across a lot of different market segments. These include cloud computing, where we have an advantage because of our thin client technology and the ability to layer on top of existing PACS infrastructure which is very attractive to some of the large hospitals and institutions as it provides them with a cost effective way of refreshing the technology on the radiologist desktop.

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Pro Medicus booked profit of $0.36 million in Europe, down from $1.03 million. With revenues increasing, this suggests margins have continued to fall. What is the outlook for margins and is the pace of revenue growth in Europe sustainable going forward?

CEO Sam Hupert

Again, excluding the impact of the inter-company IP transfer charge, the European operation saw earnings growth and we’re pleased with its performance. We’ve maintained the third party OEM sales that were part of Visage when we bought it, and we’ve also started to build up direct sales of the Visage technology, which is encouraging. Previously direct sales were very limited and we’re looking for them to account for a greater part of our revenue going forward.

We think the revenue growth is sustainable. There are good direct sales opportunities not only in the UK, with changes in the NHS, but also in the non-English speaking parts of Europe given the product’s multi-lingual support capability.

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Cash in hand was $4.03 million as at the end of December, up from $3.26 million six months earlier. Do you have adequate cash to cover your funding needs in the nearer term, given the business is undergoing a turnaround and product development investment remains relatively heavy?

CEO Sam Hupert

We’re very pleased that we’ve started to rebuild our cash reserve after a number of periods where cash has been drawn down. We think it’s significant given we’ve been in a period of high R&D expenditure. We don’t expect huge increases in our R&D spend longer term, and we’re obviously keen to see revenues starting to flow from our investment in R&D.

Moving forward, we’d expect to maintain, and hopefully build, our current level of cash.

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Pro Medicus has declared a fully franked interim dividend of 0.5 cents per share. Last year no interim or final dividend was paid. Why have you decided to reinstate the dividend at this relatively early point in the turnaround process, and given the recent announcement of a share buy-back scheduled to start on 27 February?

CEO Sam Hupert

We’re in a much better position than we were a year ago: we have a much stronger organisational base and our technology has progressed further and is now far more marketable so we see better opportunities for a return on our R&D investment. We’ve accumulated cash over the period, and feel that we’re now in a position where we can return some of our cash to shareholders.

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Both the dividend and buy-back are part of our ongoing capital strategy.

Although there’s a lot of uncertainty at the macro level, we think all things being equal, we can continue to progress from here.

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Thank you Sam.

For more information about Pro Medicus Limited, visit www.promedicus.com or call Sam Hupert on +61 3 9429 8800.

For previous Open Briefings with Pro Medicus, or to receive future Open Briefings by email, visit openbriefing.com

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Open Briefing® | Pro Medicus Limited | 24 February 2012

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