PRO MEDICUS LIMITED — Management Reports 2012

Nov 19, 2012

==> picture [595 x 110] intentionally omitted <==

----- Start of picture text -----

20 November 2012
----- End of picture text -----

CEO on Update

Open Briefing interview with CEO Sam Hupert

==> picture [202 x 52] intentionally omitted <==

Pro Medicus Limited 450 Swan Street Richmond VIC 3121

In this Open Briefing[®] , Sam discusses:

o Short-term impact on earnings of subdued markets

o Dividend payments to continue for foreseeable future

• Longer-term outlook for sustainable growth

Record of interview:

openbriefing.com

Pro Medicus Limited at its AGM today said that a slowdown in activity levels, reflecting subdued markets, is likely to have a detrimental impact on short-term results. You’ve also indicated that opportunities are much harder to consummate than in previous years. To what extent do the weaker markets reflect cyclical, and to what extent structural, issues in the industry?

CEO Sam Hupert

There’s been a slowdown in our two key markets, Europe and North America. Sometimes this happens in one market, for example Europe has been subdued for a few years, but more recently the North American market has also been affected. In the US there have been a lot of uncertainties, including the outcome of the recent election, and that’s had a major impact on the healthcare industry, with decisions being deferred until policy direction becomes clearer. We’ve found in both Europe and North America that the decision making process has stretched out to around double what it was even 18 months ago.

Having said that, we are progressing a significant number of potential opportunities in these markets, some of which are quite significant and while it’s taking much longer to close a deal than in the past, we’re hopeful that we’ll win at least some of this business.

In Australia, our business has been relatively steady, and with the release of Coral, our newgeneration radiology information system (RIS) product, we expect the business to start seeing some upside.

openbriefing.com

What has been the impact on earnings year to date of the sale of the Amira business in July?

CEO Sam Hupert

Amira is a great business, and made a significant contribution to our bottom line. We were aware at the time we sold it that there would be a hiatus in our earnings before our larger radiology-based product opportunities started to ramp up. But we decided to sell Amira because the price was right. It was a unique opportunity, and while the gap in our earnings will take us a little longer to fill, we believe we made the right decision for our shareholders.

ASX Announcement: 20 November 2012/Open Briefing®/Pro Medicus Limited

1

==> picture [171 x 43] intentionally omitted <==

Apart from the absence of Amira, a trend that’s starting to affect our earnings, at least in the short term has been the trend for our clients to move towards a “pay-per-view” model rather than the traditional upfront licence capital model that we have traditionally used. As this trend continues it will tend to change our revenue profile: going forward. Instead of having a big hit from a licence sale upfront and then a smaller trail of revenue from support, you have a much steadier , more predictable revenue stream over the contract period, which is usually three to five years. . Obviously in the early years this will have an impact on the timing of our revenue, but over time it will build a more reliable annuity revenue base than the standard “capital” model we’ve had.

openbriefing.com

What proportion of your revenue is generated by pay per view contracts as opposed to capital contracts and how does the actual revenue over the transaction based contract life differ from that of a capital contract?

CEO Sam Hupert

We’ve made a number of pay per view based sales including our recent sales in the US and Europe as well as a new sale here in Australia. A lot of the industry is moving toward this model, so we expect the number to grow over time. In the past all our business was under the capital model except for promedicus.net, which has always had a pay-per-view structure.

Transaction based or operational models usually have a higher fee per study than would be the case if you worked out how many “clicks” a customer made in total under a capital model, simply because you’re spreading the risk over three or five years. It’s also a much easier for clients to accept as they only pay for what they use. Typically there is a minimum volume clients commit to after which, if they do more we jointly share in that upside which is a win for both parties.

openbriefing.com

To what extent is the increasing use of pay-per-view a reflection of the current subdued market, with users reluctant to commit to large upfront payments?

CEO Sam Hupert

It is early days but we believe we will only see this trend increasing as time goes on. It may be due to the current economic climate but I think the main reason for the trend is that some clients find the pay-per-view or operational model better simply because they know the exact cost for each exam. Having said that, we think we’ll continue to generate revenue from both models: sometimes clients have a definite preference, we need to be able to accommodate that.

openbriefing.com

You’ve indicated that the Visage 7 product is now bedded down and in August you announced the commercial launch of Coral, the new RIS product. What has been the market feedback from the products to date and what are the key opportunities for these products in the current subdued environment?

CEO Sam Hupert

The opportunities we’re currently pursuing, in Europe and the UK, and particularly in the US, are nearly all Visage 7 based. It is a mature product that has an incredible technology advantage in the market so if we win any of these opportunities, we won’t need to undertake further development of the product, it will just be a matter of implementing it. The depth and breadth of the Visage product has certainly allowed us to compete for business that we would not have been considered for in the past.

The release of Coral was a major milestone for us. We’ve now installed it in a number of sites and so far the feedback has been positive. We've also been able to sell Coral to a couple of new sites, so, as well as refreshing our existing user base, it’s also helping us to win new business. The first step for Coral is here in Australia, and as we roll it out to more

ASX Announcement: 20 November 2012/Open Briefing®/Pro Medicus Limited

2

==> picture [171 x 43] intentionally omitted <==

and larger sites, we’re confident it will build momentum. After that it will rolled out offshore most likely Canada, the UK and in time North America

openbriefing.com

You’ve indicated that the weaker near-term results may prompt a reconsideration of the carrying value of your intangible assets, which totalled $11.3 million as at 30 June versus total shareholders’ equity of $16.0 million. Which elements of the intangibles might face a revaluation and what is the potential downside?

CEO Sam Hupert

We took on some intangibles with the purchase of the Visage business, and given that it’s taking us a little longer to realise the revenue we fully expect to come out of Visage 7, the board believes it’s prudent to flag the possibility that the carrying value may need revision. Obviously any write-down of these intangibles would partly offset the profit on the sale of Amira that we’ll book this year.

It’s worth also noting that we don’t believe the carrying value of the intangibles relating to Coral will need to be revised.

openbriefing.com

Pro Medicus paid a fully franked final dividend of 1.5 cents per share for FY2012 and the board expects to continue to pay dividends in the foreseeable future given your increased level of retained earnings which at 30th of June were over $5 million plus the additional financial capacity generated by the sale of the Amira business in July for €12.1 million (about A$14.1 million). Is this an indication that you’ve decided to put aside investment in growth in favour of paying dividends?

CEO Sam Hupert

As we said when we sold Amira, the proceeds will go into three areas. One is reinvestment in our existing business, and we’re continuing to actively invest in our R&D and marketing because we see a lot of potential for our products. We believe that, in terms of product mix and market address-ability, we’re in the best position we’ve ever been in. Continuing our R&D efforts will ensure be maintain that position.

The second area the proceeds will go into is dividends. Clearly we resumed dividend payments even before the Amira sale, having built up our retained earnings over $5 million by 30 June – we believe that’s a healthy figure for a company with no debt.

The third area is that going forward there may be some opportunities to look at acquisitions if asset values become appropriate and most importantly, if the acquisition target fits strategically. We’re certainly well positioned to take advantage of any opportunities that arise.

So, we’re looking to continue paying dividends, but in no way will we let that detract from our process of continuing to invest in product renewal and growth.

openbriefing.com

How confident are you that the continuing business can generate sustainable profits and growth longer term? What are expected to be the drivers of growth?

CEO Sam Hupert

We’re highly confident. As I said, we’re in the best place we’ve ever been in terms of product capability and market address-ability. Yes the market has been a little sluggish, but all markets go through cycles, and we’re well positioned as they start to pick up.

We’re addressing a large number of varied opportunities for Visage 7, particularly in North America; opportunities that even 12 months ago we wouldn’t have been considered for. Obviously we don’t expect to realise all of these opportunities but any one of them in its own

ASX Announcement: 20 November 2012/Open Briefing®/Pro Medicus Limited

3

==> picture [171 x 43] intentionally omitted <==

right would be significant for us. And although it’s very early days, we also see future upside for Coral, given it’s such a highly differentiated product.

We believe that once this period of indecision in the market starts to pass, these two products position us very well in terms of sustainable growth.

openbriefing.com

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

DISCLAIMER: Orient Capital Pty Ltd has taken all reasonable care in publishing the information contained in this Open Briefing®; furthermore, the entirety of this Open Briefing® has been approved for release to the market by the participating company. 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 basis for making any investment decision and you are solely responsible for any use you choose to make of the information. We strongly advise that you seek independent professional advice before making any investment decisions. Orient Capital 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.

ASX Announcement: 20 November 2012/Open Briefing®/Pro Medicus Limited

4