Pro Medicus : ASX Presentation 2021

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Chairman's Address AGM 2021

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Pro Medicus Ltd

AGM

23 November 2021

CHAIRMAN'S REPORT

Overview

By any measure, the past financial year has been the company's most successful to date, not only financially, but also in terms of sales and achievement of R&D and operational metrics. Each of our businesses in our principal markets (Australia, Europe and North America) contributed strongly to the result.

The success of the company, despite the challenge of COVID-19, has been due to the quality of the management team, the resilience of all of our staff, the flexibility of our leading edge technology and the robustness of our business model.

Whilst Pro Medicus is primarily a technology company, like most businesses it relies on its people to reach its goals and achieve overall success. Your company is fortunate to have a group of highly skilled professionals who are dedicated to meeting our clients' needs and that of their patients. The majority of our staff have been with the company for many years and the core management team for over a decade.

The Company led by Dr. Sam Hupert and the management team have navigated their way through a full financial year, despite the challenges of COVID -19 restrictions. The company has continued to deliver the highest level of service to our existing clients, while at the same time writing a record number of new contracts and successfully implementing more major installations, than at any time in the company's history.

As a consequence the company has continued to deliver long term sustainable financial results, delivering on the milestones outlined in the company's strategic plan.

The group continues to invest in our best of breed suite of innovative products - to maintain market leadership, which we believe, is fundamental to your company's success. Earlier this year the company received FDA clearance for its Breast Density AI Algorithm, to our knowledge the only PACS software company to do so.

Our investment also includes signing collaborative research agreements with both the Mayo Clinic and NYU Langone Health. In relation to the latter institution we have recently established a new research and development hub in New York (in addition to those in Australia and Germany) which is already showing promising results. These agreements will allow the company to develop leading edge AI and next- generation products for enterprise imaging.

During the FY21 year the company announced five new contract wins in North America and one in Europe. We also renewed contracts with several existing clients. (Details are included in the Annual Report).

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On 1 October 2021 we announced the signing of a 7-year, $40 million contract with Novant Health, a community based integrated delivery network, spanning three U.S states. This contract is the equal largest deal to date for the company. Each of these contracts is significant in its own right and all will make a major contribution to our future revenues.

Despite the number of recently announced contract wins, new opportunities continue to present themselves and as a result our pipeline remains strong.

In Australia our RIS product continues to be the undisputed market leader with revenue increasing due to the continued roll out of our key contracts during the period.

Review of global management structure

The global management structure currently in place has served the company exceptionally well for many years. However with the rapid growth of the business, the Board felt it prudent to review the global management structure, to ensure that it can scale to meet the company's expansion needs.

To this end, the Board commissioned external advisors to prepare a workforce future proofing report, to determine the optimal management structure over the short to medium term, to underpin the company's growth. I am pleased to report that the process of enacting the recommendations of the report has commenced and will be ongoing over the next 12 to 18 months.

Financial Results

FY2021 was another record year for the company with revenue increasing by 19.5% and net profit after tax increasing by 33.7% (2021 $30.9 million: 2020 $23.1 million). The result would have been higher but for the adverse movements in the currencies of the countries in which the company operates. (On a constant currency basis, profit after tax would have been higher by approximately $2.8m).

Notwithstanding the presence of COVID-19 during the whole of the financial year it did not have a material impact on the company's results.

The Company continued to be cash flow positive with retained cash and liquid investments increasing from $43 million to $62 million, after paying increased dividends.

The Board anticipates FY22 will be another strong year. The budget for the current financial year has been determined recognising continuing strong growth from both existing and new clients. I am pleased to advise that results to date are ahead of budget and we anticipate that the second half of the financial year will be even stronger than the first, as is traditionally the case.

Surplus cash and M&A

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As I indicated earlier our cash and other financial instruments have continued to grow during the year. These funds are maintained to allow the company to continue to invest in the development of our product suite (including AI), to meet our dividend obligations and to take advantage of acquisition opportunities that might arise.

The Board has considered a number of acquisition opportunities during the course of the year but to date none have met our criteria. In the meantime we have implemented a process of investing some of the surplus funds in liquid investments which provide a better return than cash, to at least maintain the real value of those funds.

Dividend Policy

The Board was pleased to increase dividend payments for the 2021 financial year to 15 cents per share fully franked. This represents an increase of 25% over the previous year and a payout ratio of approximately 50%. The dividends were funded from the company's internally generated cash flow.

The Board anticipates that future dividends will continue to be fully franked. The Board will continue to determine an appropriate level of dividends having regard to the profitability of the business, its need for ongoing investment and the necessity to retain sufficient funds to pursue other growth opportunities.

Additional Director

I am delighted that the company was able to secure the services of Alice Williams. Alice joined the Board in September 2021 and has assumed the role of Chair of the Audit and Risk Committee. I am pleased to report that Alice is already making a strong contribution to the Board's deliberations.

When we consider the formal business of the meeting, I will invite Alice to address you prior to consideration of the resolution for her election.

Annual Report

Expectations of investors and other interested stakeholders have been evolving over the last few years and with this in mind the Board believed it needed to update its Annual Report to meet those expectations. You will note that several enhancements have been made to this year's Annual Report. We expect that this will be an ongoing process.

I would like to acknowledge Deena Shiff and Clayton Hatch for their leadership in this process, assisted by personnel from KPMG.

Closing

In closing, on your behalf, I would again like to thank all of our dedicated staff in Australia, North America and Europe for their contribution to the company during what has been one of the most challenging, but most successful years. I would also like to thank my fellow directors who have also worked tirelessly and diligently to ensure that the company reaches its ultimate goals.

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CEO Address AGM 2021