PRO MEDICUS LIMITED — Management Reports 2007

Aug 27, 2007

Attention ASX Company Announcements Platform Lodgement of Open Briefing®

Pro Medicus Limited 450 Swan Street Richmond, Victoria 3121

Date of lodgement: 28-Aug-2007

Title: Open Briefing® . Pro Medicus. CEO on FY 08 Outlook

Record of interview:

corporatefile.com.au

Pro Medicus Limited today reported net profit of $7.1 million for the year ended June 2007, up 15 percent from $6.1 million in the previous year. Can you give any insight regarding current trading conditions and the outlook for the current year ending June 2008?

CEO Sam Hupert

As a company, it's not our policy to provide forecasts. But, I can say that in 2007 we delivered a result that was in line with our expectations. All parts of the business did well. We've seen strong growth in North America, particularly in the second half, as we said we would. Our Australian business is growing, with clear signs that we've reached the tipping point in the take-up of digital radiology. All of that augurs well for the 2008 financial year.

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The main driver of Pro Medicus's profit growth in 2007 was North America, where revenue increased 34 percent to $3.1 million. What's been your progress under the $10 million, three-year licensing agreement with Agfa-Gevaert, which covers the North American private radiology market?

CEO Sam Hupert

It's important to say that in North America we had increased revenue not only from the Agfa contract in the US, but also from our own contract with AltaPACS radiology group in Canada. AltaPACS finalised its digital roll-out under a grant from the local state government, and also asked us to do some additional work. The Canadian contract is separate from the Agfa deal, so it's icing on the cake.

The Agfa contract is progressing well. We said that 2007 would be a bigger year than the previous year, which it was. We saw a 40 percent plus increase in our US revenue, so we're very pleased with that.

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How many US radiology sites is your technology now installed in and what has been the feedback from the installed base?

CEO Sam Hupert

As at the end of June, the number of sites had expanded in keeping with our expectations in terms of forming a base of sites from which we can more aggressively grow the business. One of Agfa's key metrics is its strike rate, which is the number of leads that get converted to sales. This has increased by 15 to 20 percent over the past six months. Agfa is also continuing to grow its sales funnel and has recorded several new wins over the last months, including its first sale to a large imaging centre group ranked in the top 50 in the US.

corporatefile.com.au

The rate of take-up of your products in the US appears to be faster than in the Australian market. What do see as the main differences between the two markets?

CEO Sam Hupert

The rate of uptake is actually increasing in both markets. You see it more in the US because the market is so large.

In the US there's an ongoing push toward digital just like there is here, but the market is far more digital savvy. A lot of our US sites were already digital. Many were first-generation digital users, but looking for a more complete solution not only in digital integration, which we think we do better than anyone, but also in practice management and billing, which is one of the areas where the US is five to 10 years behind Australia. We believe this will be the key driver of our US sales over the next few years.

Billing in the US is extremely complex and because of this, many US imaging centres are outsourcing the billing function at great expense and with an inherent loss of control. We can now provide a system that includes comprehensive inhouse billing functionality. It's an area where our expertise can add significant value.

corporatefile.com.au

You've indicated you now have the foundation in place to penetrate the North American market. Aside from the increased number of sites, how does your position in North America today differ from that at the start of the year?

CEO Sam Hupert

We're a long way ahead compared with where we were this time last year. First, part of the way through the financial year Agfa reorganised the team working on our product to be far more focused on imaging centres. Agfa appointed a COO to the team and a specialised solutions manager, which has made a big difference because the team can now respond to the market like a small company without going through a big company bureaucracy. The team's now the right size and the right shape organisation for the market.

Second, we're not the same company we were a year ago. We have a year's more experience in the market and that's helped us refine the product, which has progressed a lot and will continue to do so. In particular, we've had a lot more experience in US billing practices and put out new modules that cover a broader spectrum of functionality, particularly on the billing side.

Third, the Agfa implementation team has gained valuable experience with every system it's installed so it's a lot more self-sufficient when it comes to putting in systems. That puts us in a much better position than a year ago in terms of leveraging Agfa's footprint in the US.

In short, we've done a lot of the hard yards in the US and are now in a position to exploit the opportunity to the fullest.

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What's the outlook for take-up of your products in the North American market in the current year?

CEO Sam Hupert

We think we can build nicely on the base we've got given our fully integrated product sets and the greater reference base we have. Working through Agfa, we're effectively a tier one player offering everything from billing and practice management to PACS to voice recognition, all as one product set. That's a key strength and we believe we're still ahead of the other tier-one competition in the US.

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In 2006, Pro Medicus booked pre-tax profit of $1.7 million in North America. What were the pre-tax earnings in 2007, how do margins compare with your expectations and what's the outlook for margins in North America going forward?

CEO Sam Hupert

Our North American segment had pre-tax profit of $2.5 million in 2007. We've always said we expected our margins in North America to be similar to the margins we've had in Australia. Going forward, we don't foresee anything that would diminish those margins, unless we felt we needed to have staff in the US, which we'd only do if we thought the growth of the business would support that staff.

corporatefile.com.au

In Australia, Pro Medicus booked revenue of $9.4 million, up from $9.1 million. Revenue grew 7 percent in the second half to $5.1 million. To what extent did the second-half growth reflect the sale of your full suite of practice management and digital radiology products to MDI Chelmer?

CEO Sam Hupert

MDI Chelmer was a good part of it, but not all of it. We made digital sales throughout the year, but many were not of a size to warrant their own announcements. We expected the second half to be stronger and we were pleased with the result given that in the previous second half we had some large digital sales, for example to Lake Imaging. Going forward, we think the momentum in the market indicates that digital will be a strong contributor into 2008 and 2009.

corporatefile.com.au

As at the end of June over 40 Australian radiology sites had adopted the Pro Medicus digital imaging product, up from 25 at the end of 2006. Can you comment on the progress of the transition to digital imaging in the Australian market?

CEO Sam Hupert

At the half year we indicated we expected increased intensity in the push to digital. We've seen a significant ramping up of interest; compared with 12 or 18 months ago we're seeing a completely different paradigm in the industry. The transition to digital is now inevitable and we're confident we'll continue to be a key beneficiary of that transition because of our position in the market and the quality of our product.

corporatefile.com.au

Transactions on your e-health network promedicus.net increased 7 percent in 2007 to 3.1 million, and over 25,000 Australian doctors are now using the network. To what extent is the network now mature and how will you seek to drive more value from it?

CEO Sam Hupert

Depending on where you get the numbers, there are up to about 35,000 practicing doctors in Australia. So we're getting up to a pretty high coverage.

Our network still carries almost entirely radiology transactions. We have a number of specialist transactions, but our focus on the US and getting the product set right for that market has meant that we haven't aggressively gone after other parts of the e-health market. So we believe there's latent value in our network that we're not yet tapping. We'd expect the dynamics of health industry consolidation may help us in that the larger players might be looking for a more integrated approach to information delivery across their businesses.

corporatefile.com.au

As at the end of June cash on hand stood at $11.1 million. You announced a fully franked final dividend of 3 cents per share plus a special dividend of 1 cent per share. This brings the full-year dividend to 7.00 cents (including special dividends of 1.5 cents), compared with 5.50 cents in 2006 (including special dividends of 1.5 cents). What's the outlook for dividends in the current year and given your North American operations are gaining traction, will it remain necessary to retain as much cash on the balance sheet?

CEO Sam Hupert

We don't provide forecasts of financials or dividends but we're very pleased we've been able to increase the dividend by 27 percent. We've always been conservative in relation to the amount of cash we've retained, and I can't see us looking to change that as we're continually looking for opportunities. We are planning an increased level of R&D, but nothing that couldn't be funded out of our cash flow. That's given the board the confidence to pay out not only the increased base dividend, but also another special dividend.

corporatefile.com.au

With North America requiring less hands-on attention, what are the growth opportunities for Pro Medicus going forward?

CEO Sam Hupert

We see this year as one with the greatest opportunities for us both here in Australia and the US.

In Australia, digital will be the key driver to growth.

In North America, we've built an excellent platform for growth and we're now asking how we can maximise that growth. We expect our focus will now shift from development, training of Agfa personnel and implementation, to a more strategic role with Agfa in terms of market penetration. That may require additional management resources which we'd look to put in place at the appropriate time.

At the same time, we see North America as not just one market – it's a whole lot of markets. We're in the imaging centre market, but there are significant opportunities for us outside that, for example in e-health, where the US is currently underserved.

Then there are still opportunities in Europe and Asia that we haven't closed our minds to.

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

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