PRO MEDICUS LIMITED — Management Reports 2005

Aug 24, 2005

Attention ASX Company Announcements Platform Lodgement of Open Briefing®

corporatefile.com.au

Pro Medicus Limited 450 Swan Street Richmond, Victoria 3121

Date of lodgement: 25-Aug-2005

Title: Open Briefing®. Pro Medicus. CEO on FY06 Outlook

Record of interview:

corporatefile.com.au

Pro Medicus Limited today reported net profit for the year ended June 2005 of $5.5 million which included capitalisation of development costs in line with Australian accounting standards. Comparing this year with last year on a like-forlike basis, after tax profit increased to $5.1 million (with development costs expensed), a rise of 41 percent. What were the key drivers of the profit increase?

CEO Sam Hupert

Clearly our overseas activities such as the AltaPACS deal in Canada had a positive impact on our results. We also had an increase in digital imaging sales in Australia and saw growth in promedicus.net. Together, those three factors, combined with our increasing recurring revenue stream, contributed to the profit increase and certainly our revenue hit an all time high as a result of them.

corporatefile.com.au

What's the outlook for earnings in the current year ending June 2006?

CEO Sam Hunert

We don't provide forecasts, but we're very excited about the base we've formed to take the business forward, particularly with the establishment of a presence in Canada and the US. As you're aware, we've also put a lot of effort into software development for these two markets. We've now installed all 22 AltaPACS sites and in the US our software is in its clinical validation phase.

We believe we'll see our first revenue from the US in the current half, and that it will ramp up through the second half of 2006 and into 2007 and 2008. We'll also see more revenue from the AltaPACS contract and continued interest in our digital imaging offering here in Australia, with promedicus, net again pushing forward. So we're hopeful all of this will make the current year one that's stronger again than 2005.

corporatefile.com.au

In 2005, Pro Medicus booked revenue of $10.8 million compared with a pro-forma $9.1 million in the previous year, excluding the $1.2 million Mayne revenue reversal. Given you received licensing fee revenue of $1.8 million under your deal with AltaPACS in Canada, most of the revenue growth in 2005 appears to be attributable to AltaPACS. Can you comment on underlying revenue growth within the business?

CEO Sam Hupert

Yes, Canada was an important contributor, but we'd expected a lot of our growth to come from overseas. The uptake of digital radiology in Australia is certainly increasing but at a slower rate than we'd originally forecast. Still, we saw an increase in digital sales in 2005 and now have 16 sites using our technology. We believe there'll be plenty of upside because penetration of digital in both public and more particularly private radiology practices is under 10 percent. The speed at which the transition towards digital is occurring is slower than we'd hoped, but the transition is inevitable.

Also in 2005, promedicus.net continued to grow strongly, and while our still relatively new ProMed Clinical product made only a modest contribution to revenue, we're confident it will be the basis of a growing revenue stream.

corporatefile.com.au

You've indicated that the remainder of the revenue under the $2.6 million AltaPACS contract will be received in the current year. Do you see any opportunities for growth around the AltaPACS contract without infringing your separate $10 million contract with Agfa in North America?

CEO Sam Hupert

We do. AltaPACS is a consortium of two of the largest private radiology groups in Calgary, Alberta. We know AltaPACS is looking at further expansion, so we believe there could be opportunities for us there.

But more exciting is that the Alberta government has recently announced a landmark C$189 million grant over the next three years for digitisation, information sharing and common repository of radiology images across public and private providers. AltaPACS is a large part of the "Alberta landscape" so one would expect it will be an important part of this province-wide roll-out. Whilst it's early days, there's certainly potential upside for us given our software is installed at all of AltaPACS' practices and has been highly customised for the local environment, making it an excellent fit for other radiology practices in Alberta.

corporatefile.com.au

You've noted that the 2005 result included a number of one-off costs associated with the launch of your digital imaging products in North America. What was the quantum of these costs and will you incur further significant costs as the North American roll-out proceeds?

CEO Sam Hupert

We don't believe there'll be any further significant costs for us in the roll-out. Contractually we've agreed with Agfa what our commitments are in terms of the services and manpower we have to provide and at what cost, and the majority of these costs were incurred in 2005 as part of the establishment costs.

We don't want to make those numbers public, but I can say that in total they were in the order of multiple hundreds of thousand dollars.

corporatefile.com.au

When do you expect to receive final validation of your first US reference site and what has to then occur before you begin to receive revenue under the Agfa contract?

CEO Sam Hupert

The first part of any validation process is to get the client, and as we've said before we're very pleased we were able to do this in such a short time. The second is to customise and then install the product; both of those have happened. The third part is the clinical validation process and that's happening at the moment. It's an iterative process between us. Agfa and the client, but it's going extremely well in terms of the implementation and suitability of the software. This gives us confidence the final validation will occur fairly soon.

Once we get validation we can move to the next step of the contract, the full commercial release of the product. Agfa has hired a sales force specifically to address the 8,000-plus radiology practices that comprise the imaging centre and community hospital market. It's not looking to do this by half measures.

corporatefile.com.au

What indications do you have regarding potential demand over the short to medium term?

CEO Sam Hupert

So far the response from the clients Agfa has shown the product to has been extremely positive. This confirms what we've seen at major trade shows. If anything, the response has been stronger than we anticipated at this early stage. We believe there's a fair amount of pent-up demand so it's looking very promising.

corporatefile.com.au

In Australia you've seen the continued, albeit slow, adoption of digital imaging technology in the private radiology market, with 16 practices now using your technology. What's the outlook for your digital imaging technology in this market?

CEO Sam Hupert

First it's important to say we're still the market leader in Australia and that the slower rate of adoption hasn't been limited to us, it's been market-wide. The second thing is that if you look at overseas precedents, a lot of markets had a slow start to digital adoption, but rapid implementation of the technology subsequently.

Over the past 18 months a lot of the radiology groups have stopped saving "maybe" they'll adopt digital, and have started to talk about "when" not "if." We think that's evidence of a paradigm shift in their thinking. Also, of the new radiology practices that have been set up recently, most have gone digital and we've seen our product go into a number of them. As the market continues to evolve, we think we're well placed to take a significant share in the digital transition.

corporatefile.com.au

The promedicus.net e-health network saw an increase of 13.2 percent in transaction volume to 2.7 million transactions. Can you comment on the competitive environment in this sector of the business and the level of growth you see as sustainable going forward?

CEO Sam Hupert

There's a lot of competitors vying for the same business in this sector, which has been the case from the start. We've also always had competition from large providers such as pathology labs that do their own transmissions.

Within promedicus.net, we've seen not only an increase in transaction numbers but also an increase in the number of doctors registered for the system. We now have over 19,000 doctors registered. Also, we're now pushing promedicus.net out to different sorts of providers. Although the time for sale and cost of sale to each of those is greater than to radiology practices, as they get on the system, they stay on and add to the volume, which helps sustain growth.

It's also worth saying that all the revenues from promedicus net are Australian based at present. But, we believe there may be opportunities for it to be used elsewhere, as many markets aren't as electronic as Australia.

corporatefile.com.au

What has been the recent performance of ProMed Clinical, your clinical desktop product for general practitioners? To what extent has the changed ownership of Medical Director, which dominates the market, altered market dynamics and the outlook for the product?

CEO Sam Hupert

As you're aware, ProMed Clinical is a product we started off from a zero base and we'd anticipated that it would take a couple of years to become profitable. GPs and specialists who use clinical products are usually fairly conservative, so they won't change product at the drop of a hat. We have a very good product and as anticipated, we're seeing it attract a broader range of users, which is very encouraging.

There's also been a number of significant changes in the market including the change of ownership of Medical Director. We think that over the next six to nine months that's going to be important for us. As doctors are forced to make a decision on upgrading their clinical product when the current version of Medical Director is superseded, we'll have a very competitive and viable offering.

corporatefile.com.au

Pro Medicus remains debt free and had $10.4 million in cash at the end of June. unchanged compared with six months earlier. Are you looking for acquisitions? Do you see opportunities for consolidation within the sector?

CEO Sam Hupert

Possibly, and I don't think we necessarily have to confine ourselves to the Australian market when we're active in the Canadian and US markets. But any acquisition would have to fit logically into what we're looking to do. That said. our priority at present is to realise the tremendous organic growth opportunity we see for our products in their new markets, namely the US and Canada

corporatefile.com.au

You've announced a fully franked final dividend of 2.75 cents per share, up from 2.20 cents previously. You've also announced a special dividend of 0.5 cents, bringing the full-year payment to 4.75 cents, up from 3.45 cents. What's the rationale behind the payment of a special dividend, is it sustainable and what is the outlook for dividends in the current year?

CEO Sam Hupert

We increased the ordinary dividend because we have the cash in the business, we've accounted for the large majority of expenses related to establishing our product in the US and Canada, we've maintained our cash balance and we don't have any debt. And because of the increased profit in 2005, we wanted to top that up with a one-off special payment. Obviously for that to recur we'd need to asses each year as it comes.

As you're aware, we've increased our dividend payout range to 70 to 80 percent of retained earnings from approximately 50 percent when we listed in 2000, to reflect the build-up in our cash reserves. We don't see that changing at this point, unless an acquisition or other growth opportunity comes along. It's certainly comforting to know we have the cash to support such a development.

corporatefile.com.au

Thank you Sam.

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

For previous Open Briefings by Pro Medicus, or to receive future Open Briefings by e-mail, visit www.corporatefile.com.au

DISCLAIMER: Corporate File Pty Ltd has taken reasonable care in publishing the information contained in this Open Briefing®. It is information given in a summary form and does not purport to be complete. The information contained is not intended to be used as the basisfor making any investment decision and you are solely responsible for any use you c that you seek independent professional advice before making any investment decisions. Corporate File Pty Ltd is not responsible for any consequences of the use you make of the information, including any loss or damage you or a third party might suffer as a result of that use.