Pro Medicus
Annual Report 2023

Plain-text annual report

2 0 2 3 P R O M E D I C U S A N N U A L R E P O R T Annual Report 2023 ABOUT THIS REPORT OUR REPORTING SUITE COMMITMENT TO INTEGRATED REPORTING Our 2023 Annual Report provides an overview of our financial and non-financial performance. In preparing this report, we have been guided by the International Integrated Reporting Framework (IIRF). This format comprehensively recognises the alignment of the long-term value we create primarily for our investors but also all our stakeholder groups as a developer and supplier of healthcare imaging software and services. Our journey to better describe our business and its values continues with this new report style, which represents a commitment to the improved reporting presentation that IIRF presents. The Company intends to build out the content of the IIRF sections in future Annual Reports and content on its website. SCOPE AND CONTENT This report covers Pro Medicus’ operations with information referring to the year ended 30 June 2023 unless otherwise stated. It includes the key disclosures required under Australian legislation and provides a holistic overview of our business. The boundary for reporting captures Pro Medicus’ international operations in Berlin, San Diego and its headquarters in Melbourne. Our Directors’ Report has been prepared in accordance with the Corporations Act 2001 and is integrated throughout the annual report consisting of: • Corporate Structure (Page 11); • Nature of Operations and Principal Activities; Pro Medicus at a glance (Page 11); • Our strategic goals (Page 15); • How we create value (Page 14); • Review and results of operations (Page 13 and 18); • Review of financial condition (Page 19); • Risk management (Page 16-17); • Remuneration Report (Page 30-38); • Corporate Governance (Page 40); • Outlook (Page 29) and • Other (Page 28). Our Financial Statements from page 41 have been prepared in accordance with the Corporations Act 2001 and Australian Accounting Standards (AAS). Compliance with AAS ensures compliance with the International Financial Reporting Standards (IFRS). Detailed information on the basis of preparation of our Financial Statements is available on page 46. THE INTEGRITY OF OUR REPORTING Pro Medicus has an Audit and Risk Management Committee in place tasked with the responsibility of managing the process of verifying the integrity of any periodic corporate report released to the market that has not been audited or reviewed by the Company’s external auditor, EY. The process involves receiving confirmation from either the respective business units or management as to the completeness and accuracy of the information contained within the report and subsequent approval by Senior Executives, the CEO and the Pro Medicus Board as deemed necessary before external release. EY has conducted an independent audit of the Financial Statements and Remuneration Report. A copy of EY’s audit report is contained in this annual report on pages 77-81. MATERIALITY This report provides information on matters that we believe could substantively affect value creation at Pro Medicus. The Board has collectively identified and prioritised the material issues for inclusion in this report. In this report, we present the identified material information through a structured narrative. We review who we are and how we create value through our governance practices and business model (pages 11-40). We report those matters significantly impacting value (pages 14-15) and outline our strategy, performance, and outlook to ensure long-term value creation (page 29). The Board will continue to engage with key stakeholders and consult with them on matters that interest and impact them and add to our Annual Report when necessary. We will also continue to capture their views during our regular business engagements with them. REPORT Annual Report (including Directors report) KEY INFORMATION Our Annual Report is a succinct report prepared with reference to the principles of integrated reporting, setting out how Pro Medicus creates sustainable value. It sets out our governance and business model, strategy, operating context, and operational performance and prospects. While the Report is targeted primarily at current and prospective investors, and other providers of financial capital, it will be of interest to other stakeholders. It includes a detailed analysis of our financial results and our audited financial statements, prepared in accordance with AAS and the Corporations Act 2001. Corporate Governance Statement Our Corporate Governance Statement provides information about Pro Medicus’ governance framework and application of the 4th Edition of the ASX Corporate Governance Principles & Recommendations. http://www.promed.com.au/wp-content/uploads/2023/08/PME-Corporate- Governance-Statement-2023-Final.pdf Investor Presentation Our Investor Presentation summarises our operational performance and prospects, targeted primarily at institutional investors. It includes a summary of our financial results and outlook. http://www.promed.com.au/wp-content/uploads/2023/08/PME-Investor- Presentation-FY2023-Final.pdf These are all available at Promed.com.au CONTENTS About this report Our reporting suite Contents Why we exist Highlights for the year CEO and Chairman’s letter Global leadership team About Pro Medicus Organisational overview and external environment 2 3 3 4 5 6 8 11 13 How we create value Risk management The value we created Other Into the future / Outlook Remuneration report (audited) Corporate governance Contents to financial report 14 16 18 28 29 30 40 41 PRO MEDICUS ANNUAL REPORT 2023 1 WHY WE EXIST OUR VISION To be the leading provider of best-in-class enterprise medical imaging software. OUR MISSION To provide the best value enterprise Healthcare Imaging Software solutions “moving the needle” on clinical outcomes and return on investment. OUR VALUES SERVICE AND PRODUCT EXCELLENCE • We are committed to providing well-supported, stable products and services to our customers enabling them to improve workflow and diagnoses, ultimately providing more efficient patient care. • We are committed to continuous improvement of our systems, product and services. INTEGRITY AND TRUST • We do the right thing for our people, customers and patients • We do what we say we will do • We maintain confidentiality • We commit to a culture that is inclusive, respectful, honest and transparent in all that we do To be the leading provider of best-in-class enterprise medical imaging software. why WE EXIST PRO MEDICUS ANNUAL REPORT 2023 3 HIGHLIGHTS FOR THE YEAR Our Finances Our Customers and key Relationships Our Team Our Software Implementation Process and R&D Capabilities • Reported profit after • Won seven key contracts tax for the period was $60.65m an increase of 36.5% from the previous year. in North America and renewed another contract in North America. • Underlying profit before tax (PBT) $83.8m – up 34.4% (refer to financial outcomes Page 18 for explanation of Underlying PBT and reason for inclusion). • Cash and other financial assets $121.5m – up 34.2% • Full-year revenue of the Group increased from $93.46m to $124.90m, an increase of 33.6%. • Transaction revenue up year on year (YoY) • Full contracted revenue increase to $468m over the next 5 years • Net cash inflows from operating activities for the current period were $62.54m. • Declared dividends of 30.0c per share fully- franked – up 36.4% • Company remains debt- free • Pipeline remains strong in terms of quantity and quality of opportunities • Growing number of clients opting for “full- stack” – all three Visage 7 products, namely Viewer, Open Archive and Workflow • Nine of the “top-22” Hospitals in the US (http://health.usnews. com/best-hospitals) now standardised on Visage-7. • Best in KLAS award – Recognition for excelling in helping healthcare professionals improve patient care. • Diverse customer base ranging from leading Academic Hospitals through to large Integrated Delivery Network (IDN’s), regional hospitals and imaging centers. • Customers based in Australia, North America and Europe. • The ability for Visage-7 technology to work seamlessly and efficiently over the public internet enables radiologists to seamlessly read remotely • By using Visage CloudPACS™, customers minimise the complexity and cost of on-premises provision of servers and hardware. • Employee turnover percentage has decreased from 5.29% to 2.90%. • Stable management structure with no turnover. • The total percentage of women across the entire organisation increased slightly to 23.60%, while 17.17% remain in managerial roles. • Maintained a strong health and safety record and had zero workplace injuries. • Continued to support a hybrid workplace. • Strong sense of loyalty, engagement and ownership with many staff holding shares in the Company. • Released new workflow load balancer and deep search software at RSNA 2022 conference, a significant enhancement to the worklist and machine learning offering. • Further enhancements to Visage CloudPACS™ and Visage remain a leader in cloud adoption in the industry • Continued rapid expansion into North American Integrated Delivery Networks (IDN’s) and user base of top-tier US hospitals. • Released enhancements to Visage AI Accelerator, an end-to end AI platform bridging research and integration of AI into clinical workflow and the diagnostic process. • Released new capabilities in Visage RIS, the companies leading Radiology Information System software. • Continued R&D investment in Visage 7 Viewer, Visage Open Archive and Visage Workflow products. • Progress with major Research Collaboration Agreements. PRO MEDICUS ANNUAL REPORT 2023 5 Reported profit after tax for the period was $60.65m an increase of 36.5% from the previous year. HIGHLIGHTS for the year CEO AND CHAIRMAN’S LETTER options to our clients as evidenced by the increasing number of clients who have opted for the “full stack” of all three products, a trend we see continuing. The company has continued its ongoing investments in our core products, namely Visage RIS, Visage 7 Viewer, Visage 7 Open Archive and our newest product, Visage 7 Workflow all of which contributed to our performance. The trends we have previously identified as driving the industry are continuing unabated. Exponentially larger data sets, the image-enabling of a patient’s electronic health record (EHR), and transition to Cloud create demands that are uniquely satisfied by Visage 7 with its fast, highly modular and scalable technology. We continue to see increasing interest in the emerging field of artificial intelligence (AI) whose technology shows promise to improve clinical outcomes. We believe we are uniquely positioned to take advantage of this trend via our Visage-7 AI Accelerator which provides a unique end-to end, AI ready platform. In October 2022 the Board met with the global management team to map out the company’s strategic plan for the next three years. The plan has been finalised and work on achieving the agreed goals is well underway which if achieved, will see the company continue its strong, profitable growth trajectory. We finish the year financially stronger than ever before with cash reserves and other financial assets totalling $121.5 million, up 34%, supporting a final dividend of 17c fully franked (year total of 30c per share). The company remains debt-free and has sufficient reserves to fund organic growth and invest strongly in its future. Key to this successful year are the management team and our staff, who have worked tirelessly and adapted to the challenges of remote working. We thank the management team, the staff at all levels and our fellow directors for their efforts throughout the year and look forward to continuing growth of the Company. Yours faithfully Peter T Kempen AM Chairman Dr Sam Hupert Chief Executive Officer DR SAM HUPERT PETER KEMPEN Dear Shareholders, We are delighted to report that the 2023 financial year has been our most successful year to date with the company continuing to deliver strong, profitable growth. Revenue rose by 33.6% to $124.9 million and profit after tax increased by 36.5% to 60.6 million. This was coupled with ongoing sales success which saw the company win seven contracts and renew a large contract in North America whilst at the same time extending its position as the leader in cloud based PACS. Our North American business experienced strong growth throughout the period with (transaction) revenue increasing by 44.2% year on year. We continued to expand our footprint in the region winning seven new contracts, of which four contracts were in the non- academic/IDN space. These include Luminis Health, Samaritan Health, Montage and Gundersen Health. The company also renewed a major contract with University of Florida for a 7-year term and at an increased per transaction fee. We proudly service nine of the top 22 US hospitals (as voted by U.S. News Best Hospital 23/24) as well as a rapidly growing number of other large and mid-sized IDNs and health systems across North America. Our Australian division was also a solid contributor with our RIS product continuing to be the undisputed market leader with revenue increasing due to the ongoing rollout of our key contracts as well as winning a number of smaller contracts from independent radiology practices. More than ever, the streaming capability of our Visage platform is enabling our clients to respond to an rapidly- changing landscape by seamlessly facilitating their ability for remote reading. This has enabled them to attract radiologists in an ever-tightening market by offering unparalleled flexibility and work life balance. Our research and development efforts continued unabated throughout the year (including collaborations with some of our major clients) and we are starting to realise benefits from these. We pride ourselves on our reputation of completing complex, large-scale implementations in a fraction of the time of industry norms. Over the past year, the company successfully completed six implementations all of which were fully Cloud deployed, an industry first. The company continues to benefit from the huge momentum shift towards Cloud, with all contract wins throughout the period selecting our Visage CloudPACS™ solution. This combined with our highly modular solution, enables us to provide the most flexible and scalable PRO MEDICUS ANNUAL REPORT 2023 7 Our North American business experienced strong growth throughout the period with (transaction) revenue increasing by 44.2% year on year. CEO & CHAIRMAN letter GLOBAL LEADERSHIP TEAM The 2023 financial year has been the most successful in the company’s history confirming the board’s belief that the global management structure has served the company well and continues to position us to cater for anticipated future growth. MALTE WESTERHOFF General Manager – Europe and Global Chief Technology Officer BRAD LEVIN General Manager – North America and Global Head of Marketing Malte Westerhoff is the General Manager for Visage Imaging GmbH, the European branch of Visage Imaging. He is also the Group’s Chief Technical Officer (CTO) and is responsible for product management and R&D globally. He has more than thirteen years of experience in medical imaging and software development, holding positions in both research and industry. Malte holds a master's degree in physics from Technical University, Berlin, and a Ph.D. in computer science and mathematics from Free University, Berlin. Malte was one of the founders of Indeed - Visual Concepts GmbH the precursor to Visage Imaging and is an author/co-author of several papers in scientific visualization and high- performance computing. In the role as CTO, he is involved in developing and overseeing the company’s growing intellectual property patent portfolio. Before joining Pro Medicus, he served in senior technical leadership positions at Mercury Computer Systems and Indeed - Visual Concepts. Brad Levin’s broad experience has spanned a variety of leadership roles, including government, consulting, and marketing. While in government, Brad worked as a PACS subject matter expert for the U.S. Department of Defence’s Digital Imaging Network– Picture Archiving and Communications System (DIN-PACS) initiative, as well as consulting for top healthcare institutions across the U.S. After leaving his consulting role, Brad went on to spearhead marketing for two web based PACS start-ups, first AMICAS, and then Dynamic Imaging. Both firms experienced rapid commercial growth leading to acquisition, by Vitalworks and GE Healthcare, respectively. In his most recent role, Brad was GE Healthcare’s Commercial Marketing Director, where he had radiology and cardiology marketing responsibility for their RIS, PACS and CVIT product portfolios. SEAN LAMBRIGHT Global Head of Sales SHARNI REDENBACH People and Culture Director Sean Lambright is the Global Head of Sales for Visage Imaging as well as VP Sales, North America. He is responsible for the company’s global sales strategy, including all third-party and channel relationships. Sean joined Visage in 2010 and has been instrumental in positioning Visage as a complete enterprise imaging solution capable of dealing with some of the largest and most prestigious health systems in North America. Prior to Visage, his career in imaging IT has spanned 17 years, having served in senior sales roles with AGFA Healthcare, AMICAS and Emageon. Sean holds a Bachelor of Science degree from Arizona State University. Sharni Redenbach joined Pro Medicus in July 2022 in the newly created role of People and Culture Director, where she has responsibility for all strategic and operational aspects of the People and Culture function. With over 20 years’ experience, Sharni has led People and Culture functions and teams in global ASX and NASDAQ listed companies across financial services and technology, including the Link Group, Fiserv and, most recently, Equity Trustees. Sharni holds a Bachelor of Applied Science, co-majoring in Psychology and Psychophysiology, from Swinburne University of Technology and postgraduate qualifications in both psychology and human resources management. DANNY TAUBER General Manager – Australia Danny Tauber joined Pro Medicus in 1993 after a diverse career in accounting, property development and IT. Assuming the role of General Manager – Australia in 2011 he is recognised as an industry expert and leads our Australian operation, which includes software development, application support and professional services. NICK PEACE Chief Strategy Officer Nick Peace is Chief Strategy Officer at Promedicus. Nick is responsible for Promedicus’ global strategy, corporate development and strategic partnering activities. He has over 20 years' experience in the software and healthcare industries across corporate development, strategy, partnering and investments gained in executive roles with Aconex, Planet Innovation and Starfish Ventures. Nick holds an MBA from INSEAD, a Bachelor of Science and a Bachelor of Laws (Hons) from the University of Melbourne. TERESA GSCHWIND Global Head of Customer Service Teresa Gschwind is the Global Head of Customer Service for Visage Imaging, where she is responsible for pre- and post-sales customer service activities worldwide. Prior to this role, Teresa managed the Company’s U.S. Customer Service team based in Massachusetts, and then the European Customer Service team based in Berlin, Germany. Teresa has extensive experience working with Visage’s global customer base, having joined the company in 2002 when Visage was part of Mercury Computer Systems. Prior to Visage, Teresa held numerous management positions at Datacube, Inc, where she specialized in image processing. Teresa holds a Bachelor of Science degree in Electrical Engineering from the University of New Hampshire. CLAYTON HATCH Chief Financial Officer Clayton Hatch is the Chief Financial Officer for Pro Medicus Limited, where he is responsible for the financial and strategic analysis of the company. Prior to this role, Clayton was Finance Manager and Company Secretary of the Company. Clayton has strong experience in financial and management accounting having worked in a Finance role for several years prior to joining Pro Medicus. Clayton joined Pro Medicus in June 2008 and has progressed through the Company to his current position of Chief Financial Officer which he assumed on 1 July 2012. Clayton holds a Bachelor of Commerce degree from Curtin University, is a Certified Practising Accountant (CPA) and a graduate from Monash University’s Global Executive Master of Business Administration (GEMBA). PRO MEDICUS ANNUAL REPORT 2023 9 The global management structure has served the company well and continues to position us to cater for anticipated future growth. GLOBAL LEADERSHIP team PME is a developer and supplier of healthcare imaging software and services to hospitals, diagnostic imaging groups and other related health entities in Australia, North America and Europe. ABOUT PRO MEDICUS who we are WHO WE ARE PME is a developer and supplier of healthcare imaging software and services to hospitals, diagnostic imaging groups and other related health entities in Australia, North America and Europe. Corporate structure Pro Medicus Limited is an Australian incorporated and domiciled company, listed on the ASX with subsidiaries in Europe and North America (collectively the Group). Nature of Operations and Principal Activities The principal activities of the Group during the year were the development and supply of healthcare imaging software, Radiology Information System (RIS) software and services to hospitals, diagnostic imaging groups and other related health entities in Australia, North America and Europe. Pro Medicus at a glance Our key business activities consist of the following: • Research & Development - Software enhancements, updates, innovation, program extensions, AI, research. • Sales and customer engagement - Sales/ relationships • Product implementation - System implementation and continual upgrades (as needed) • Product support and training - Customer support and ongoing training • Support services – billing, risk management, governance, HR, management. Our key products and services include: • Visage RIS – Proprietary medical software for practice management, training, installation and professional services, after-sale support and service products, Promedicus.net secure email and Integration products. • Visage 7 – Healthcare imaging software that provides radiologists and clinicians with advanced visualisation capability for rapidly viewing 2-D, 3-D and 4-D medical images, Picture Archive and Communication System (PACS)/Digital Imaging software that is sold directly and to original equipment manufacturers (OEM), training, installation and professional services and support products. The Group has continued development of both the RIS products and the Visage 7 product line throughout the period. The Group undertakes research and development (R&D) in Australia for its Practice Management (RIS) and promedicus. net products including R&D for Visage RIS, its new technology platform. The R&D for the Visage Imaging product set is performed in Europe. Further information on our products can be found at http://www.promed.com.au/visage-ris/ and https://visageimaging.com/platform/. OUR COMPETITIVE ADVANTAGE To understand how we create value for stakeholders, we have reviewed our market position and competitive advantages and listed them below. • Our software is renowned for being the market leader when it comes to speed, functionality and scalability. • Visage-7’s ability to stream images (rather than compress and send) makes accessing images significantly faster for clinicians than competitor software. • The company’s Visage-7 viewer offers a single integrated desktop system that performs the functions previously achieved by multiple independent systems including 3D, 4D and advanced visualisation functions. • The Visage 7 software suite offers unparalleled scalability having a much smaller hardware footprint as compared to our competitors and is therefore very energy efficient. • The company possesses “best in breed”, highly modular components that allow it to address opportunities in mixed vendor environments as well as offer a single vendor, Visage based solution. • Visage-Ease the Visage 7 Mobile App provides clinicians with the ability to review images on demand anywhere on any device, leading to better outcomes for patients. • Visage-7 streaming architecture is based on the same GPU processors used for running AI algorithms ensuring the Visage 7 architecture is intrinsically AI-capable. • We have a proven rapid implementation capability that minimises the cost and disruption of changing systems delivering the benefits of the system in the shortest possible time frame. • The Visage 7 platform and the services provided around implementation and ongoing support provide customers with the best financial and clinical Return on Investment (RoI), enabling them to do on the Visage platform what they can’t easily do with others. • The company’s cloud native solution, Visage CloudPACS™ enables customers to avail themselves of the scalability and security of public cloud infrastructure – a trend that is gaining significant momentum in the healthcare industry. • Visage RIS is a comprehensive, enterprise-class and state-of-the-art radiology information system (RIS) which leverages modern, open- source, standard-based technology. PRO MEDICUS ANNUAL REPORT 2023 11 ORGANISATIONAL OVERVIEW AND EXTERNAL ENVIRONMENT DYNAMICS OF THE BUSINESS / GLOBAL OPERATIONS We outline the result of our global operations below and how it impacts our finance outcomes. Australia North America Europe Australian employees undertake the research and development of Pro Medicus products Visage RIS as well as sales and service/support function. The North American team fulfil sales, marketing and professional services roles relating to the Visage-7 series of Enterprise Imaging products. Our Australian revenue increased by 9.4% compared to the previous year, with the main contributors being transaction volumes from the Healius contract and additional licence revenue from the extension of the contract with I-MED Radiology Network. Promedicus.net, the Company’s e-health offering, held its market position. The company has established an R&D centre in New York to support and collaborate with customer research projects. Revenue from North America increased by 41.8% compared to the previous year. This was largely attributable to increases in transaction-based revenue from sales of Visage technology as more contracts came on stream. The Group’s employees in the Berlin office undertake research and development of Visage Imaging products worldwide as well as sales, marketing and service/support functions for the Group’s European operations. Revenue for software from our European operations decreased by 12.2% compared to the previous year. The previous year had an extension of the German government hospital contract which was not replicated in this year. EXTERNAL ENVIRONMENT The following external factors positively affect our ability to create value. SIGNIFICANT INCREASE OF IMAGE DATA AND SIZE. Image files sizes have increased from 2-3 GB to 6-10 GB per file. Visage-7 technology, which efficiently streams data to the customer, provides a significant advantage over competitors relying on traditional “compress and send” technology. ADOPTION OF ELECTRONIC MEDICAL RECORDS (EMR) The Electronic Medical Records (EMR) Mandate in the US requires healthcare providers to convert all medical records to a digital format. Images are a significant component of the medical record and adoption of EMR systems triggers the need to acquire technology to store and display them, creating a market demand for Visage technology. TRANSACTION BASED LICENSING The industry is moving to a "pay per view” model. Converting an up-front capital cost into an operational usage fee makes it less expensive for the customer to commence use and provides a stream of income for the lifetime of the relationship. Visage technology is predominantly sold on a “pay per view” operational model. REMOTE/HOME REPORTING The COVID 19 pandemic has accelerated the need for remote/home reporting. Visage 7 with its unique streaming capability allows radiologists to seamlessly report from home without degradation of speed or functionality over a consumer grade internet connection. This provides healthcare institutions maximum flexibility in terms of managing increasing work from home requirements. PUBLIC CLOUD There is a growing trend for health enterprises to move away from on-premise solutions in favour of public Cloud offerings. Visage 7 with its cloud native design is ideally suited to support this transition via the company’s Visage CloudPACS™ offering. This reduces not only the upfront cost and complexity of provisioning and managing server hardware, but it also provides customers with the added security and scalability offered by public Cloud providers. ARTIFICIAL INTELLIGENCE Machine learning in the field of medical imaging and patient diagnosis is an ongoing trend. Visage-7 AI accelerator provides an end-to-end platform for customers to support their AI research efforts and incorporate them into diagnostic imaging workflow. PRO MEDICUS ANNUAL REPORT 2023 13 There is a growing trend for health enterprises to move away from on-premise solutions in favour of public Cloud offerings. organisational overview and EXTERNAL ENVIRONMENT We employ the key inputs (our capitals) to our business and transform them by our business activities to provide a suite of products and services to our customers. how we CREATE VALUE HOW WE CREATE VALUE We employ our key inputs (our capitals) to our business model and transform them by our business activities to provide a suite of products and services to our customers. We deliver outcomes creating sustainable enterprise value whilst enhancing the capitals available to the business for use in future years. As part of the integrated reporting journey the Board will determine metrics in addition to existing financial measures (such as Net Profit after Tax (NPAT) and revenue growth) to quantify our performance in delivering outcomes in the coming years. Some of the key ‘outcomes’ for stakeholders on value creation are: • Customers – Our products and services reduce the cost of business for our customers, which flows through to their pricing models and profitability • Community – Our customers and their patients - Improved accessibility and fast, high quality image interpretation creates better financial and health outcomes • Customers - Our products and services are highly scalable allowing accessibility to a range of customers • Customers - Our products are developed to minimise the computer hardware and storage requirements of our customers by being cloud deployable • Employees – Our staff are loyal and engaged, with low turnover with many senior staff invested in the company • Employees – Competitively remunerated and incentivised through fixed remuneration, short-term incentive and long-term incentives • Investors – Our products and services are in demand and attract strong margins, securing good growth in revenue, profit and shareholder returns, thus rewarding our investment in R&D and people OUR BUSINESS STRATEGY We have three overarching strategic business goals which drive our business model and the way we create value. Goal 1: Goal 2: Goal 3: Best in class Healthcare Imaging & RIS software through continuous innovation Make a meaningful impact on customer financial and clinical outcomes Sustained revenue and NPAT margin growth First and foremost, the Company strives to develop and market software and services for the medical imaging profession that are best in class. The fact that the company’s success in many open tenders has been won on the basis of feature, function and performance rather than price supports that we are on track to achieve this goal. Secondly, to maintain the pricing premium for our software, it is necessary to provide meaningful value to our customers. Financially, this is seen through the efficiencies gained by adopting Visage-7 technology which provides greater throughput of patient images interpreted within an organisation and significantly reduces IT costs. Clinically, the software enhances the diagnostic process acuity due to its ability to display the full spectrum of medical imaging including 2D, 3D, 4D and advanced imaging in the one desktop enabling clinicians to do in seconds what would otherwise take minutes with multiple other systems. This value to the interpreting radiologist is further augmented through insights derived through the use of image analysis using Artificial Intelligence algorithms. Finally, we are rewarded for our quality and service by regular and increased custom from a growing and loyal customer base. PRO MEDICUS ANNUAL REPORT 2023 15 RISK MANAGEMENT Clinical risk Clinical misdiagnosis risks are managed and mitigated through the FDA (510k) process undertaken in the United States. This process requires demonstration that the software produces clinically equivalent results to other known legally marketed devices. Technology obsolescence The risk of Pro Medicus technology becoming obsolete and threat of emerging technologies has been managed and mitigated through frequent interaction with customers and leaders across the industry to help identify emerging innovations and disruptions to the market and through our continuous research and development efforts. IP issues The risk of transgressing others’ IP and the risk of IP being lost due to theft, copying by third parties or a rogue employee has been managed and mitigated through insurance, agreements, the ownership of key patents and active surveillance. Should the likelihood of an inadvertent IP transgression arise, the Company is able to change and update product software to avoid any continuing patent breaches. Climate change The Board and management have identified climate change as a key risk to the global community. The Board and management have considered from a governance and risk perspective however, whilst a risk, it would have a lower impact on enterprise value than the top 10 risks outlined above. The Group has no significant identified risks with regard to environmental regulations currently in force. There have been no known breaches by the Group of any regulations. KEY RISKS The Company takes a proactive approach to risk management. The Board is responsible for ensuring that risks, and also opportunities, are identified on a timely basis and that the Group’s objectives and activities are aligned with identified risk and opportunities. The Company has an Audit and Risk Committee (ARC) which has a guiding role in the development and evolution of the risk management framework. The ARC’s primary risk management responsibility is to monitor and review the Company's risk management framework at least annually to assess whether it is sound and is operating in accordance with the nature and extent of the acceptable levels of risk determined by the Board and report to the Board the results of those assessment. We have appointed a specific employee of the company to take responsibility for identifying risk across the organisation in conjunction with the management team and reporting to the CFO. In the reporting period the Company continued to manage and mitigate key risks by establishing a key risk indicators dashboard to monitor and measure risks on an on-going basis and by updating several key risk policies through the period. The material strategic, operational and financial risks being managed by the company are outlined below. FINANCIAL RISKS Fraud / inappropriate conduct The risk of fraud / inappropriate conduct leading to significant loss or reputational damage is managed and mitigated through periodic financial reconciliations. Delegation of Authority policy and periodic cyber security reviews. An external audit is conducted on the Company’s financials annually. Changes in market competition The threat of new entrants to the market and the impact on revenue base is managed and mitigated through long term contracts, continuous product development, proactive customer engagement to determine needs and requirements and offering additional products to customers to add value. Alignment of customers, products and services to strategic objectives The threat of losing key customers due to non-performance, non- compliance with Service Level Agreements (SLAs) or competition is managed and mitigated through regular reporting on key client satisfaction and assisted by automation of performance analysis of customer software. Quality management The risk of poor-quality management or lack of policies and procedures are managed and mitigated through internal control measures. STRATEGIC AND OPERATIONAL RISKS Cyber security The risk of direct external cyber- attack on PME IT systems or third party (client) systems using PME relationships is managed and mitigated through internal control measures. In the event of a breach to key systems, the Company can either shut down, reinstall or revert to system and source code backups. As at the date of this report, there have been no material cyber security breaches or penetration. Security of private data The risk of non-compliance or breach of the regulations of private data has been managed and mitigated through ISO27001 risk assessments and audit compliance. As at the date of this report, there were no known non-compliance or breaches of the regulations of private data noted for the financial year ended 2023 Succession planning The risk of succession of key executives has been identified by the People and Culture Committee, following a strategic HR review to ensure that we have the right people in the right roles in the Company to continue the growth and success of the company. Our succession planning framework helps us identify and develop talent who can move into leadership roles when they become vacant to ensure that as leadership changes, the company maintains its productivity and continues to thrive. PRO MEDICUS ANNUAL REPORT 2023 17 The Board is responsible for ensuring that risks, and also opportunities, are identified on a timely basis. RISK management THE VALUE WE CREATED FINANCIAL OUTCOMES FINANCIAL PERFORMANCE Reported profit after tax for the period was $60.65m, an increase of 36.5% from the previous year. Full year revenue of the Group increased from $93.46m to $124.90m, an increase of 33.6%. The key drivers of the revenue increase were increases in transaction revenue in North American, as well as increased revenue from RIS sales in Australia. The underlying pre-tax profit for the year of $83.88m compared to an underlying pre-tax profit of $62.38m from the previous corresponding period, an increase of 34.5%. The underlying profit comprises reported profit before tax of $86.13m, plus the net currency loss of $0.39m and adding back the fair value gain on the movement of other financial assets (net of interest and distributions) of $2.64m. The underlying profit from 2022, comprises reported profit before tax of $63.08m, less the net currency gain of $1.12m and fair value loss on the movement of other financial assets of $0.42m (net of interest and distributions). Underlying profit is a non-IFRS measure and has been included in the analysis of financial performance as the Directors consider it provides a meaningful comparison of results from period to period. The currencies of the countries in which the Company has its activities have changed relative to the Australian Dollar during the year. On a constant currency basis , the revenue would have been $117.33m (up 25.6%) and the underlying profit before tax would have been $77.69m (up 24.5%) for the year ended 30 June 2023. The Company had another successful year in terms of new sales winning seven key contracts in North America: August 2022 – Sign three new contracts (A16.5m) with Montage Health, a not-for-profit community-based health system in Monterey County, Children’s Hospital of Philadelphia, a not-for-profit paediatric hospital in Philadelphia and Bay Imaging Consultants, a private radiology group providing professional radiology services to the East and North Bay hospitals in California; December 2022 – Luminis Health (A$15.0m – 8-year deal), a not-for-profit integrated delivery network (IDN) healthcare provider in Annapolis, Maryland; January 2023 – University of Washington (A$25.0m – 7-year deal), a leading teaching hospital in the University District of Seattle; January 2023 – Samaritan Health (A$12.0m – 8-year deal), a not-for-profit network of hospitals, and health services in the mid-Willamette Valley and central Oregon Coast; May 2023 – Gundersen Health System (A$20.0m – 7-year deal), a not-for-profit integrated delivery network (IDN) healthcare provider across Wisconsin, Minnesota and Iowa; The Company was also successful in renewing the contract it has with University of Florida (A$15.5m – 7-year deal). During the period the Company continued investing in the research and development hub in New York to support collaboration to facilitate development and commercialisation in the field of AI, leveraging the Visage AI Accelerator platform, breast density algorithm (FDA approved) and to further enhance our Visage 7 platform. The Company also continued to make significant progress with all key implementations being on, or ahead of schedule. This was achieved by a mix of remote and onsite presence. 1Constant currency removes the impact of exchange rate movements to facilitate comparability of operational performance for the Company. This is done in two parts: a) by converting the current year net profit / (loss) of entities in the group that have reporting currencies other than AU Dollars, at the rates that were applicable to the prior comparable period (Translation Currency Effect); b) by restating material transactions booked by the group that are impacted by exchange rate movements at the rate that would have applied to the transaction if it had occurred in the prior comparable period (Transaction Currency Effect). 2Contract values represent the total expected fees to be earned over the life of the relevant agreement PRO MEDICUS ANNUAL REPORT 2023 19 Full year revenue of the Group increased from $93.46m to $124.90m, an increase of 33.6%. THE VALUE we created REVIEW OF FINANCIAL CONDITION CAPITAL STRUCTURE The Company has a sound capital structure with a strong financial position and is debt free. TREASURY POLICY The treasury function, co-ordinated within Pro Medicus Limited, is limited to maximising return on surplus funds, subject to conservative investment risk exposure, and managing currency risk. The treasury function operates within policies set by the Board, which is responsible for ensuring that management’s actions are in line with Board policy. With the increase in overseas operations there is an increased currency risk as a consequence of contracts written in and cash being held in foreign currencies. Whilst this is offset to a degree by having operations in North America and Europe, this change in risk profile has been noted by the Board and steps have been taken to manage this risk, including taking out forward currency exchange contracts and currency options. CASH FROM OPERATIONS Net cash inflows from operating activities for the current period were $62.54m, with receipts from customers totalling $117.92m compared with payments of $31.85m to suppliers and employees. During the year the Company paid out a total of $26.11m in dividends and investing $3.35m in fixed income securities, the net result being total cash assets of $91.25m; an increase of 43.3% from last year. During the reporting period the Group continued to make investments in fixed income securities to enhance the return of its available funds. LIQUIDITY AND FUNDING The Group is cash flow positive, has adequate cash reserves and has no overdraft facility. Sufficient funds are held to finance operations. ESG OUTCOMES The Board has identified three main areas of ESG that we can focus on that will deliver our key stakeholders ESG metrics that interest and impact them. 1. 2. 3. People – our people are our sustainable advantage Climate – goal to become carbon neutral Responsible Artificial Intelligence (AI) – become a thought leader for responsible AI HUMAN CAPITAL (OUR PEOPLE) Our people are key to achieving our vision of being “the leading provider of best-in-class enterprise medical imaging software”. We have a highly engaged, enabled and loyal team whose specialised knowledge in healthcare imaging, software development and system implementation, and network of relationships with hospital radiology groups, helps us create value. We continue to invest in our employees to create a positive work environment, which has numerous benefits for both our staff and the overall success of our business, including high commitment and low turnover, as well as increased productivity and customer satisfaction. Staff are crucial to building a sustainable future and benefits include: Talent and expertise: Our employees possess unique skills, knowledge, and experience that contribute to the success of our organisation. By nurturing their talents and providing opportunities for growth, we enhance their capabilities and ensure the long-term sustainability of our business. Innovation and creativity: Engaged and motivated employees are more likely to think creatively and come up with innovative solutions. Encouraging a culture of collaboration and open communication can stimulate fresh ideas and drive sustainable practices. Employee loyalty and retention: When employees feel valued and supported, they are more likely to remain loyal to the Company. Reducing turnover not only saves recruitment and training costs but also fosters continuity, stability, and institutional knowledge, all of which contribute to sustainability. Productivity and efficiency: A satisfied workforce tends to be more productive and efficient. By prioritising the well-being of our staff, providing the necessary resources, and fostering a healthy work- life balance, we enhance productivity while reducing stress and burnout, ultimately contributing to the long-term sustainability of the business. Corporate culture and reputation: Employees are brand ambassadors, and their actions and attitudes reflect on our Company's culture and reputation. A positive work environment that emphasises sustainability and values employee well-being can attract top talent, enhance our brand image, and position our Company as an employer of choice. To leverage the potential of our staff for sustainable development, we have implemented (or are in the process of implementing) the following strategies: • Employment Engagement Survey: Our people are our most important asset, and the engagement survey lets us hear from them and identify areas to improve in future. • Workforce Future Proofing: Our succession planning framework helps us identify and develop talent who can move into leadership roles when they become vacant. This will ensure that as leadership changes, the Company maintains its productivity and continues to thrive. • Career Development Framework: Provide training opportunities and skill-building initiatives to empower our staff to grow, both personally and professionally. • Work-life balance and well-being: Promote a healthy work-life balance by offering flexible work arrangements, wellness programs, and other initiatives that support physical and mental well-being. During the year we also updated our Diversity, Equity and Inclusion Policy (DEI), which was approved and endorsed by our board. It forms the basis for our global DEI strategy and provides a framework to achieve the Company’s diversity goals. You can find the policy on our website. The Company is committed to creating and ensuring a work environment in which everyone is treated fairly and with respect and where everyone feels responsible for the reputation and performance of the Company. The board of directors of the Company and management believe that Pro Medicus’ commitment to this policy embeds the importance and value of diversity within the culture of the Company and contributes to the achievement of corporate objectives. 20 PRO MEDICUS ANNUAL REPORT 2023 21 Diversity can broaden the pool for recruitment of high-quality employees, enhance employee retention, improve the Company’s corporate image and reputation, and foster a closer connection with, and better understanding of customers. It is important that Pro Medicus is able to attract, retain and motivate employees from the widest possible pool of talent. • Being carbon neutral is an ongoing process, that we will continually evaluate and adjust our emissions choices to minimise our impact on the environment. We have included the following environmental metrics that we currently monitor. We have included the following social metrics that we currently monitor. Greenhouse Gas Emissions Employee Turnover Pro Medicus prides itself on creating a positive workplace environment. Employee turnover has historically been low across our company due to a concerted effort to create a positive culture. Employee Turnover % Total Employee turnover for the period |Based on average turnover of full-time and part-time employees FY23 2.9 FY22 5.3 Female Representation Pro Medicus respects and recognises the importance of having a diverse workplace, particularly pertaining to gender representation. Pro Medicus’ Diversity, Equity and Inclusion Policy outlines our commitment to gender diversity and recognition that gender is not a barrier to participation in our workforce. Female Representation % Board Senior Executive Management Total % of women in management roles Operational Total % of women across the entire organisation Management roles are defined as either a management or senior executive position FY23 28.6 11.1 25.0 17.7 24.7 23.6 FY22 28.6 11.1 25.0 17.7 24.4 23.2 Safety Pro Medicus recognises that our ability to achieve our objectives successfully depends on the wellbeing of our workers. We acknowledge that the key elements of work health, safety and wellbeing include the culture and physical environment as well as the policies, practices and procedures that guide our work. Pro Medicus maintains a strong health and safety record and had zero workplace injuries. Safety Reporting Safety Reporting % Lost time injury frequency rate (per total employees) FY23 0 0 FY22 0 0 Lost time injury frequency rate (LTIFR) measures the number of lost-time injuries per million hours worked during the accounted period. CLIMATE We are committed to reducing our carbon emissions. Becoming carbon neutral involves reducing your carbon footprint and offsetting the remaining emissions to achieve a net-zero carbon balance. Transition to carbon neutral will involve the following steps to be undertaken by the company: • Determine our current greenhouse gas emissions by conducting a comprehensive carbon footprint assessment, including consideration of emissions from energy consumption, transportation, waste generation, and those within the Group’s supply chain. • Establish achievable reduction targets for our company's emissions. Aim to reduce emissions through energy efficiency measures, renewable energy adoption, and process optimisation. • • Identify opportunities to improve energy efficiency within our operations. Invest in renewable energy sources to power our operations. • Develop strategies to minimize waste generation and maximise recycling within the company. • Foster a culture of sustainability within your company by educating and engaging employees. • Offset the remaining emissions that we are unable to eliminate through the above measures by investing in verified carbon offset projects. • Regularly track and report the Group's progress towards carbon neutrality. • Engage with other organisations, industry groups, and sustainability networks to share experiences, learn from best practices, and collaborate on collective initiatives. The major source of emissions from Pro Medicus’ operations comes from Scope 2 greenhouse gas (GHG) emissions. Due to the nature of our business, our emissions footprint is minimal. Tonnes CO2 equivalent Scope 1 Scope 2 Total Emissions FY23 1.9 96.7 98.6 FY22 1.9 114.6 116.5 Scope 1 emissions are direct emissions from owned or controlled sources and relate to refrigerants from refrigerators and air conditioning. Scope 2 emissions are indirect emissions from the generation of purchased energy and relate to electricity consumption. The GHG emissions have been prepared in accordance with Pro Medicus’s GHG Inventory Basis of Preparation which references the World Business Council for Sustainable Development Greenhouse Gas Protocol. The methodology for energy and emission factors related to the international offices is sourced from Australia’s National Greenhouse Accounts (NGA), German Environmental Federal Office and US Environmental Protection Agency (EPA). Water Consumption Pro Medicus recognises the importance of promoting sustainable water management practices. Water scarcity is increasingly affecting more populations worldwide. Pro Medicus monitors and reports water consumption with the aim to reduce our environmental impact and increase efficient water management practices. Kilolitres (KL) Water Consumption Water consumption from the three Pro Medicus international offices FY23 730.4 FY22 925.7 RESPONSIBLE ARTIFICIAL INTELLIGENCE (AI) Pro Medicus is a thought leader in the development of software for the healthcare industry. To maintain our position as a thought leader, we are advocating for responsible AI and how machine learning is being used in our industry to develop innovative solutions. Responsible artificial intelligence (AI) in medical software refers to the ethical and responsible use of AI technology in healthcare applications. It involves ensuring that AI algorithms and systems used in medical software are developed and deployed in a manner that prioritises patient safety, data privacy, fairness, and accountability. Some of the key considerations for responsible AI that we are considering are as follows: • Patient Safety: AI algorithms should undergo rigorous testing and validation to ensure their accuracy and reliability in medical diagnosis, treatment planning, and decision-making. They should be designed to minimize the risk of errors or adverse outcomes. • Data Privacy and Security: Medical software should adhere to strict data protection standards, ensuring that patient data is collected, stored, and processed securely. Compliance with privacy regulations, such as HIPAA (Health Insurance Portability and Accountability Act), is crucial. • Subjectivity Mitigation: Developers should strive to minimise biases in AI algorithms, ensuring that they do not disproportionately favour or discriminate against any specific group of patients. Regular monitoring and auditing of AI systems can help identify and address potential biases. • Regulatory Compliance: Medical software incorporating AI should adhere to relevant regulatory guidelines and standards. Compliance with regulatory frameworks, such as FDA (U.S. Food and Drug Administration) regulations, is essential to ensure the safety and effectiveness of AI-powered medical software. • Ongoing Monitoring and Evaluation: Continuous monitoring and evaluation of AI algorithms and their real- world performance are crucial to identify any issues, biases, or unintended consequences. Regular updates and improvements should be made based on feedback and new insights. Promoting responsible AI in medical software requires collaboration among software developers, healthcare providers, regulatory bodies, and other stakeholders. It is essential that Pro Medicus strikes a balance between harnessing the potential of AI in improving healthcare outcomes while upholding ethical standards and patient safety. 22 PRO MEDICUS ANNUAL REPORT 2023 23 DIRECTORS’ REPORT Directors The names and details of the Company’s Directors in office during the financial year and until the date of this report are as follows: Peter Kempen joined Pro Medicus Limited as a Director on 12 March 2008. He is Chairman of Australasian Leukemia and Lymphoma Group. He is also a Trustee of the Barr Family Foundation and a member of the Board of St Hilda’s College Ltd, University of Melbourne. Peter has previously been Chairman of Patties Food Limited, Chairman of Danks Holdings Limited, Chairman of Ivanhoe Grammar School and Managing Partner of Ernst & Young Corporate Finance Australia. Peter is a Fellow of the Institute of Chartered Accountants in Australia and a Fellow of the Australian Institute of Company Directors. Peter was appointed a Member in the General Division of the Order of Australia (AM) in the 2018 Queen’s Birthday Honours. Peter became Chairman in August 2010 before which he served as a Non-Executive Director of the Company. Co-founder of Pro Medicus Limited in 1983, Sam Hupert is a Monash University Medical School graduate who commenced General Practice in 1980. Realising the significant potential for computers in medicine he left general practice in late 1984 to devote himself full time to managing the Group. Sam served as CEO from the time he co-founded the company until October 2007 at which time he stepped down to become an executive director. Sam resumed full time CEO activities in October of 2010. Co-founder of Pro Medicus Limited in 1983, Anthony Hall has been principal architect and developer of the core software systems. Anthony holds a Bachelor and Master’s degree in Science from La Trobe University. Anthony joined Pro Medicus Limited as a Director on 1 May 2016. He is the fund manager of Skalata Ventures, investing in early-stage companies to help them scale and grow into significant and sustainable businesses. He is a Director of Austco Healthcare Limited (ASX:AZV) since September 2018, an international provider of healthcare communication and clinical workflow management solutions. Anthony is also a Director of Iress (ASX:IRE) since October 2022, a technology company providing software to the financial services industry. Anthony has previously been Chairman of Cyrise Pty Ltd, an accelerator for early-stage cyber security start-ups and Investment Director of Starfish Ventures and was the founder and previously the CEO of Tonic Systems and a founding Non-Executive Director of Cameron Systems. Anthony holds bachelor degrees in Computer Science and Electrical Engineering from University of Melbourne and holds a Master’s degree in Electrical Engineering from Stanford University California. Anthony also serves on the People & Culture committee and Audit and Risk committee. Clayton was appointed Company Secretary on 1 July 2009. Clayton has strong experience in financial and management accounting having worked in a Finance role for several years. Clayton joined Pro Medicus in June 2008 and has progressed through the Company to his current position of Chief Financial Officer which he assumed on 1 July 2012. Clayton holds a Bachelor of Commerce degree from Curtin University, is a Certified Practising Accountant (CPA) and a graduate from Monash University’s Global Executive Master of Business Administration (GEMBA). Following the appointment of Danny English as Company Secretary on 27 March 2023, Clayton retired from the position, but remains with the company in the role of Chief Financial Officer. PETER TERENCE KEMPEN AM F.C.A, F.A.I.C.D (Chairman) DR SAM AARON HUPERT M.B.B.S. (Managing Director and Chief Executive Officer) ANTHONY BARRY HALL B.Sc. (Hons), M.Sc. (Executive Director and Technology Director) ANTHONY JAMES GLENNING B.Sc. B.EE (Hons), M.EE (Non-Executive Director) CLAYTON JAMES HATCH CPA, GEMBA 24 Leigh joined Pro Medicus Limited as a Director on 8 September 2017. He is the Head of Health Security Systems Australia, a Division of DMTC Ltd, Managing Director of AdNED Pty Ltd, non-executive director of both Ena Respiratory Pty Ltd and Axelia Oncology Pty Ltd, a member of the Walter and Eliza Hall Institute of Medical Research Board Commercialisation Committee, a member of the Independent Advisory Council of Medicines Australia, a member of the Scientific and Industry Advisory Committee of the Australian Research Council Centre for Cryo-electron Microscopy of Membrane Proteins, Chair of the Scientific Advisory Board of Island Pharmaceuticals Ltd and is a member of the National Measurement Institute Mask Testing Forum. Leigh was previously Senior Vice President, Commercial of Certara USA, Inc. where he was responsible for Asia Pacific Commercial. Prior to this, he was Chairman and COO of d3 Medicine LLC, which was acquired by Certara USA, Inc. Prior to these appointments, Leigh was Vice President of Business Development at Biota Pharmaceuticals, Associate Director GBS Venture Partners, Research Manager Johnson & Johnson Research and CEO of Gene Shears Pty Ltd. Leigh holds a PhD in Biochemistry and a Bachelor of Science (Honours) from Monash University and is a Fellow of the Australian Institute of Company Directors. Deena joined Pro Medicus Limited as a Director on 1 August 2020. Deena is also Chair of the Supervisory Board of Marley Spoon AG (ASX:MMM) and is an Independent Member of the board of the Global Alliance for Vaccines and Immunisation, the multi lateral global health fund based in Geneva. Deena is also on the board of Opera Australia. Previous board roles include Chairman of the global board of BAI Communications, Non- Executive Director of Appen ( ASX :APX); EOS Holdings (ASX: EOS) and Director of the Citadel Group (ASX:CGL), Vice Chairman of the Government’s Export Credit Agency EFIC, as well as board roles in a number of venture capital backed growth stage ICT companies. Deena has served as a Group Managing Director at Telstra, where she led the Wholesale Division Group, established and led Telstra Business and founded Telstra’s corporate venture capital arm, Telstra Ventures. Deena has also held various in house regulatory and legal positions and has been a Partner of the law firm Mallesons Stephen Jacques. Deena holds a degree from the London School of Economics and a Law degree from the University of Cambridge. Deena is Chair of the People & Culture committee and serves on the Audit and Risk committee. Alice joined Pro Medicus Limited as a Director on 1 September 2021. Alice is also a non- executive director of Vocus Group, Djerriwarrh Investments, Australian Submarine Corporation (ASC Pty Ltd) and Mercer Investments Australia Ltd. She is chair of the Audit & Risk Committee of Djerriwarrh Investments, ASC and Vocus Group and is a member of the Audit & Risk Committee and Due Diligence Committee of Mercer Investments (Australia) Ltd. Alice holds other board positions with Tobacco Free Portfolios and is on the Advisory Council of the Florey Institute of Neuroscience Novell Project. Previous board roles include Director and Chair of the Audit Committee of Cooper Energy, Chair of Nomination, Remuneration and Human Resources Committee and Non-Executive Director of Equity Trustees Ltd, and Non-Executive member of the Foreign Investment Review Board. Alice holds a Commerce degree from Melbourne University, is a Fellow of the Australia Society of Certified Practicing Accountants, a Fellow of the Australian Institute of Company Directors, and graduate from the Institute of Chartered Financial Analysts. Alice is Chair of Audit & Risk committee and also serves on the People & Culture committee. Danny was appointed Company Secretary on 27 March 2023. Danny has extensive global financial management experience, with a deep understanding of financial reporting, governance and risk management. Danny has worked in both private and publicly listed companies, and is well versed in the complexities of dealing with both multinational and local requirements. Having worked in senior-level Finance roles for several years across Europe and North America, Danny joined Pro Medicus in March 2015 as the Group Financial Controller, before assuming the role of Company Secretary on 27 March 2023. Danny holds a Bachelor of Commerce degree and is a Chartered Accountant (CA & ACCA). DR LEIGH BERNARD FARRELL PhD, B.Sc. (Hons), FAICD (Non-Executive Director) DEENA ROBYN SHIFF B.Sc (Hons), B.A. Law (Hons), (Non-Executive Director) (appointed 1 August 2020) ALICE WILLIAMS B.Com, FCPA, FAICD, CFA, AIF ASFA, (Non-Executive Director) (appointed 1 September 2021) Company Secretary DANNY ENGLISH CA, ACCA (appointed 27 March 2023) Further information on current Directors, their qualifications, participation in Board sub-committees and attendance at meetings can be found below, page 26. PRO MEDICUS ANNUAL REPORT 2023 25 BOARD COMMITTEES The Board and management team maintain high standards of corporate governance as part of our commitment to create value for our stakeholders through effective strategic planning, risk management, transparency, and corporate responsibility. As at 30 June 2023, the company had an Audit and Risk Committee comprising the 5 Non-Executive Directors and a People and Culture Committee comprising 4 Non-Executive Directors. A description of the role of each committee and its composition is set out in the following table. Committee Members Composition Role Audit and Risk Committee Ms Alice Williams (Chair) Mr Anthony Glenning Dr Leigh Farrell Ms Deena Shiff Mr Peter Kempen People and Culture Committee Ms Deena Shiff (Chair) Mr Anthony Glenning Dr Leigh Farrell Ms Alice Williams – At least three members, all of whom must be non- executive directors and a majority of whom are independent directors. – The chair must be an independent non- executive director, who is not the chairman of the Board. – Comprise members who are financially literate and include at least one member who has accounting and/or related financial management expertise and some members who have an understanding of the industries in which the Company operates. – At least three members, all of whom are non- executive and the majority of whom are independent directors. – The chair should be an independent director. – All members should have sufficient technical expertise to discharge its mandate effectively. Our Audit and Risk Committee assists the Board in carrying out its oversight of the quality and integrity of the accounting, auditing and financial reporting of the Company. The Committee also reviews the adequacy of Pro Medicus’ internal control structure, corporate reporting processes, and risk management framework, monitors the effectiveness, objectivity and independence of the external auditor and reviews reports from the external auditor. – Our People and Culture Committee assists and advises the Board on remuneration policies for directors and senior executives, induction and continuing professional development programs for directors, succession planning, composition and size of the board, process for evaluating the performance of the board, and overseeing employee engagement and talent programs. DIRECTOR’S MEETINGS The numbers of meetings of Directors (including meetings of committees of Directors) held during the year and the number of meetings attended by each Director were as follows: Board Meetings Audit & Risk Committee People & Culture Committee Eligible to attend Attended Eligible to attend Attended Eligible to attend Attended Peter Kempen Anthony Glenning Leigh Farrell Deena Shiff Alice Williams Anthony Hall Sam Hupert 12 12 12 12 12 12 12 12 12 12 12 12 12 12 3 3 3 3 3 3 3 3 3 3 3 3 3 3 - 5 5 5 5 - - 5 5 5 5 5 5 5 OTHER DIVIDENDS Dividend declared subsequent to the end of the year FY23 final dividend (declared 15 August 2023) Dividends declared and paid during the year: FY23 interim dividend FY22 final dividend Refer to Note 9 for further details about Dividends paid during the year. Cents 17.0 13.0 12.0 $’000 17,753 13,576 12,532 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS Refer to the Operating and Financial Review section above for information on the significant changes in the state of affairs of the Group. Information on likely developments and future prospects of the Group is discussed below. INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS During or since the financial year, the Company has paid premiums in respect of a contract for Directors’ & Officers’/Company Re-Imbursement Liability insurance for directors, officers and Pro Medicus Limited for costs incurred in defending proceedings against them. Disclosure of the amount of insurance and the terms of this cover is prohibited by the insurance policy. INDEMNIFICATION OF AUDITORS To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial year. ROUNDING Unless otherwise stated, the amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the Company under ASIC Corporations (Rounding in Financial/Directors Reports) instrument 2016/191. The Company is an entity to which the Class Order applies. AUDITOR INDEPENDENCE AND NON-AUDIT SERVICES A copy of the Auditor's Independence Declaration as required under section 307C of the Corporations Act 2001 (Ctn) is included on page 39. The Group may decide to employ the auditor on assignments additional to statutory audit duties where the auditor's expertise and experience with the Group is essential and will not compromise auditor independence. Details of the amounts paid or payable to Ernst & Young for audit and assurance and non-audit services provided during the year are set out in Note 22 to the financial statements. The Board has considered the non-audit services provided during the year and is satisfied these services are compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 (Cth) for the following reasons; • All non-audit services have been reviewed by the Audit and Risk Committee to ensure they do not impact the impartiality and objectivity of the auditor; and • None of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants. 26 PRO MEDICUS ANNUAL REPORT 2023 27 SHARE OPTIONS Un-issued Shares As at the date of this report, there were 248,741 un-issued ordinary shares in the form of performance rights. Refer to Note 19 of the financial statements for further details of the performance rights outstanding. Rights holders do not have any right, by virtue of the right, to participate in any share issue of the Company. Shares Issued as a Result of the Exercise of Performance Rights During the financial year, 120,293 performance rights were exercised by current employees and zero performance rights expired. A further 42,586 performance rights were exercised by key management personnel in the current year to acquire fully paid ordinary shares in Pro Medicus Limited. Significant events after Balance Sheet date FY23 final divided A Final Dividend for FY23 of 17.0 cents per share was declared on 15 August 2023. Other than the matters described above, no matters have arisen since the Balance Sheet date which have significantly affected or may affect, the operations of the Group, the results of those operations or the state of affairs of the Group in future financial periods. The Directors express their gratitude for the efforts of the management team and all employees in achieving this year’s result. INTO THE FUTURE / OUTLOOK The Directors anticipate that the 2024 financial year will see more opportunities crystallise for the Company due to improved prospects in North America for Visage 7 (PACS) and the continued commercialisation and roll out of Visage RIS. Key factors that are likely to affect the performance of the company are: • Increased revenue being generated from previously won transaction-based contracts which are scheduled to come on stream in the 2024 financial year. • Continued strong interest in the Visage 7 expanded suite of products in the North American market has resulted in a number of sales opportunities that the Company is actively pursuing. • The ability of the expanded Visage 7 product set to address key market segments such as large Health Systems and Hospitals in addition to the private radiology and teleradiology markets. • Market dynamics that favour the adoption of Visage 7 technology, including the use of artificial intelligence (AI) in the industry, the ease of deployment of Visage 7 in public cloud and the explosion in image date size which increases the time to display images by non-streaming technologies. • Increased revenue from Visage RIS, the company’s new technology RIS platform as the rollout of this new platform continues. • Extension of the Visage 7 product to Enterprise Imaging and use beyond the realm of radiology Investments for Future Performance The Company will continue to direct resources into the development of new products and is committed to the continued development of its Visage RIS and Visage 7 product sets. It is anticipated that this strategy of ongoing development will continue to position Pro Medicus as a market leader and enable the Group to further leverage its expanded product portfolio and geographical spread. The Group remains committed to providing staff with access to appropriate training and development programs, together with the resources to complete their duties. 28 PRO MEDICUS ANNUAL REPORT 2023 29 REMUNERATION REPORT (AUDITED) This remuneration report for the year ended 30 June 2023 outlines the remuneration arrangements of the Group in accordance with the requirements of the Corporations Act 2001 and its Regulations. This information has been audited as required by section 308(3C) of the Act. 2023 OUTCOMES AT A GLANCE Pro Medicus has experienced significant growth in shareholder value in the past year and has generated significant new business in particular in the United States, with agreements being put in place with leading teaching hospitals. Incentives are linked to our key financial metrics to maintain alignment to financial performance and shareholder value creation Short-term incentive metrics Long-term incentive metrics Other financial metrics Underlying EBIT1 ($’000) Annual Contract Value2 ($’000) Underlying EPS3 (cents per share) Share price at 30 Jun ($)TSR4 Revenue ($’000) Dividends declared (cents per share) $ 8 0 7 0 3 , $ 2 3 1 0 5 , 5 31% CAGR $ 6 0 4 7 7 , $ 4 4 7 9 7 , $ 3 2 0 2 2 , $ 2 7 5 2 8 , $ 1 0 5 9 7 , , $ 8 2 0 5 $ 1 7 0 9 4 , $ 1 4 4 6 0 , 5 8 9 5 . R G A 32% C 4 1 8 5 . 3 1 0 8 . 2 3 6 7 . 1 9 3 7 . 7 2 R G A % C $ 5 8 7 2 . $ 6 5 6 4 . $ 4 2 2 5 . $ 2 5 2 9 . $ 2 6 4 6 . 1 2 4 9 0 0 , $ 9 3 4 6 1 , 26% CAGR $ 6 7 8 8 4 , $ 5 6 8 2 1 , $ 5 0 1 0 5 , 3 0 0 . 32% CAGR 2 2 0 . 1 5 0 . 1 2 0 . 1 0 0 . 2 0 1 9 2 0 2 0 2 0 2 1 2 0 2 2 2 0 2 3 2 0 1 9 2 0 2 0 2 0 2 1 2 0 2 2 2 0 2 3 2 0 1 9 2 0 2 0 2 0 2 1 2 0 2 2 2 0 2 3 2 0 1 9 2 0 2 0 2 0 2 1 2 0 2 2 2 0 2 3 2 0 1 9 2 0 2 0 2 0 2 1 2 0 2 2 2 0 2 3 2 0 1 9 2 0 2 0 2 0 2 1 2 0 2 2 2 0 2 3 Short-term incentive payments are linked to underlying EBIT and Annual contract value for Key Management Personnel (KMP). Long-term incentives are linked to underlying EPS and TSR growth. Value has been created for shareholders through increased revenue targets and dividends. WHO IS COVERED BY THIS REPORT? The remuneration report details the remuneration arrangements for key management personnel (KMP) who are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any director of the Group. Following a Strategic HR Review held in FY22, it was determined that the roles and responsibilities of Sean Lambright, Brad Levin and Danny Tauber were not in line with this definition and therefore the number of KMP has reduced from our previous reports. 1 Underlying EBIT – Earnings before interest and tax and excluding currency gains (losses) and capitalised development cost adjustments. Underlying EBIT is a non-IFRS measure. 2 Annual contract value – represents the total minimum contractual revenues to be earned over the life of new contracts executed during the period. Annual Contract Value is a non-IFRS measure. 3Underlying EPS – Earnings Per Share adjusted for the impact of currency gains/losses. Underlying EPS is a non-IFRS measure. 4TSR – Total Shareholder returns 5CAGR – Compound Annual Growth rate For the purposes of this report, the term ‘executive’ includes the Chief Executive Officer (CEO), Executive Directors and other Senior Executives who are considered KMP of the Group. KMP were in appointment for the entire period unless otherwise stated. (i) Non- Executive KMP Peter Kempen Anthony Glenning Leigh Farrell Deena Shiff Alice Williams (ii) Executive KMP Dr Sam Hupert Anthony Hall Clayton Hatch* Malte Westerhoff Non-Executive Chairman Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Managing Director and CEO Technology Director Chief Financial Officer General Manager Europe and Global Chief Technology Officer REMUNERATION GOVERNANCE The People and Culture Committee of the board provides advice, assistance and recommendations to the board in relation to remuneration arrangements for Directors and Executives, as well as to advise and support the board’s oversight of key people practices, such as succession planning and talent management, to help achieve the Company’s long-term business objectives. The members of the People and Culture Committee during the reporting period were: Deena Shiff - Committee Chair Anthony Glenning Leigh Farrell Alice Williams OUR PEOPLE Our people are integral to the future success of the Company. By expanding our customer base, supporting our customers to the high standards that we set ourselves, and by continuing to innovate and develop our product range, they are key to the defence of our market leadership and to future value creation. In the past year, the People and Culture Committee have overseen a number of people initiatives following the Strategic HR Review to ensure that we have the right people in the right roles in the Company to continue our growth and success, including succession planning for key personnel, and the introduction of a talent program to ensure that we continue to attract, develop and retain high calibre and skilled individuals who reflect our values and culture. In addition, we conducted our first Employee Engagement Survey to measure our workforce’s connection and commitment to the Company and its goals. Engagement can impact the attraction of talent, performance, innovation and retention. Almost all of our employees participated in the anonymous survey. Pleasingly, our results were strong and favourable compared to our peers. An Employee Engagement Action Plan was developed to capitalise on our opportunities for improvement. REMUNERATION PRINCIPLES Our objectives for the level and composition of executive remuneration remain: - • Setting rates of pay that are market competitive, having regard to the markets in which our people work • Paying for performance, in both fixed and variable at-risk remuneration components • Achieving alignment of the interests of Executive with the interests of Shareholders. In addition, the objectives seek pay structures that • are simple and clear: meaningful to executives and transparent to shareholders • reflect responsible business conduct, with board discretion on malus and which are subject to continuing employment conditions. 30 PRO MEDICUS ANNUAL REPORT 2023 31 In FY23 the People and Culture Committee commissioned an external and independent expert to provide salary benchmarking for the CEO. Dr Sam Hupert’s salary had not been increased since 2015, and his expert medical and business knowledge are a key component of the Company’s success. External advice is used as a guide only and not as a substitute for the People and Culture Committee’s consideration of the appropriate remuneration. Following the external market review, and in line with our pay-for-performance philosophy, a base pay adjustment was made to the remuneration of Dr Sam Hupert, from an annual base pay of $475,000 plus superannuation to an annual base pay of $972,500 plus superannuation, effective 1 January 2023. Dr Hupert does not participate in the variable at-risk remuneration components, given his substantial personal shareholding. REMUNERATION FRAMEWORK In FY23, executive remuneration comprised a mix of fixed and variable at-risk remuneration components through the STI and LTI plans. Dr Sam Hupert and Mr. Hall do not participate in the variable at-risk remuneration components, given their substantial personal shareholdings. Component Description Link to strategy & performance Total fixed remuneration Short term incentive (STI) Base salary and retirement benefits (superannuation or country equivalent). May include fringe benefits or other payment methods provided that it is appropriate and not unreasonably costly for the Group. Reviewed annually having regard to individual accountabilities, skills and performance as well as comparative remuneration in the market, including as appropriate, external benchmarking. An at-risk component set as a percentage of base salary for senior executives. Based on specific performance related key financial and non-financial measures. Performance is measured over the 12-month period and awards are currently made on an annual basis in cash. In the FY23 reporting period these were 50% Underlying EBIT targets met 25% annual contract value met and 25% individual targets met. Long term incentive (LTI) Performance rights with a nil exercise price are issued on an annual basis based on a three-year performance period and a further 12 months vesting period. Further details of the STI program are discussed in the ‘variable remuneration outcomes’ section below. Performance hurdles relate to profitability – Earnings per Share (EPS) (60%), and Total Shareholder Returns (TSR) (40%). Both hurdles are set annually by the board. The TSR growth hurdle was measured against the ASX 200. Further details of the LTI program are discussed in the ‘variable remuneration outcomes’ section below. EXECUTIVES KMP REMUNERATION MIX The diagram below illustrates the remuneration mix at maximum potential for each executive. Sam Hupert - CEO Anthony Hall - Technical Director Clayton Hatch - CFO FIXED STI Equity based LTI 100% 100% 26% 25% 0% 0% 30% 34% 44% 41% VARIABLE REMUNERATION OUTCOMES Short Term Incentive (STI) Short term incentives in the form of cash bonuses were paid to Executives based on a mix of Company based and personal performance targets as set out below. Performance category and weighting Underlying EBIT (50%) Annual contract value (ACV) (25%) Reason chosen Performance FY23 Target STI outcome Underlying EBIT is a key measure of performance and income returns generated for shareholders. Underlying EBIT achieved due to significant increase in revenue during the period ACV is a measure of new contract wins through the period and their minimum annual revenue contribution in future reporting periods ACV above lower threshold but below target due to contracting less than budgeted new customer wins during the period Underlying EBIT of $75.8m Achieved Underlying EBIT of $80.7m. 79% above target – 179% ACV of $23.4m Achieved ACV of $14.5m Below target – 0% Individual targets (25%) Individual targets chosen to measure KMP against metrics that they can control Individual performance will be measured as a bell curve against each KMP At target – 100% Individually determined At target – 100%. Accrued in the financial statements at 100% based on best estimates of the Board prior to finalisation The table below outlines the FY23 STI outcomes for each participating KMP: Executive KMP Clatyon Hatch Malte Westerhoff Target STI as % of TFR Maximum STI as % of TFR Actual STI awarded ($) % of target STI opportunity awarded % of maximum STI opportunity awarded % of maximum STI forfeited 30% 30% 60% 60% $104,813 $232,868 115% 115% 58% 58% 42% 42% Key Performance Indicators Underlying EBIT hurdles for FY23 STI have been set at threshold, target and outperformance with target set at 25% increase on the prior year Underlying EBIT, with payout at target of 100%. Annual Contract Value targets were also set within a range of threshold, target and overperformance to encourage budget overachievement, with target limits stretched to align to shareholders interests. Outperformance achievement maximum payout is 200% of target. Long Term Incentive (LTI) Performance Rights Under the LTI plan Senior Executives of the Group are offered performance rights over the ordinary shares of Pro Medicus Limited. The performance rights, issued for nil consideration, are offered on a year-to-year basis and vest 4 years after grant date on completion of service, with a 3-year performance period. This long term incentive plan includes performance hurdles related to profitability - Earnings per Share (EPS) growth (60% weighting) which is set on an annualised basis by the board and Total Shareholder Returns (TSR) growth (40% weighting). The Company’s TSR growth performance hurdle is measured relative to the ASX200 Index and assessed by the board at the end of the performance period in accordance with the terms of the plan. These measures have been selected and set to align to Company performance and shareholder value. The fair value of the equity-settled performance rights is estimated using Black Sholes and Monte Carlo Simulation Models at grant date taking into account the terms and conditions upon which the performance rights were granted. For further details of valuation of options, models and assumptions used please refer to Note 19 of the financial statements. 32 PRO MEDICUS ANNUAL REPORT 2023 33 8Sean Lambright as Head of Sales is paid sales commission under a separate agreement to the STI structure, based on total contract value (TCV) and annual revenue received metrics, capped at 2% per customer. There is no maximum amount payable within a year under this separate agreement. Outcomes Performance under the FY21 grant was tested at 30 June 2023 resulting in the following vesting outcomes which remain conditional on continued employment through to 30 June 2024: EMPLOYMENT CONTRACTS Executive Directors Hurdle EPS TSR Target (for 50% vesting) Outcome 35% CAGR for reporting period (FY21-FY23) Achieved 36% CAGR and therefore between target and stretch – 54% retained. 60% growth over the ASX 200 Accumulation index for performance period (FY20-FY22) Achieved 148% and therefore outperformance – 100%. The FY20 grant, for which performance hurdles were tested at 30 June 2022, vested on 30 June 2023. As previously disclosed the vesting outcomes under the FY20 plan were as follows: Hurdle EPS TSR Target (for 50% vesting) Outcome 35% CAGR for reporting period (FY20-FY22) 60% growth over the ASX 200 Accumulation index for performance period (FY19-FY21) While the 29% CAGR achieved was below the lower threshold target of 30% CAGR the board exercised their discretion in awarding lower threshold vesting (12.5% vesting) given the proximity of the result (29%) to the lower threshold target and continued growth in contracted revenues Achieved 69%, whilst the ASX 200 achieved 10% growth and therefore target of 70% (60% growth over ASX 200) was not achieved – 48% retained reflecting pro-rata vesting between threshold (40% growth over the ASX 200) and target. FY23 Grants EPS hurdles for FY2023 LTI have been set at threshold, target and outperformance with target set at 30% CAGR for three consecutive performance periods FY23-FY25, with payout at target of 50%. TSR targets were also set within a range of threshold, target and overperformance to encourage growth over and above ASX200 index returns, with target set at 60% growth over the ASX 200 index over the three-year performance period (FY23-FY25) to align to shareholders interests. TSR target performance is set at 50% payout, with outperformance (100% payout) achieved at 80% growth over the ASX 200 index. The table below outlines the number and value of performance rights granted to each KMP during the year as part of remuneration. These rights were granted on 24 August 2022 and will vest in four years time on 30 June 2026 subject to the achievement of the performance hurdles outlined above (tested at 30 June 2025) and the KMP remaining employed by the Company: Number of EPS performance rights (1) Number of TSR performance rights Total number of performance rights Fair value of rights on grant date (1) $ Name Clayton Hatch Malte Westerhoff Total 2,479 5,821 8,300 1,653 3,881 5,534 4,132 9,702 13,834 (1) Calculated based on a fair value per performance right of: Grant date 24 August 2022 EPS hurdle $ 50.80 The fair value per performance right was calculated as at the grant date identified above. The valuation of the TSR performance rights incorporates the probability of achieving market conditions whereas the valuation of EPS performance rights does not. This results in a lower fair value of TSR performance rights than for EPS performance rights. Further details on assumptions used to determine fair value of the performance rights and the accounting expense in relation to the performance rights are included in Note 19. The minimum total value of the grant to Executive KMP is nil should none of the applicable performance conditions be met. 165,721 389,108 554,829 TSR hurdle $ 24.07 Executive Service Contracts, on similar terms and conditions, have been prepared for all Executive Directors of the Company. These agreements provide the following major terms: • Each Executive Director will receive a remuneration package per annum which is to be reviewed annually; • The agreements protect the Company and Group’s confidential information and provide that any inventions or discoveries of an Executive Director become the property of the Group; • Non-competition during employment and for a period of 12 months thereafter; and • Termination by the Company on six months’ notice or payment of six months remuneration in lieu of notice or a combination of both (or without notice or payment in lieu in the event of misconduct or other specified circumstances). The agreements may be terminated by the Executive Directors on the giving of six months’ notice. Executives (excluding Executive Directors) All Executives have rolling contracts. The Group may terminate the Executive’s employment agreement by providing three months written notice or providing payment in lieu of the notice period (based on the fixed component of the Executive’s remuneration). The Group may terminate the contract at any time without notice if serious misconduct has occurred. Where termination with cause occurs, the Executive is only entitled to that portion of remuneration that is fixed, and only up to the date of termination. On termination with cause any unvested options will immediately be forfeited. The company has maintained a very stable leadership team, however the People and Culture Committee of the board will continue to focus on ‘future-proofing’ the workforce to ensure we continue to thrive if changes do occur. Table 1: Statutory remuneration for Executive KMP Short-Term Post- Employment Long Term Share Based Payment Current KMP Dr. Sam Hupert Anthony Hall Clayton Hatch2 Malte Westerhoff Salary and Wages $ Cash Bonus $ Non- Monetary benefits $ Super annuation $ 2023 2022 2023 2022 2023 2022 2023 2022 722,5001 475,000 347,500 350,000 277,500 46,250 640,3863 634,721 - - - - 110,502 15,393 576,5314 444,656 - - - - - - 18,5645 16,464 27,500 27,500 27,500 27,500 27,500 4,583 2,731 2,723 Long Service Leave $ 339,811 7,917 4,166 5,833 4,625 18,478 - - Performance rights7 $ - - - - 76,747 1,318 215,403 25,245 Total $ 1,089,811 510,417 379,166 383,333 496,874 86,022 1,453,615 1,123,809 1 Dr Sam Hupert’s pay was adjusted in the period, to reflect market conditions and was paid a fixed remuneration of $1,000,000 from 1 January 2023. 2 Remuneration for FY2022 for Clayton Hatch reflects amounts from the date he became a KMP in May 2022 3 Malte Westerhoff’s pay was adjusted in the period, to reflect market conditions and was paid a fixed remuneration of (€434,700) with conversion to AUD of 0.642 as compared to FY22 (€408,443) and the conversion to AUD was at 0.644 (using the average FX rates for the period). 4 Cash bonus for Malte Westerhoff includes STI bonus ($254,000, FY22: $192,000) and bonus for additional responsibilities in setting up the NY research hub ($322,000, FY22: $253,000). The additional bonus is a one-off discretionary bonus. 5 Non-Monetary benefits for Malte Westerhoff reflects an annual Car Allowance of $18,564. Short-Term Post- Employment Long Term Share Based Payment Former KMP Salary and Wages $ Cash Bonus $ Non- Monetary benefits $ Super annuation $ Long Service Leave $ Performance rights7 $ Total $ Danny Tauber Brad Levin 2022 2022 329,684 55,125 303,281 90,695 Sean Lambright 2022 234,353 972,2056 - - - 24,324 5,491 8,949 423,573 - - - - 7,272 5,763 401,248 1,212,321 6 Sean Lambright was paid sales commission under a separate agreement to the STI structure, based on Total Contract Value (TCV) and annual revenue received metrics, capped at 2% per customer. 34 PRO MEDICUS ANNUAL REPORT 2023 35 Table 2: Shareholdings of Executive Key Management Personnel Table 4: Amounts paid to Non-Executive Directors Ordinary shares held in Pro Medicus Limited (Number) 30 June 2023 S A Hupert A B Hall C Hatch M Westerhoff Total Balance at 1 July 2022 On exercise of performance rights Net change other Ordinary 27,137,660 27,109,000 45,000 138,861 54,430,521 Ordinary - - 10,945 31,641 42,586 Ordinary (1,000,000)4 (1,000,000)4 (12,945)6 (67,180)7 Balance at 30 June 2023 Ordinary 26,137,660 26,109,000 43,000 103,322 (2,080,1250 52,392,982 7Dr Sam Hupert sold 1,000,000 shares throughout the year at the prevailing market share price. Anthony Hall sold 1,000,000 shares throughout the year at the prevailing market share price. Clayton Hatch sold 12,945 shares throughout the year at the prevailing market share price. Malte Westerhoff sold 67,180 shares throughout the year at the prevailing market share price. Table 3: Performance rights of Executive Key Management Personnel Performance rights held in Pro Medicus Limited (Number) 30 June 2023 S A Hupert A B Hall C Hatch M Westerhoff Balance at 1 July 2022 Granted as remuneration Performance rights exercised1 Performance rights forfeited* Balance at 30 June 2023 Not yet vested - - 25,347 75,317 - - 4,132 9,702 - - - - - - - - (10,945) (31,641) (4,188) (12,662) 14,346 (14,346) 40,716 (40,716) Total 100,664 13,834 (42,586) (16,850) 55,062 (55,062) Vested and exercisable at 30 June 2023 - - - - *Performance rights forfeited due to performance hurdles not being met in relation to the FY20 LTI grant upon testing on 30 June 2023. Refer to LTI outcomes section above for further information. 1FY19 performance rights exercised on 29 August 2022 at a value of $52.55 per right. Non-Executive Director Remuneration Structure The Constitution and the ASX Listing Rules specify that the aggregate remuneration of Non-Executive Directors shall be determined from time to time by a general meeting. An amount not exceeding the amount determined is then divided between the Non-Executive Directors as agreed. The latest determination was at the Annual General Meeting held on 25 November 2020 when shareholders approved an aggregate remuneration pool for all non-executive directors of $1,000,000 per year. The amount of the aggregate remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst Non-Executive Directors is reviewed bi-annually. The Board considers fees paid to Non-Executive Directors of comparable companies when undertaking the review process. Each Non-Executive Director receives a fee for being a Director of the Company. No additional fee was paid to the Chairs of the People and Culture, and Audit and Risk Committees during the reporting period and no additional fees were paid for time spent on Committees. Non-Executive Directors have long been encouraged by the board to hold shares in the Company (purchased by the Non-Executive Director on market). It is considered good governance for the Non-Executive Directors to have a stake in the Company on whose board they sit. The remuneration of Non-Executive Directors for the period ended 30 June 2023 is detailed in Table 4 of this report. Peter Kempen Anthony Glenning Leigh Farrell Deena Shiff Alice Williams* Fees $ 174,326 173,413 89,041 95,890 91,324 91,324 91,324 91,324 90,909 75,758 Non-Monetary benefits $ Superannuation $ - - - - - - - - - - 27,500 27,500 9,589 6,849 9,589 9,132 9,589 9,132 9,545 7,576 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 *Alice Williams commenced as a Non-Executive Director on 1 September 2021. Table 5: Shareholdings Non-Executive Directors Ordinary shares held in Pro Medicus Limited (Number) 30 June 2023 Peter Kempen Anthony Glenning Leigh Farrell Deena Shiff Alice Williams Total Balance at 1 July 2022 Purchased during the year Sold during the year Ordinary 679,082 9,525 4,240 1,923 400 695,170 Ordinary - - - - 250 250 Ordinary (50,000) - - - - Total $ 201,826 200,913 98,630 102,739 100,913 100,456 100,913 100,456 100,454 83,334 Balance at 30 June 2023 Ordinary 629,082 9,525 4,240 1,923 650 (50,000) 645,420 Loans to Key Management Personnel No loans are made to Key Management Personnel or other staff. Other transactions and balances with Key Management Personnel Purchases During the year ended 30 June 2023, lease payments of $215,120 (2022: $200,000) in respect of the Group’s operating premises at 450 Swan Street Richmond were paid to Champagne Properties Pty. Ltd., an entity controlled by Dr Sam Hupert and Mr. Hall. These lease arrangements are on an ‘arm’s length basis’ as determined by an independent assessment of rental and lease terms. The lease is currently on a month to month basis. END OF REMUNERATION REPORT The Directors’ Report has been prepared in accordance with the Corporations Act 2001 and is integrated throughout the annual report as identified on page 2 of the Annual Report. Signed in accordance with a resolution of the Directors. P T Kempen Director Melbourne, 15 August 2023 36 PRO MEDICUS ANNUAL REPORT 2023 37 AUDITOR’S INDEPENDENCE DECLARATION To the Directors of Pro Medicus Limited CORPORATE GOVERNANCE Pro Medicus’ Corporate Governance Statement for 2023 (Statement) outlines our principal corporate governance practices in place during the financial year ended 30 June 2023. Copies of all governance documents referred to in this Statement can be found at http://www.promed.com.au/investors/ corporategovernance/ Our governance policies and practices have been measured against the 4th edition of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (ASX Governance Principles). These policies and practices, together with reasons for any non-compliance with the ASX Governance Principles, are reflected in this Statement as well as our Appendix 4G. The Statement is current as at 15 August 2023 and has been approved by the Board on that date. The Board and management team maintain high standards of corporate governance as part of our commitment to create value for our stakeholders through effective strategic planning, risk management, transparency, and corporate responsibility. We regularly review our governance practices in light of the growth in the Company and relevant emerging corporate governance developments. 2022-23 Areas Of Governance Focus Key areas of governance focus and activities undertaken by the Board, its Committees and management during 2022-23 included: Our People • Implementing a Group Remuneration Policy. With assistance from an external consultant, the People and Culture Committee completed external benchmarking for remuneration assessments. Following this review, and in line with our pay-for-performance philosophy, a base pay adjustment was made to the remuneration of the CEO, Dr Sam Hupert. • Implementing a number of people initiatives following the strategic HR review to “future-proof” the workforce, including succession planning and the introduction of a talent program. • Conducting our first Employee Engagement Survey to measure our workforce’s connection and commitment to the company and its goals. Governance • risk reporting, risk appetite statement and governance frameworks adopted under the oversight of the Audit and Risk Management Committee • meeting with shareholders and proxy advisors as part of Pro Medicus’ ongoing engagement to discuss matters relating to our business performance, governance and remuneration. Board • Undertook a review of the Risk Management Plan, a Board endorsed Risk Appetite Statement and Risk Register • Undertook a Board performance review with assistance from an external consultant. 38 PRO MEDICUS ANNUAL REPORT 2023 39 The underlying pre-tax profit for the year of $83.88m compared to an underlying pre-tax profit of $62.38m from the previous corresponding period, an increase of 34.5%. CONTENTS TO FINANCIAL REPORT Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements Note 1 Corporate Information Note 2 Summary of Significant Accounting Policies Note 3 Significant Accounting Judgements, Estimates and Assumptions Note 4 Operating Segments Note 5 Revenue from contracts with customers Note 6 Income and Expenses Note 7 Income Tax Note 8 Earnings per Share Note 9 Dividends Paid and Proposed Note 10 Cash and Cash Equivalents Note 11 Trade and Other Receivables Note 12 Other Financial Assets Note 13 Plant and Equipment Note 14 Intangible Assets Note 15 Trade and Other Payables Note 16 Deferred Revenue Note 17 Provisions Note 18 Contributed Equity and Reserves Note 19 Share based Payments Note 20 Leases Note 21 Events after the Balance Sheet Date Note 22 Auditors’ Remuneration Note 23 Key Management Personnel Note 24 Related Party Disclosure Note 25 Financial Risk Management Objectives and Policies Note 26 Contingencies Note 27 Parent Entity Information Note 28 Other Accounting Policies Directors’ Declaration Independent Auditor’s Report ASX Additional Information Corporate Information 42 43 44 45 46 46 46 46 48 50 52 52 55 56 56 57 58 59 60 63 63 64 65 66 68 68 69 69 69 70 74 74 75 76 77 82 83 FINANCIAL report PRO MEDICUS ANNUAL REPORT 2023 41 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 30 JUNE 2023 Revenue from contracts with customers Interest and distribution income Total revenue and income Cost of sales Gross profit Net foreign currency gains/(losses) Fair value movements on financial instruments Accounting and secretarial expenses Advertising and public relations expenses Depreciation and amortisation Insurance costs Legal costs Other expenses Employee benefits expenses Travel and accommodation expenses Profit before income tax Income tax expense Profit for the year Notes 5 6(a) 6(b) 6(b) 7 18 Other comprehensive income Items that may be reclassified subsequently to profit and loss Foreign currency translation Other comprehensive income for the year TOTAL COMPREHENSIVE INCOME FOR THE YEAR, NET OF TAX Earnings per share (cents per share) 8 - Basic earnings per share - Diluted earnings per share Consolidated 2023 $’000 124,900 2,431 127,331 (544) 126,787 (386) 207 (1,138) (2,521) (7,926) (1,069) (1,028) (1,492) (24,065) (1,244) (86,126) (25,478) 60,648 2022 $’000 93,461 649 94,110 (465) 93,645 1,117 (1,073) (1,297) (1,948) (7,316) (1.113) (931) (1,731) (15,400) (874) 63,079 (18,637) 44,442 156 156 60,804 (1,229) (1,229) 43,213 58.1¢ 58.0¢ 42.6¢ 42.5¢ This Consolidated Statement of Comprehensive Income should be read in conjunction with the notes to the financial statements. AS AT 30 JUNE 2023 ASSETS Current Assets Cash and cash equivalents Trade and other receivables Accrued revenue Contract costs Other financial assets Inventories Prepayments Total Current Assets Non-Current Assets Deferred tax assets Plant and equipment Contract costs Right-of-use assets Intangible assets Prepayments Total Non-Current Assets TOTAL ASSETS LIABILITIES Current Liabilities Trade and other payables Income tax payable Deferred revenue Other current financial liabilities Lease liabilities Provisions Total Current Liabilities Non-Current Liabilities Deferred tax liabilities Deferred revenue Lease liabilities Provisions Total Non-Current Liabilities TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Share buyback reserve Share reserve Foreign currency translation reserve Retained earnings TOTAL EQUITY Notes Consolidated 2023 $’000 2022 $’000 10 11 12 7 13 20 14 15 5,16 28(b) 20 17 7 16 20 17 18 18 18 18 18 91,248 39,882 193 590 30,247 55 1,575 163,790 12,206 472 2,361 1,715 21,349 242 38,345 202,135 6,801 6,539 12,602 504 654 3,751 63,656 27,440 - 449 26,898 77 1,304 119,824 10,866 459 1,466 2,143 22,293 - 37,227 157,051 5,601 6,299 10,128 1,252 604 2,976 30,851 26,860 7,813 23,421 1,197 77 32,508 63,359 138,776 1,959 (5,774) 16,156 (681) 127,116 138,776 8.090 18,628 1,675 66 28,459 55,319 101,732 1,959 (5,224) 13,258 (837) 92,576 101,732 42 This Consolidated Statement of Financial Position should be read in conjunction with the notes to the financial statements. PRO MEDICUS ANNUAL REPORT 2023 43 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2023 At 1 July 2021 Profit for the year Other comprehensive income Total comprehensive income for the period Transaction with owners in their capacity as owners Share based payment Tax effect of share based payments Dividends At 30 June 2022 At 1 July 2022 Profit for the year Other comprehensive income Total comprehensive income for the period Transaction with owners in their capacity as owners Share based payment Share buyback Tax effect of share based payments Dividends At 30 June 2023 Consolidated Contributed Equity Share Buyback Reserve Share Reserve Consolidated Foreign Currency Translation Reserve Retained Earnings $'000 1,962 $'000 $'000 $'000 $'000 (915) 13,322 392 66,922 Total Equity $'000 81,683 - - - - - - - - (3) (4,309) - - - - - 32 - - - 44,442 44,442 (1,229) - (1,229) (1,229) 44,442 43,213 - - - - - 32 (4,312) (18,788) (18,788) 1,959 (5,224) 13,258 (837) 92,576 101,732 1,959 (5,224) 12,258 (837) 92,576 101,732 - - - - - - - - - - - (550) - - - - - - 60,648 60,648 156 156 - 156 60,648 60,804 1,233 - 1,655 - - - - - - - - 1,233 (550) 1,655 (26,108) (26,108) 1,959 (5,774) 16,156 (681) 127,116 138,776 This Consolidated Statement of Changes in Equity should be read in conjunction with the notes to the financial statements. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2023 Notes Consolidated 2023 $’000 2022 $’000 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest paid Income tax paid Net cash flows from operating activities Cash flows from investing activities Payments for capitalised development costs Interest received Investments in other financial assets Sale of other financial assets Payments for plant and equipment Net cash flows used in investing activities Cash flows from financing activities Payments of dividends on ordinary shares Payments for lease liabilities Payments for share buyback Net cash flows used in financing activities Net increase/(decrease) in cash and cash equivalents Net foreign exchange differences Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 117,923 (31,854) (76) (23,458) 62,535 (6,147) 2,238 (21,252) (17,903) (299) (7,557) (26,108) (574) (845) (27,527) 27,451 141 63,656 91,248 92,101 (23,254) (95) (7,176) 61,576 (8,787) 649 (14,896) 6,363 (236) (16,907) (18,788) (509) (4,017) (23,314) 21,355 262 42,039 63,656 10 14 13 9 10 This Consolidated Statement of Cash Flows should be read in conjunction with the notes to the financial statements 44 PRO MEDICUS ANNUAL REPORT 2023 45 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 1. CORPORATE INFORMATION The financial report of Pro Medicus Limited (the Company) for the year ended 30 June 2023 was authorised for issue in accordance with a resolution of Directors on 15 August 2023. The Directors have the power to amend and reissue the financial report. Pro Medicus Limited is a for profit company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange. The nature of the operations and principal activities of the Group are described in the Directors’ Report. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of preparation The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards board. The financial report has also been prepared on a historical cost basis except for certain financial instruments which have been recognised at fair value. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($000) unless otherwise stated in accordance with ASIC Legislative Instrument 2016/191. (b) Statement of compliance with IFRS The financial report complies with Australian Accounting Standards and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. (c) Basis of consolidation The consolidated financial statements comprise the financial statements of Pro Medicus Limited and its subsidiaries (the Group). Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has: • Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee) • Exposure, or rights, to variable returns from its involvement with the investee, and • The ability to use its power over the investee to affect its returns. When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: • The contractual arrangement with the other vote holders of the investee • Rights arising from other contractual arrangements • The Group’s voting rights and potential voting rights The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains a control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. (d) New accounting standards and interpretations New and/or amended standards that were effective for the Group as of 1 July 2022 did not have a material impact on the financial statements of the Group as they are either not relevant to the Group’s activities or require accounting which is consistent with the Group's current accounting policies. 3. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements and estimates on historical experience and on other various factors it believes to be reasonable under the circumstances, the result of which form the basis of the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. Management has identified the following critical accounting policies for which significant judgements, estimates and assumptions are made. Actual results may differ from these estimates under different assumptions and conditions and may materially affect financial results or the financial position reported in future periods. (i) Significant accounting judgements, estimates and assumptions Capitalisation of development costs: Distinguishing between the research and development phases and determining whether the recognition requirements for the capitalisation of development costs as discussed in Note 14 are met requires judgement. After capitalisation, management monitors whether the recognition requirements continue to be met and whether there are any indicators that capitalised costs may be impaired. Development costs include employee labour costs and other directly attributable costs including amounts of overhead and administrative expenditure to the extent these amounts are incurred in connection with the related employee labour. Impairment of non-financial assets: The Group assesses impairment of all non-financial assets at each reporting date by evaluating conditions specific to the Group and to the particular asset that may lead to impairment. If an impairment trigger exists, the recoverable amount of the asset is determined. Additionally, goodwill, indefinite life intangible assets and intangible assets not yet ready for use are tested annually. Management has tested certain assets for impairment in this financial period. Refer to Note 14 of the financial statements for significant assumptions applied in assessing for impairment on non-financial assets. Deferred tax: The Group's accounting policy for taxation requires management's judgement as to the types of arrangements considered to be a tax on income in contrast to an operating cost. Judgement is also required in assessing whether deferred tax assets and certain deferred tax liabilities are recognised on the statement of financial position. Deferred tax assets, including those arising from un-recouped tax losses, capital losses and temporary differences, are recognised only where it is considered more likely than not that they will be recovered, which is dependent on the generation of sufficient future taxable profits. Deferred tax liabilities arising from temporary differences in investments in subsidiaries, caused principally by retained earnings held in foreign tax jurisdictions, are recognised unless repatriation of retained earnings can be controlled and are not expected to occur in the foreseeable future. Assumptions about the generation of future taxable profits and repatriation of retained earnings depend on management's estimates of future cash flows. These depend on estimates of future sales volumes, operating costs, capital expenditure, dividends and other capital management transactions. Judgements are also required about the application of income tax legislation. These judgements and assumptions are subject to risk and uncertainty, hence there is a possibility that changes in circumstances will alter expectations, which may impact the amount of deferred tax assets and deferred tax liabilities recognised on the statement of financial position and the amount of other tax losses and temporary differences not yet recognised. In such circumstances, some or all of the carrying amounts of recognised deferred tax assets and liabilities may require adjustment, resulting in a corresponding credit or charge to the statement of comprehensive income. Deferred tax assets are recognised for deductible temporary differences as management considers that it is probable that future taxable profits will be available to utilise those temporary differences. 46 PRO MEDICUS ANNUAL REPORT 2023 47 3. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS (cont'd) Income taxes: The group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Significant judgement is required in determining the worldwide provision for income taxes. There are many transactions and calculations during the ordinary course of business for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax provisions in the period in which such determination is made. Net investment in foreign operations: The Group maintains inter-company loans it assesses to represent a part of its net investment in its foreign operations. The judgements made in assessing these loans to represent net investments are on the basis the loans are neither planned nor likely to be settled within the foreseeable future, the loans do not include trade receivables or trade payable and the loans represent a return of funds from their investment in the respective subsidiaries. Share-based payments: The Group measures the cost of equity-settled transactions with employees by reference to the fair value of equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option/performance rights, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating fair value of share-based payment transactions are disclosed in Note 19. Revenue recognition: The Group has applied judgement in determining that certain performance obligations within its contracts with customers are one single performance obligation for the purposes of measuring and recognising revenue. Further discussion on the factors the Group has considered in making this judgement are contained in Note 5. 4. OPERATING SEGMENTS The Group has identified its operating segments based on the internal reports that are reviewed and used by the executive management team (the chief operating decision maker) in assessing performance and in determining the allocation of resources. The operating segments are identified by management based on country of origin. Discrete financial information is reported to the executive management team on at least a monthly basis. Segment performance in the relevant jurisdiction is assessed based on the ‘Segment result’ which comprises revenue earned (including intercompany sales) less expenses. Interest and tax related amounts are excluded from the segment result. Types of products and services The Group produces integrated software applications for the healthcare imaging industry. In addition, the Group provides services in the form of installation and support. Accounting policies and inter-segment transactions An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), whose operating results are regularly reviewed by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. This includes start-up operations which are yet to earn revenues. Management will also consider other factors in determining operating segments such as the existence of a line manager and the level of segment information presented to the Board of Directors. The Group aggregates two or more operating segments when they have similar economic characteristics and the segments are similar in each of the following respects: • Nature of the products and services • Type or class of customer for the products and services • Nature of the regulatory environment Operating segments that meet the quantitative criteria as prescribed by AASB 8 are reported separately. However, an operating segment that does not meet the quantitative criteria is still reported separately where information about the segment would be useful to users of the financial statements. Inter-entity sales are recognised based on an internally set transfer price. The price aims to reflect what the business operation could achieve if they sold their output and services to external parties at arm’s length. OPERATING SEGMENTS Revenue Sales to external customers – RIS Sales to external customers – PACS Inter-segment sales Australia Europe1 North America1 Total Operations 2023 $’000 2022 $’000 2023 $’000 2022 $’000 2023 $’000 2022 $’000 2023 $’000 2022 $’000 14,818 13,607 1,118 961 82,381 56,163 - 4,287 7,803 - - - 14,818 13,607 4,882 104,564 73,723 109,969 79,566 7,512 - - 90,184 63,675 Total segment revenue 98,317 70,731 12,090 12,395 104,564 72,723 214,971 156,849 Inter-segment elimination Other income Total consolidated revenue Results Segment result Interest and distribution income Other amounts unallocated to segments Non-segment expenses Income tax expense Statutory net profit after tax Assets Non-current assets Deferred tax asset Current assets Segment assets Inter-segment elimination Total assets Liabilities (90,184) (63,675) 113 287 125,900 93,461 80,126 58,086 2,033 2,437 2,177 1,907 84,336 62,430 2,431 (642) 649 - (24,478) (18,637) 60,647 44,442 27,111 28,104 4,793 5,044 79 - 123 - 612 740 27,802 28,967 7,413 5,822 12,206 10,866 144,295 109,004 23,724 20,856 46,930 32,998 214,949 162,858 176,199 142,152 23,803 20,979 54,955 39,560 254,957 202,691 (52,822) (45,640) 202,135 157,051 Segment liabilities 46,224 44,738 3,354 3,750 62,188 48,653 111,766 97,141 Inter-segment elimination Total liabilities Other segment information Capital expenditure Depreciation and amortisation (48,407) (41,822) 63,359 55,319 6,258 7,345 8,903 6,744 45 291 45 296 131 289 79 276 6,433 7,926 9,028 7,316 1European results relate solely to the company’s operations in Germany. North American results relate solely to the operations in the United States of America. Revenue from major customers No customer contributed to the total consolidated Groups revenue by more than 10% (2022: one customer in North America contributed 10%). 48 PRO MEDICUS ANNUAL REPORT 2023 49 5. REVENUE FROM CONTRACTS WITH CUSTOMERS The Group’s contracts with customers for its Radiology Information System (RIS) and Picture Archiving Communications System (Visage 7/Open Archive) comprise multiple goods and services, typically with specific fixed or variable consideration receivable, including: • Installation and professional services; • Product licences; • Transactional services, including image viewing and image archiving; • Support services, including updates and upgrades to the product licence; and • Archive data migration services The Group’s contracts with customers also comprise of multiple activities in order to provide customers with the specified product. The nature of the Group’s products requires significant integration of various goods and services promised in contracts that represent a combined output – being the offered product. The multiple goods or services in the contract are highly interrelated and are integral in combination to the performance of the product. The Group has determined that within its contracts with customers installation, product licence, transaction services and support services comprise one performance obligation given: • The Group provides a significant service of integrating the goods or services with other goods or services promised in the contract. The combined output – being the offered product – represents a bundle of the Group’s various goods or services; • Goods or services are highly interrelated and integral to the performance of the product. The Group could not fulfil its performance obligation of delivering a specified product by transferring each of the goods or services independently; and • Only the Group can provide product installation, transactional services and support (including significant updates/upgrades) services to customers of product licences, given the associated intellectual property of the product owned by the Group. Revenue from multi-element contracts is recognised over the term of the contract, commencing when the product is ready for use following the installation and establishment of the product licence on the basis that: • Product updates/upgrades received by the customer over the contract period are frequent and significant to the performance and compliance of the products with relevant regulatory authorities; • Customers have no alternate use for the Group’s products outside of the contract period; and • The Group has an enforceable right to payment for performance completed to date during the period of the contract. Revenue is recognised over time by reference to the satisfaction of the one performance obligation using the input method. The input method is applied based on the elapsed term of the contract in comparison to the length of the total contract term from when the product is ready for use by the customer until the licence and support periods end. The Group receives consideration for certain elements of product contracts that is based on transaction volumes exceeding set minimum activity levels. Such variable consideration is recognised as revenue as the customer activity occurs over the term of the contract and the Group becomes entitled to payment. Directly attributable commissions paid to employees of the Group for obtaining contracts are initially capitalised as a contract cost and amortised within salaries and employee benefits expense over the life of the relevant contract as revenue is recognised. The carrying value of contract costs are assessed for impairment at each reporting date. The Group also provides archive migration services to its customers. These services are considered to be a separate performance obligation and are not highly interrelated with the other goods and services providing by the Group as they could be provided by other third parties. Accordingly, revenue from archive migration services is recognised over time based on an input method based on the proportion of hours spent on migration services relative to the total expected hours. Set out below is the disaggregation of the Group's revenue from contracts with customers: Year ended 30 June 2023 ($’000) Types of goods and services Consolidated Australia Europe North America Total Radiology Information System (RIS) 14,818 - - 14,818 Picture Archiving Communications System (Visage 7/Open Archive) Other 1,118 - 4,287 104,564 109,969 113 - 113 Total revenue per statement of comprehensive income 15,936 4,400 104,564 124,900 Timing of revenue recognition Over time Total revenue per statement of comprehensive income Year ended 30 June 2022 ($’000) Types of goods and services Radiology Information System (RIS) Picture Archiving Communications System (Visage 7/Open Archive) Other Total revenue per statement of comprehensive income 14,568 Timing of revenue recognition Point in time Over time Total revenue per statement of comprehensive income - 14,568 14,568 15,936 15,936 4,400 4,400 104,564 124,900 104,564 124,900 Consolidated Australia Europe North America Total 13,607 961 - - 5,110 60 5,170 - 5,170 5,170 - 13,607 73,723 79,794 - 60 73,723 93,461 - 73,723 73,723 - 93,461 93,461 Payments received in advance of the commencement of the term of the contract are initially deferred as contract liabilities (deferred revenue, refer to Note 16). Set out below is the amount of revenue from contracts with customers recognised from: Amounts included in deferred revenue Consolidated 2023 $’000 12,647 2022 $’000 8,886 Set out below is the amount of salaries and employee benefits expense recognised from: Amounts capitalised as contract costs Consolidated 2023 $’000 573 2022 $’000 375 50 PRO MEDICUS ANNUAL REPORT 2023 51 6. INCOME AND EXPENSES Consolidated Notes 13 20 14 (a) Net foreign currency gains/(losses) Currency gains Currency loss Fair value (loss)/gain on financial instruments – forward exchange contracts Total net foreign currency gains (b) Expenses Depreciation and amortisation Property, plant and equipment assets Right-of-use lease assets Capitalised development costs Total depreciation and amortisation expense Salaries and employee benefits expense Gross wages and salaries Capitalised wages and salaries* Long service leave provision Share-based payments expense** Defined contribution plan expense Total salaries and employee benefits expense 2023 $’000 11,233 (11,115) (504) (386) 286 549 7,091 7,926 25,474 (4,744) 482 1,233 1,620 24,065 2022 $’000 9,636 (7,267) (1,252) 1,117 272 541 7,316 7,316 20,730 (6,913) 74 32 1,477 15,400 *The Group’s total wages and salaries incurred was ($’000) $25,474 (2022: $20,730) of which $4,744 (2022: $6,913) of these costs have been capitalised as development costs within intangible assets. **The Groups share-based payments includes a portion of expense relating to the FY20, FY21, FY22 and FY23 grant of performance rights. Please refer to Note 19 for further details into the valuation of these performance rights during this period. 7. INCOME TAX Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date. Deferred income tax is provided for temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences, except: • where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. • when the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised, except: • where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. • when the deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised. The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on the tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Income taxes relating to items recognised directly in equity are recognised in equity and not in the statement of comprehensive income. Unrecognised temporary differences At 30 June 2023, the Group has not recognised deferred tax liabilities associated with the Group's investments in subsidiaries being recognised as the parent is able to control the timing of the reversal of any temporary differences and it is not probable any temporary difference will reverse in the foreseeable future (30 June 2022: nil). Tax consolidation legislation Pro Medicus Limited and its wholly-owned Australian controlled entities implemented the tax consolidation legislation as of 1 July 2009. Members of the tax consolidated group have entered into a tax funding agreement. The head entity, Pro Medicus Limited, and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts under the tax funding agreement. The Group applies the Group allocation approach to determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax consolidated group. An allocation of income tax liabilities between the entities of the tax consolidated group will be made should the head entity default on its tax payment obligations. No such amounts have been recognised in the financial statements on the basis that the possibility of default is remote. In addition to its own current and deferred tax amounts, Pro Medicus Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. 52 PRO MEDICUS ANNUAL REPORT 2023 53 7. INCOME TAX (cont'd) The major components of income tax expense are: Statement of comprehensive income Current income tax Current income tax charge Prior year adjustment Deferred income tax Relating to origination and reversal of temporary differences Income tax expense reported in profit or loss Statement of changes in equity Current income tax Consolidated 2023 $’000 2022 $’000 27,668 (27) (2,163) 25,478 48,508 - 129 18,637 Impact of the Employee Share Trust – vested share-based payments (2,211) (3,260) Deferred income tax Relating to origination and reversal of temporary differences due to the Employee Share Trust – unvested share-based payments Income tax benefit reported directly in the statement of changes in equity 546 (1,665) 3,356 96 A reconciliation between tax expense and the product of accounting profit before income tax multiplied by the Group’s applicable income tax rate is as follows: Accounting profit before tax 86,123 63,079 At the applicable statutory income tax rate in each country - Australia (30%) - United States of America (USA) (21-25%) - Germany (30.15%) Prior year adjustment Expenditure not allowable for income tax purposes Benefit from vested share-based payments Other Income tax expense reported in profit or loss 24,266 646 761 (27) 190 (203) (155) 25,478 17,621 462 735 - 9 (66) (123) 18,638 Deferred income tax Consolidated Statement of Financial Position Consolidated Statement of Comprehensive Income Recognised within Equity Deferred income tax at 30 June relates to the following: 2023 $’000 2022 $’000 2023 $’000 2022 $’000 2023 $’000 2022 $’000 Deferred tax liabilities Foreign currency exchange gain Intangible assets Depreciation expenses Right-of-use asset Contract costs Deferred tax liabilities Deferred tax assets Employee entitlements Intellectual property expenses Accruals Allowance for expected credit losses Deferred revenue Lease liabilities Employee Share Trust – unvested share- based payments 230 6,405 17 459 702 344 6,688 12 582 464 7,813 8,090 1,432 196 27 - 7,918 260 1,870 982 215 26 158 6,537 - 2,322 114 283 (5) 123 (238) 277 450 (19) 1 (158) 1,381 260 94 (337) (685) 4 135 (45) (928) 164 (19) 3 158 508 - - - - - - - - - - - - - - - - - - - - - - - - - (64) (546) (3,356) Other Deferred tax assets 6 6 - 12,206 10,866 1,886 (3) 622 - - (546) (3,356) Deferred tax movement (charged) or credited to profit or loss 2,163 (306) - - Deferred tax movement (charged) or credited directly to equity - - (546) (3,356) 8. EARNINGS PER SHARE Basic earnings per share is calculated as net profit after tax attributable to members of the Group, adjusted to exclude any costs of servicing equity (other than dividends) divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted earnings per share is calculated as net profit after tax attributable to members of the Group adjusted for: • The after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses • Other non-discretionary changes in revenue or expenses during the period that would result from the dilution of potential ordinary shares • Dilutive potential ordinary shares adjusted for any bonus element and then divided by the weighted average number of ordinary shares. The following reflects the income and share data used in the basic and diluted earnings per share computations: Net profit after tax attributable to ordinary equity holders Consolidated 2023 $ 2022 $ 60,647,665 44,441,976 Number Number Weighted average number of ordinary shares for basic earnings per share 104,406,547 104,314,131 Effect of dilution: Performance rights 181,095 268,208 Weighted average number of ordinary shares adjusted for the effect of dilution 104,587,642 104,582,339 54 PRO MEDICUS ANNUAL REPORT 2023 55 9. DIVIDENDS PAID AND PROPOSED Declared and paid during the year: Final franked dividend for 2022: 12.0 cents (2021: 8.0 cents franked) Interim franked dividend for 2023: 13.0 cents (2022: 10.0 cents franked) Declared subsequent to the end of the year (not recognised as a liability as at 30 June): Dividends on ordinary shares: Final franked dividend for 2023: 17.0 cents (2022: 12.0 cents franked) Total dividends proposed Franking credit balance – franking account balance as at the end of the financial year at 30% (2022: 30%) – franking credits that will arise from the payment of income tax payable as at the end of the financial year – franking debits that will arise from the payment of dividends as at the end of the financial year – franking credits that the entity may be prevented from distributing in the subsequent financial year – prior period adjustment The amount of franking credits available for future reporting periods: – impact on the franking account of dividends proposed or declared before the financial report was authorised for issue but not recognised as a distribution to equity holders during the period The tax rate at which paid dividends have been franked is 30% (2022: 30%). Dividends proposed will be fully franked. 10. CASH AND CASH EQUIVALENTS Cash at bank and in hand* Short-term deposits Consolidated 2023 $’000 12,532 13,576 26,108 17,753 17,753 Consolidated 2023 $’000 5,835 7,210 - - - 2022 $’000 8,351 10,437 18,788 12,514 12,514 2022 $’000 (189) 5,655 - - - 13,045 5,466 (7,608) (5,363) 5,437 103 Consolidated 2023 $’000 30,394 60,854 91,248 2022 $’000 63,656 - 63,656 *$907,000 (2022: $871,000) of the cash at bank balance is held as a deposit for foreign exchange forward contracts. The deposit matures and becomes available following the settlement of the foreign exchange forward contracts within three months of the reporting date. Cash and cash equivalents in the Statement of Financial Position and Statement of Cash Flow comprise cash at bank and in hand and short-term deposits that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes of value. Cash at bank earns interest at floating rates based on daily bank deposit rates. Short term deposits are made for varying periods, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. The carrying value of cash and cash equivalents approximates their fair value. Reconciliation of net profit after tax to net cash flows from operations Net profit Adjustments for: Depreciation of property, plant and equipment and right of use lease assets Amortisation of intangible assets Interest received classified in investing activities Current income tax impact of vested share-based payments recognised directly in equity Net unrealised foreign currency differences and other non-cash items Fair value loss on other financial assets Share-based payment expense Changes in assets and liabilities Consolidated 2023 $’000 60,648 834 7,091 (2,431) 1,732 (981) 207 1,233 2022 $’000 44,442 813 6,503 (649) 3,260 (3,321) 1,073 32 (Increase)/decrease in trade and other receivables (12,442) (4,599) (Increase)/decrease in inventory (Increase)/decrease in deferred tax asset (Increase)/decrease in prepayments (Increase)/decrease in accrued revenue (Increase)/decrease in contract costs (Decrease)/increase in trade and other payables (Decrease)/increase in income tax payable (Decrease)/increase in deferred income (Decrease)/increase in deferred tax liability (Decrease)/increase in employee entitlements Net cash flow from operations 22 (1,340) (513) - (1,036) 1,495 240 7,267 (277) 786 62,535 (43) 2,734 33 1,193 (185) 1,581 4,603 2,859 928 319 61,576 11. TRADE AND OTHER RECEIVABLES Trade and other receivables do not contain a significant financing component and are recognised initially at the transaction price and subsequently measured at amortised cost less an allowance for any impairment. Current Trade receivables Less: Allowance for expected credit losses Other receivables Consolidated 2023 $’000 39,650 - 39,650 232 39,882 2022 $’000 27,837 (654) 27,183 257 27,440 The carrying value of trade receivables approximates their fair value due to the short-term nature of receivables. The provision matrix for expected credit losses is initially based on the Group’s historical observed default rates. The Group will calibrate the matrix to adjust the historical credit loss experience with forward- looking information. For instance, if forecast economic conditions are expected to deteriorate over the next year which can lead to an increased number of defaults in the manufacturing sector, the historical default rates are adjusted. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed. 56 PRO MEDICUS ANNUAL REPORT 2023 57 11. TRADE AND OTHER RECEIVABLES (cont'd) During the year ended 30 June 2023, $654,000 of trade and other receivables were written off as unrecoverable and allowances for expected credit losses of $nil were recognised (30 June 2022: $nil written off and $654,000 allowances recognised). At June 30, the ageing analysis of trade receivables is as follows: 0 – 30 days 31 – 60 days 61 – 90 days 91+ days Consolidated 2023 $’000 31,867 100 6,476 1,207 2022 $’000 23,973 721 1,222 1,921 Total trade receivables 39,650 27,837 The majority of customers are on terms of between 30 to 60 days, however certain customers have terms of up to 90 days. 12. OTHER FINANCIAL ASSETS Investments Hybrid/convertible debt instruments, listed Other debt instruments, listed Other debt instruments, unlisted Managed fund units, unlisted Consolidated 2023 $’000 3,872 1,097 5,305 9,973 2022 $’000 5,626 494 11,196 9,582 30,247 26,898 With the exception of trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient (see Note 11), the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. The subsequent measurement of the Groups financial assets depends on the financial asset’s contractual cash flow characteristics (whether the cash flows represent solely payments of principal and interest “SPPI”) and the Group’s business model for managing them (the “Business Model” test). The subsequent measurement of the Group’s investments and derivatives is discussed below. Investments The portfolio of investments is managed and performance is evaluated on a fair value basis. The Group is primarily focused on fair value information and uses that information to assess the assets’ performance and to make decisions. Consequently, all investments are measured at fair value through profit or loss. Derivatives Derivatives are mandatorily measured at fair value through profit and loss. Fair value measurement Listed debt instruments are classified as Level 1 in the fair value hierarchy as their prices are quoted in an active market. Unlisted debt instruments and managed fund investments are classified as Level 2. Investments in unlisted managed funds are recorded at the redemption value per unit as reported by the investment managers of the fund. Unlisted debt instruments fair values are determined with reference to recent market transactions and discounted cash flow techniques based on interest rate yield curves at the end of the period for instruments with similar terms and conditions. 13. PLANT & EQUIPMENT Plant and equipment is stated at cost less accumulated depreciation and any impairment in value. Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows: Property Improvements Motor Vehicles Office Equipment Furniture and Fittings Research and Development Equipment 2023 2022 2 to 7 years 2 to 7 years 4 to 5 years 4 to 5 years 2 to 7 years 2 to 7 years 5 years 5 years 3 to 4 years 3 to 4 years An item of plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the statement of comprehensive income in the period the item is derecognised. Year ended 30 June 2023 At 1 July 2022 net of accumulated depreciation Additions Exchange differences Depreciation charge for the year At 30 June 2023 net of accumulated depreciation At 30 June 2023 Cost Accumulated depreciation and impairment Net carrying amount Year ended 30 June 2022 At 1 July 2021 net of accumulated depreciation Additions Exchange differences Depreciation charge for the year At 30 June 2022 net of accumulated depreciation At 30 June 2022 Cost Accumulated depreciation and impairment Net carrying amount Consolidated Other Assets $’000 Office Equipment $’000 51 29 8 (30) 58 1,116 (1,058) 58 408 257 5 (256) 414 3,438 (3,024) 414 Consolidated Other Assets $’000 Office Equipment $’000 33 54 (5) (31) 51 1,061 (1,010) 51 457 182 10 (241) 408 3,070 (2,662) 408 Total $’000 459 286 13 (286) 472 5,554 (4,082) 472 Total $’000 490 236 5 (272) 459 4,131 (3,672) 459 58 PRO MEDICUS ANNUAL REPORT 2023 59 14. INTANGIBLE ASSETS Intangible assets acquired separately are initially measured at cost. The cost of an intangible asset acquired in a business combination is its fair value as at date of acquisition. Following initial recognition, intangible assets with a finite life are carried at cost less any accumulated amortisation and any accumulated impairment losses. Amortisation is calculated on a straight-line basis over the estimated useful life of the asset. Intangible assets, excluding development costs, created within the business are not capitalised and expenditure is charged against profits in the period in which the expenditure is incurred. Intangible assets are tested for impairment where an indicator of impairment exists, at the cash generating unit level. In addition, intangible assets which are not yet ready for use are not amortised but are tested for impairment at least annually. The recoverable amount is estimated, and an impairment loss is recognised to the extent that the recoverable amount is lower than the carrying value. The amortisation period and method is reviewed at each financial year end and adjustments, where applicable, are made on a prospective basis. Research and development costs Research costs are expensed as incurred. An intangible asset arising from development expenditure on an internal project is recognised only when the group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for sale or use, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the development and the ability to measure reliably the expenditure attributable to the intangible asset during its development. Following initial recognition of the development expenditure, the cost model is applied requiring the asset be carried at cost less any accumulated amortisation and accumulated impairment losses. Any expenditure so capitalised is amortised on a straight line basis over the period of expected benefit from the related project which the Group has assessed as 5 years. Development expenditure includes costs of materials and services and salaries and wages and other employee related costs arising from the generation of the intangible asset. Development costs are separately identified for the following products: • Visage 7 PACS • Visage RIS Year ended 30 June 2023 At 1 July 2022 net of accumulated amortisation and impairment Additions - internal development Amortisation charge for the year At 30 June 2023 net of accumulated amortisation and impairment At 30 June 2023 Cost Accumulated amortisation and impairment Net carrying amount Consolidated Development Costs - Visage RIS $’000 Development Costs - Visage PACS $’000 5,820 2,141 (1,565) 6,396 20,570 (14,174) 6,396 16,473 4,006 (5,526) 14,953 56,318 (41,365) 14,953 Total $’000 22,293 6,147 (7,091) 21,349 76,888 (55,539) 21,349 Consolidated Development Costs - Visage RIS $'000 Development Costs - Visage PACS $'000 Year ended 30 June 2022 At 1 July 2021 net of accumulated amortisation and impairment Additions - internal development Amortisation charge for the year At 30 June 2022 net of accumulated amortisation and impairment At 30 June 2022 Cost Accumulated amortisation and impairment Net carrying amount 5,532 2,046 (1,758) 5,820 18,429 (12,609) 5,820 Total $'000 20,009 8,787 (6,503) 14,477 6,741 (4,745) 16,473 22,293 52,312 (35,839) 16,473 70,741 (48,448) 22,293 Development costs have been assessed as having a finite life and are amortised using the straight-line method over a period of 5 years. All development costs sit within the Australian operating segment. Impairment On an annual basis the Group performs an impairment assessment on intangible assets which are not yet available for use. Given these intangible assets relate to new versions of the Visage PACS and RIS software products the carrying amounts of the intangible assets not yet available for use are allocated to the Cash Generating Units (CGU) which have been identified separately for each of these software products. These CGUs are considered the smallest identifiable group of assets that generate largely independent cash inflows. The Group estimates the recoverable amount using a value-in-use (VIU) discounted cash flow methodology. Key inputs and assumptions to the VIU calculation include the discount rate, budgeted cash flows and terminal growth rates. No impairment loss was recognised during the year ended 30 June 2023 (2022: nil impairment loss) as the results of the impairment test indicated that the recoverable amount of each CGU exceeded the carrying amount. There were also no reasonably possible changes in assumptions identified that would result in recoverable amount being lower than carrying amount. As part of the annual assessment the Group also performed an assessment of impairment indicators and did not identify any. 15. TRADE AND OTHER PAYABLES Trade payables and other payables are initially recognised at fair value and subsequently carried at amortised cost. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. CURRENT Trade payables Other payables and accruals Consolidated 2023 $’000 1,033 5,768 6,801 2022 $’000 1,643 3,958 5,601 (i) Trade payables are non-interest bearing and are normally settled on 30-day terms. (ii) Other payables are non-interest bearing and have an average term of 30 days. Fair value approximates carrying value due to the short-term nature of trade and other payables. 60 PRO MEDICUS ANNUAL REPORT 2023 61 16. DEFERRED REVENUE Current Deferred revenue from contracts with customers Non-current Deferred revenue from contracts with customers Consolidated 2023 $’000 12,602 12,602 23,421 23,421 2022 $’000 10,128 10,128 18,628 18,628 Current Long service leave Annual leave Non-current Long service leave Consolidated 2023 $’000 1,517 2,234 3,751 77 77 2022 $’000 1,128 1,848 2,976 66 66 Unsatisfied performance obligations The aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied as at 30 June 2023 was ($’000) $36,023 (2022: $28,756) and is expected to be recognised as revenue in future reporting periods as follows: 18. CONTRIBUTED EQUITY AND RESERVES Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Less than one year Between one year and five years More than five years Revenue to be recognised from unsatisfied performance obligations Consolidated 2023 $’000 12,602 19,610 3,811 36,023 2022 $’000 10,128 15,912 2,716 28,756 17. PROVISIONS Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the reporting date. When the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of comprehensive income net of any reimbursement. Employee leave benefits Provision is made for employee entitlement benefits accumulated as a result of employees rendering services up to the reporting date. (i) Annual leave and sick leave The liability for annual leave is recognised and measured at the value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on high quality corporate bonds with terms to maturity and currencies that match, as closely as possible the estimated future cash outflows. Expenses for non-accumulating sick leave are recognised when the leave is taken and are measured at the current rates paid to employees. (ii) Long service leave The liability for long service leave is recognised and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date, using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on high quality corporate bonds with terms to maturity and currencies that match, as closely as possible the estimated future cash outflows. Contributed Equity (i) Ordinary shares Issued and fully paid Fully paid ordinary shares carry one vote per share and carry the right to dividends (ii) Movements in shares on issue At 1 July 2022 Share buyback Exercise of performance rights At 30 June 2023 At 1 July 2021 Share buyback Exercise of performance rights At 30 June 2022 Consolidated 2023 $’000 1,959 1,959 Number of Shares 104,281,957 (12,583) 162,879 2022 $’000 1,959 1,959 2022 $’000 1,959 - - 104,432,253 1,959 Number of Shares 104,211,574 (104,356) 174,739 104,281,957 2021 $’000 1,962 (3) - 1,959 62 PRO MEDICUS ANNUAL REPORT 2023 63 18. CONTRIBUTED EQUITY AND RESERVES (cont'd) Consolidated Share reserve (i) Balance at 1 July Share based payment expense Income tax effect of the Employee Share Trust Balance at 30 June Foreign currency translation reserve (ii) Balance at 1 July Foreign currency movement Balance at 30 June Share buyback reserve (iii) Balance at 1 July Share buyback Balance at 30 June Retained earnings Balance at 1 July Net profit for the year Dividends Balance at 30 June 2023 $’000 13,258 1,233 1,665 16,156 (837) 156 (681) (5,224) (550) (5,774) 92,576 60,648 (26,108) 127,116 2022 $’000 13,322 32 (96) 13,258 392 (1,229) (837) (915) (4,309) (5,224) 66,922 44,442 (18,788) 92,576 (i) Share reserve The share reserve is used to record the value of share based payments provided to employees, including KMP, as part of their remuneration. Refer to Note 19 for further details of these plans. (ii) Foreign currency translation reserve The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries and for exchange differences arising from long term loan accounts resulting from net investment in subsidiaries. (iii) Share buyback reserve The share buyback reserve is used to record the market value of shares that have been bought back during the reporting period. Capital Management When managing capital, management's objective is to ensure the entity continues as a going concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders. Management also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity. Management review the capital structure to take advantage of favourable costs of capital or high returns on assets. As the market is constantly changing, management may change the amount of dividends to be paid to shareholders, return capital to shareholders, or issue new shares or buyback existing shares. During the year, the company paid dividends of $26,108,063 (2022: $18,788,180). 19. SHARE BASED PAYMENTS (i) Equity settled transactions: The Group provides benefits to its employees (including KMP) in the form of share-based payments, whereby employees render services in exchange for shares or rights over shares (equity-settled transactions). Details of the current share based payment plan, which provides performance rights to employees are outlined below. The cost of these equity-settled transactions with employees is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined using either a Black Scholes model or Monte Carlo simulation model. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become fully entitled to the award (the vesting date). At each subsequent reporting date until vesting, the cumulative charge to the profit or loss is the product (i) The grant date fair value of the award; (ii) For options with non-market vesting conditions, the current best estimate of the number of awards that will vest, taking into account such factors as the likelihood of employee turnover during the vesting period and the likelihood of non-market performance conditions being met; and (iii) The lapsed portion of the vesting period. The charge to the statement of comprehensive income for the period is the cumulative amount as calculated above less the amounts already charged in previous periods. There is a corresponding entry to equity. Until an award has vested, any amounts recorded are contingent and will be adjusted if more or fewer awards vest than were originally anticipated to do so. Any award subject to a market condition is considered to vest irrespective of whether or not that market condition is fulfilled, provided that all other conditions are satisfied. If the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. An additional expense is recognised for any modification that increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee, as measured at the date of modification. The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share (see Note 8). 64 PRO MEDICUS ANNUAL REPORT 2023 65 19. SHARE BASED PAYMENTS (cont'd) Performance Rights - Long Term Incentive (LTI) Scheme Senior Executives of the Group are offered performance rights over the ordinary shares of Pro Medicus Limited. The performance rights, which are accounted for as options, are issued with nil exercise price and vest 4 years after grant date subject to an employee remaining in service and certain performance hurdles (which are tested at the end of the third year) being met. The performance rights cannot be transferred and will not be quoted on the ASX. During the current year performance rights granted during the FY23, FY22, FY21 and FY20 years remained on issue. The table below details movements in the number of performance rights on issue: Outstanding at the beginning of the year - granted - forfeited - exercised1 - expired Outstanding at the end of the year Exercisable at end of year Weighted average remaining contractual life 30 June 2023 Number of Performance Rights 30 June 2022 Number of Performance Rights 404,611 71,867 (64,858) (162,879) - 248,741 - 2.7 599,408 50,591 (70,339) (174,739) (309) 404,611 - 2.1 1Performance rights issued under the FY19 LTI plan were exercised on 29 August 2022 at a value of $52.55 per right (prior period: FY18 LTI plan performance rights exercised on 30 August 2021 at a value of $65.67 per right). Performance hurdles applicable to the performance rights on issue during the year were: • Earnings per share (EPS) (60% of performance rights granted): calculated as the compound annual growth rate (CAGR) of EPS for the 3-year period from the grant date. • Relative total shareholder return (TSR) (40% of performance rights granted): Relative TSR combines the security price movement and distributions (which are assumed to be reinvested) to show the total return to securityholders, relative to that of other companies in the TSR comparator group. For the FY23, FY22, FY21 and FY20 plans the TSR comparator group was the ASX 200 index. Performance rights valuation The fair value of the equity-settled performance rights granted for the current LTI scheme is estimated as at the date of the grant using Black Sholes and Monte Carlo Simulation Models taking into account the terms and conditions upon which the performance rights were granted. The following table lists the inputs to the models used: Dividend yield Expected volatility Risk-free interest rate Expected life of performance rights Performance rights exercise price Fair value per right - TSR Fair value per right – EPS 2023 0.43% 45.8% 1.50% 4 years $0.00 $24.07 $50.80 2022 026% 16.3% 0.90% 4 years $0.00 $8.03 $57.75 2021 0.48% 19.5% 0.90% 2020 0.38% 17.06% 0.90% 4 years 4 years $0.00 $3.28 $24.45 $0.00 $2.85 $27.16 20. LEASES The table below details movements in the Group’s right-of-use assets and lease liabilities during the year ended 30 June 2023: As at 1 July 2022 Additions Depreciation expense Interest expense Payments Foreign exchange translation As at 30 June 2023 As at 1 July 2021 Additions Depreciation expense Interest expense Payments Foreign exchange translation As at 30 June 2022 Consolidated Right-of-use assets Lease liabilities Property $’000 Motor vehicles $’000 2,064 94 (507) - - 19 1,670 79 - (42) - - 8 45 Total $’000 2,143 94 (549) - - 27 Total $’000 (2,279) (82) - (76) 624 (38) 1,715 (1,851) Consolidated Right-of-use assets Lease liabilities Property $’000 2,497 - (499) - - 66 2,064 Motor vehicles $’000 27 93 (42) - - 1 79 Total $’000 2,524 93 (541) - - 67 Total $’000 (2,618) (93) - (95) 604 (77) 2,143 (2,279) Set out below are the amounts recognised in profit and loss during the year ended 30 June 2023: Depreciation expense Interest expense Total amount recognised in profit and loss Consolidated 30 Jun 2023 $’000 30 Jun 2022 $’000 549 76 625 541 95 636 The Group had total cash outflows for leases during the year ended 30 June 2023 of ($’000) $624 (2022: $604). At 30 June 2023 there were no leases that were committed to but not yet commenced (30 June 2022: None). 21. EVENTS AFTER THE BALANCE SHEET DATE On 15 August 2023, the directors of Pro Medicus Limited declared a fully franked final dividend on ordinary shares in respect of the 2023 financial year of 17.0 cents per share totalling $17,753,483. The dividend has not been provided for in the 30 June 2023 financial statements. No other matters have arisen since the Balance Sheet date which have significantly affected or may affect, the operations of the Group, the results of those operations or the state of affairs of the Group in future financial periods. 66 PRO MEDICUS ANNUAL REPORT 2023 67 22. AUDITOR’S REMUNERATION Amounts received or due and receivable by Ernst & Young (Australia) for: – Statutory audit and review of the financial report of the Group – Tax compliance services in relation to the Group (non-audit services) Amounts received or due and receivable by related practices of Ernst & Young (Australia): – Statutory audit of the financial report of Visage Imaging GmbH – Tax compliance services in relation to Visage Imaging GmbH (non-audit services) 23. KEY MANAGEMENT PERSONNEL (a) Compensation for key management personnel Short-term employee benefits Post-employment benefits Long-term benefits Share-based payments Total compensation Consolidated 2023 2022 287,526 68,241 355,767 260,110 90,148 350,258 118,437 11,376 83,764 6,806 485,580 440,828 Consolidated 2023 2022 3,230,409 4,495,536 151,044 348,601 292,150 146,819 37,719 48,547 4,022,204 4,728,621 Detailed remuneration disclosure are contained in the Remuneration Report section of the Director’s Report. (b) Loans to Key Management Personnel No loans are made to Key Management Personnel or staff. (c) Other transactions and balances with Key Management Personnel During the year lease payments of $215,120 (2022: $200,000) in respect of the Group’s operating premises at 450 Swan Street, Richmond were paid to Champagne Properties Pty. Ltd., an entity controlled by S. Hupert and A. Hall. These lease arrangements are on an ‘arm’s length basis’ as determined by an independent assessment of rental and lease terms. The lease is currently on a month to month basis. 24. RELATED PARTY DISCLOSURE (a) Subsidiaries The consolidated financial statements include the financial statements of Pro Medicus Limited and the subsidiaries listed in the following table. Name Promed (USA) Pty Ltd PME IP Australia Pty Ltd Visage Imaging (Aust) Pty Ltd Visage Ventures Pty Ltd PME Nominees Pty Ltd (ATF Employee Share Trust) Pro Medicus (USA) LLC Visage Ventures Inc Visage Imaging Inc Visage Imaging GmbH Country of incorporation 2023 2022 % Equity interest Australia Australia Australia Australia Australia United States United States United States Germany 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 (b) Ultimate parent Pro Medicus Limited is the ultimate Australian parent entity and the ultimate parent of the Group. 25. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group’s principal financial instruments are cash, short-term deposits and other financial assets. The main purpose of these financial instruments is to provide finance for the Group’s operations. The Group also has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. The main risks arising from the Group’s financial instruments are foreign currency risk, interest risk and credit risk. The Board manages each of these risks as detailed below. Foreign currency risk (i) Functional and presentation currency Both the functional and presentation currency of Pro Medicus Limited and its Australian subsidiaries are Australian dollars ($). The United States subsidiaries’ functional currency is United States Dollars. The subsidiary in Germany has a functional currency of Euro. Foreign subsidiaries are translated to presentation currency for consolidated reporting. (ii) Transactions and balances Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. (iii) Translation of Group Companies’ functional currency to presentation currency The results of the United States and German subsidiaries are translated into Australian dollars (presentation currency) using an average exchange rate for the trading period. Assets and liabilities are translated at exchange rates prevailing at reporting date. Exchange variations resulting from the translation are recognised in the foreign currency translation reserve in equity. On consolidation, exchange differences arising from the translation of the net investments in foreign subsidiaries are taken to the foreign currency translation reserve. If a foreign subsidiary were sold, the proportionate share of exchange differences would be transferred out of equity and recognised in profit or loss. The Group has transactional currency exposure, which arise from sales made in currencies other than the Group’s presentational currency. Approximately 87% (2022: 84%) of the Group’s sales are denominated in currencies other than the presentational currency, and these sales would be predominately offset by currency exposure on costs. Foreign bank accounts have also been established, to create a natural hedge and reduce the need for regular transfers from the presentational currency (AUD) cash holdings. At 30 June the Group had the following exposure to foreign currency that is not designated in cash flow hedges or recorded in the functional currency of the subsidiary. Consolidated USD$ CAD$ GBP EUR€ 2023 $’000 2022 $’000 2023 $’000 2022 $’000 2023 $’000 2022 $’000 2023 $’000 2022 $’000 Financial assets Cash and cash equivalents Financial liabilities Foreign exchange forward contracts 11,678 15,946 11,678 15,946 963 963 278 278 133 133 123 123 1,199 1,199 (17,626) (16,167) - - - - - Net exposure (5,948) (221) 963 278 133 123 1,199 119 119 - 119 69 68 PRO MEDICUS ANNUAL REPORT 2023 25. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (cont'd) At 30 June, had the Australian Dollar moved, as illustrated in the table below, with all other variables held constant, post-tax profit and equity (excluding retained profits) would have been affected as follows: AUD/USD +10% AUD/USD – 5% AUD/CAD +10% AUD/CAD – 5% AUD/GBP +10% AUD/GBP – 5% AUD/EUR +10% AUD/EUR – 5% Post tax profit higher/(lower) Other comprehensive income higher/(lower) 2023 $’000 595 (297) (96) 48 (13) 7 (120) 60 2022 $’000 22 (11) (28) 14 (12) 6 (12) 6 2023 $’000 (114) 57 - - - - (263) 132 2022 $’000 (101) 51 - - - - (177) 89 Management believe the reporting date risk exposures are representative of the risk exposure inherent in the financial instruments. Credit risk Credit risk arises from the financial instruments of the Group, which comprise cash and cash equivalents and trade and other receivables and certain of its other financial assets being debt instruments and derivatives. The Group’s exposure to credit risk arises from potential defaults of the counter-party, with a maximum exposure equal to the carrying amount of the financial assets. (i) Trade and other receivables The Group trades only with recognised, credit worthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit assessment. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to expected credit losses is not significant. As the Group trades predominantly within the Diagnostic Imaging market there is a concentration of credit risk. Given the underlying Government funding support for Radiology in Hospital settings and the Imaging Centre and Diagnostic Imaging market, and the commercial successes achieved by the Group to date, credit risk is considered to be minimal. (ii)Cash and cash equivalents Cash and cash equivalents are held with several financial institutions, with the majority held with the Westpac Banking Corporation and Wells Fargo Bank N.A., both AA rated banks. (iii) Other financial assets (debt instruments) The Group’s investment management have been provided with clear credit policies for investing in debt instruments, a summary is listed below: • Investment is limited to specific asset classes, namely fixed income and private credit. • No more than 10% of capital is initially invested in any one underlying asset or with any one issuer (held directly or indirectly) and no more than 15% before rebalancing must take place. • Within fixed income, holding bonds dated 2 years or less. • Within private debt, no less than 80% of capital invested with a minimum credit rating of BBB- or better (“Investment Grade”) The table below summarises the credit quality by instrument. Year ended 30 June 2023 Hybrid/convertible debt instruments, listed Other debt instruments, listed Other debt instruments, unlisted Managed fund units, unlisted TOTAL Year ended 30 June 2022 Hybrid/convertible debt instruments, listed Other debt instruments, listed Other debt instruments, unlisted Managed fund units, unlisted TOTAL AAA % AA+ % AA % AA- % - - - - - - - - - - - - - 20 7 - - 7 9 6 AAA % AA+ % AA % AA- % - - 12 - 5 - - 6 - 2 - - - - - - - - 30 10 A % - - 3 24 10 A % - - 4 10 5 A- % BBB+ % BBB % BBB- % BB+ % TOTAL 26 - - 17 9 - 100 45 - 26 48 - 24 5 20 26 - 21 14 19 - - - 11 4 100 100 100 100 100 A- % BBB+ % BBB % BBB- % BB+ % TOTAL - - - 30 11 - 100 31 14 20 52 - 28 5 25 48 - 19 11 22 - - - - - 100 100 100 100 100 (iv) Other financial liabilities (derivatives) Derivative other financial liabilities are held with Macquarie Bank Limited, an A-1 rated bank. Interest rate risk (cash flow and fair value) The Group exposure to market interest rates relates primarily to the company’s cash and cash equivalents and other financial assets, being debt instruments. (i) Cash flow interest rate risk At reporting date, the Group had the following financial assets exposed to Australian Variable interest rate risk that are not designated in cash flow hedges and are subject to cash flow interest rate risk: Cash and Cash equivalents in the Group ($’000) $91,248 (2022: $63,656). At 30 June 2023, if interest rates had moved, as illustrated in the table below, with all other variables held constant, post-tax profit and equity (excluding retained profits) would have been affected by cash flow interest rate risk as follows: Judgements of reasonably possible movements: +1% (100 basis points) – 0.5% (50 basis points) Consolidated Post tax profit higher/(lower) Other comprehensive income higher/(lower) 2023 $’000 912 (456) 2022 $’000 637 (318) 2023 $’000 - - 2022 $’000 - - (ii) Fair value interest rate risk At reporting date, the Group had the following debt instruments exposed to fair value interest rate risk: Hybrid/convertible debt instruments, listed Other debt instruments, listed Other debt instruments, unlisted Consolidated 2023 $’000 3,872 1,097 15,305 2022 $’000 5,626 494 11,196 The Group considers that these exposures do not give rise to significant fair value interest rate risk given the short maturities of the debt instruments held and credit quality of the portfolio. 25. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (cont'd) 70 PRO MEDICUS ANNUAL REPORT 2023 71 Liquidity risk The Group has minimal liquidity risk as it has cash reserves of $91.2m, with no borrowings. These cash reserves are deemed to be adequate and the Board believes they will underpin the ongoing growth of the business. The table below summarises the maturity profile of the Groups financial liabilities based on contractual undisclosed payments: Year ended 30 June 2023 Trade and other payables Lease liabilities TOTAL Year ended 30 June 2022 Trade and other payables Lease liabilities TOTAL LESS THAN 1 YEAR $’000 1 TO 5 YEARS $’000 > 5 YEARS $’000 6,801 655 7,456 - 1,179 1,179 - 215 215 LESS THAN 1 YEAR $’000 1 TO 5 YEARS $’000 > 5 YEARS $’000 5,601 610 6,211 - 1,520 1,520 - 400 400 TOTAL $’000 6,801 2,049 8,850 TOTAL $’000 5,601 2,530 8,131 In addition to the amounts disclosed in the tables above, at 30 June 2023 the group held forward contracts for the purchase of Australian Dollars with US Dollars (disclosed as other financial liabilities within the financial statements). These contracts involved gross US Dollar payments of ($000) $12,000 in exchange for Australian Dollars of $17,626 (30 June 2022: gross US Dollar payments of ($000) $12,000 in exchange for Australian Dollars of $16,167). Refer to Note 28(b) for further information. 26. CONTINGENCIES Tax related contingencies Amended assessments from the Australian Taxation Office (ATO) As a result of the ATO’s program of routine and regular tax audit, the Group anticipates that ATO audits may occur in the future. The Group is similarly subject to routine tax audits in certain overseas jurisdictions. The ultimate outcome of any future tax audits cannot be determined with an acceptable degree of reliability at this time. Nevertheless, the Group believes that it is making adequate provision for its taxation liabilities (including amounts shown as deferred and current tax liabilities) and is taking reasonable steps to address potentially contentious issues with the ATO. However, there may be an impact to the Group of any of the revenue authority investigations results in an adjustment that increases the Group’s taxation liabilities. Ongoing transactions – transfer pricing The Group has offshore operations in the United States and Germany (Note 24). There are additional Group transactions, between Pro Medicus Limited and its US and German based subsidiaries Visage Imaging Inc. and Visage Imaging GmbH. These transactions are on an arm’s length basis and are conducted at normal market prices and on normal commercial terms. 27. PARENT ENTITY INFORMATION Information relating to Pro Medicus Limited Current assets Total assets Current liabilities Total liabilities Issued capital Retained earnings Foreign currency translation reserve Share reserve Share Buyback Reserve Total shareholders’ equity Profit/(loss) of the parent entity Total comprehensive income of parent entity 2023 $’000 31,898 46,473 38,329 41,738 1,959 2,894 (3,646) 9,302 (5,774) 4,735 10,131 10,131 2022 $’000 25,257 39,169 35,037 38,544 1,959 (995) (2,658) 7,543 (5,224) 625 11,617 11,617 The parent entity has not entered into any guarantees in relation to the debts of its subsidiaries. There are no contingent liabilities held against the parent entity. The parent entity does not have any contractual commitments for the acquisition of property, plant and equipment. 28. OTHER ACCOUNTING POLICIES (a) Accounting Standards and Interpretation issued but not yet effective There are no accounting standards or interpretation issued but not yet effective that are expected to have a material impact on the Group. (b) Derivative financial instruments and hedging The Group uses derivative financial instruments (forward currency contracts) to manage its risks associated with foreign currency. Such derivative financial instruments are initially recognised at fair value at the date on which a derivative contract is entered into and are subsequently remeasured to fair value at the reporting date. The fair value of the derivative financial instruments are level 2, being derived from directly or indirectly observable inputs. Derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative. Any gains or losses arising from changes in the fair value of derivative are recorded directly in profit or loss for the year within net foreign currency gains/(losses). The Group does not apply hedge accounting. The foreign exchange forward contracts are entered into for periods consistent with foreign currency exposure of the underlying transactions, generally from three to six months. Set out below is a comparison of the carrying amounts and fair value of the Group’s derivatives. These mature in August 2023 (2021: August 2022). 72 PRO MEDICUS ANNUAL REPORT 2023 73 28. OTHER ACCOUNTING POLICIES (cont'd) Financial assets/(liabilities) Foreign exchange forward contracts 2023 2022 Carrying Amount $’000 (504) (504) Fair Value $’000 (504) (504) Carrying Amount $’000 (1,252) (1,252) Fair Value $’000 (1,252) (1,252) (c) Other taxes Revenues, expenses and assets are recognised net of the amount of GST except: • when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or of the expense item as applicable; and • receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the Statement of Cash Flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (d) Comparatives Where necessary, comparatives have been reclassified and repositioned for consistency with current year disclosures. DIRECTORS DECLARATION In accordance with a resolution of the directors of Pro Medicus Limited, I state that: (1) In the opinion of the directors: (a) the financial statements, notes and the additional disclosures included in the directors’ report designated as audited, of the consolidated entity are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2023 and of the performance for the year ended on that date; and (ii) complying with Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and (b) there are reasonable grounds to believe that the consolidated entity will be able to pay its debts as and when they become due and payable. (c) the financial statements and notes comply with International Financial Reporting Standards (IFRS) as disclosed in Note 2(b). (2) This declaration has been made after receiving the declarations required to be made to the directors in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2023. On behalf of the Board P T Kempen Chairman Melbourne, 15 August 2023 74 PRO MEDICUS ANNUAL REPORT 2023 75 INDEPENDENT AUDIT REPORT FOR THE YEAR ENDED 30 JUNE 2023 INDEPENDENT AUDIT REPORT FOR THE YEAR ENDED 30 JUNE 2023 76 PRO MEDICUS ANNUAL REPORT 2023 77 INDEPENDENT AUDIT REPORT FOR THE YEAR ENDED 30 JUNE 2023 INDEPENDENT AUDIT REPORT FOR THE YEAR ENDED 30 JUNE 2023 78 PRO MEDICUS ANNUAL REPORT 2023 79 INDEPENDENT AUDIT REPORT FOR THE YEAR ENDED 30 JUNE 2023 ASX ADDITIONAL INFORMATION Additional information required by the Australian Stock Exchange Ltd and not shown elsewhere in this report is as follows. (a) Distribution of equity securities The number of shareholders, by size of holding, in each class of share are: Performance rights Ordinary shares Number of holders Number of rights Number of holders Number of shares 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and Over 14 38 2 6 - 60 9,977 109,526 13,524 115,714 - 248,741 The number of shareholders holding less than a marketable parcel are: (b) Twenty largest shareholders The names of the twenty largest holders of quoted shares are: 9,888 1,835 253 190 33 2,806,729 4,049,216 1,847,297 4,869,764 90,859,247 12,199 104,432,253 152 238 Listed ordinary shares Number of shares Percentage of ordinary shares 1 Dr S Hupert (multiple shareholdings) 2 Mr A Hall (multiple shareholdings) 3 HSBC Custody Nominees (Australia) Limited 4 J P Morgan Nominees Australia Limited 5 Citicorp Nominees Pty Ltd 6 National Nominees Limited 7 BNP Paribas Noms Pty Ltd 8 Mr Peter Terence Kempen & Mrs Elaine Margaret Kempen (multiple shareholdings) 9 Citicorp Nominees (Colonial First State) 10 Mr Bram Vander Jagt & Mrs Maaike Vander Jagt 11 Grain Exporters (Australia) Pty Ltd 12 Mr Michael Wu 13 Mr Danny Tauber 14 Mr Stephen Geoffrey Wilson & Ms Denise Adele Prandi 15 Mr Colin Gregory Organ 16 Mr John Charles Plummer 17 Mr Kenneth John Vander Jagt & Mrs Tanya Vander Jagt 18 Mr Roderick Lyle 19 Mr Sean Michael Lambright 20 Mr Evan Philip Clucas & Ms Leanne Jane Weston 26,137,660 26,109,000 15,568,938 7,320,773 6,911,271 1,951,517 1,247,848 629,082 605,943 480,000 479,000 429,244 290,876 285,037 271,000 250,000 208,159 190,000 179,039 158,980 25.03% 25.00% 14.91% 7.01% 6.62% 1.87% 1.19% 0.60% 0.58% 0.46% 0.46% 0.41% 0.28% 0.27% 0.26% 0.24% 0.20% 0.18% 0.17% 0.15% (c) Substantial shareholders The names of substantial shareholders who have notified the Company in accordance with section 671B of the Corporations Law are: 89,703,367 85.89% S. Hupert A Hall (d) Voting rights All ordinary shares carry one vote per share without restriction. Number of shares 26,137,660 26,109,000 80 PRO MEDICUS ANNUAL REPORT 2023 81 CORPORATE INFORMATION CORPORATE INFORMATION (cont'd) Solicitors Clayton Utz Sci-Law Strategies Morrison Foerster Bankers Westpac Banking Corporation Auditors Ernst & Young Share Registry Link Market Services Limited Level 12, 680 George Street Sydney NSW 2000 Australia Mailing address: Link Market Services Limited Locked Bag A14 Sydney South NSW 1235 Australia Telephone Toll free Facsimile Facsimile (proxy forms only) E-mail Website: +612 8280 7111 1300 554 474 +612 9287 0303 +612 9287 0309 registrars@linkmarketservices.com.au www.linkmarketservices.com.au ABN 25 006 194 752 Directors The names of the Directors of the Company in office during the year and until the date of this report are: Peter Terence Kempen Chairman/Non-Executive Director Dr Sam Aaron Hupert Chief Executive Officer/Managing Director Anthony Barry Hall Technology Director Anthony James Glenning Non-Executive Director Dr Leigh Bernard Farrell Non-Executive Director Deena Robyn Shiff Non-Executive Director/ Chair - People & Culture Committee Alice Williams Non-Executive Director/ Chair - Audit & Risk Committee Company Secretary Danny English Registered Office 450 Swan Street Richmond, VIC, 3121 (03) 9429 8800 Internet Address www.promedicus.com.au www.promedicus.com www.visageimaging.com You can do so much more online Did you know that you can access – and even update – information about your holdings in Pro Medicus Limited via the Internet. Visit Link Market Services’ website www. linkmarketservices.com.au and access a wide variety of holding information, make some changes online or download forms. You can: • Check your current and previous holding balances • Choose your preferred annual report delivery option • Update your address details • Update your bank details • Lodge, or confirm lodgement of, your Tax File Number (TFN), Australian Business Number (ABN) or exemption • Check transaction and dividend history Better still, why not have us do your banking for you. Wouldn’t you prefer to have immediate access to your dividend payment? Your dividend payments can be credited directly into any nominated bank, building society or credit union account in Australia as cleared funds on dividend payment date – and we will still mail [(or email if you prefer)] you a dividend advice confirming your payment details. Not only can we do your banking for you, but payment by direct credit eliminates the risk of cheque fraud. Top 5 tips for Pro Medicus Limited investors visiting Link’s (our registry) website 1. Bookmark www.linkmarketservices.com.au – to bookmark, click on ‘Favourites’ on the menu bar at the top of your browser then select ‘Add to Favourites’ 2. Create a portfolio for your holding or holdings and you don’t have to remember your SRN or HIN every time you visit • Enter your email address 3. Lodge your email via the ‘Communications • Check the share prices and graphs • Download a variety of instruction forms • Subscribe to email announcements You can access this information via a security login using your Security holder Reference Number (SRN) or Holder Identification Number (HIN) as well as your surname (or company name) and postcode (must be the postcode recorded on your holding record). Don’t miss out on your dividends Dividend cheques that are not banked are required to be handed over to the State Trustee under the Unclaimed Monies Act. You are reminded to bank cheques immediately. Options’ and benefit from the online communications options Pro Medicus Limited offers its investors 4. Check out the ‘FAQs’ page (accessible via the orange menu bar) for answers to frequently asked questions 5. Use the ‘Client List’ page (accessible via the orange menu bar) to link to Pro Medicus Limited website and the website of the other Link clients in which you invest. Contact Information You can also contact the Pro Medicus Limited share registry by calling +61 2 8280 7111 or Toll Free 1300 554 474 82 PRO MEDICUS ANNUAL REPORT 2023 83 2 0 2 3 P R O M E D I C U S A N N U A L R E P O R T 450 Swan Street Richmond Victoria 3121 Australia promedicus.com.au • promedicus.com • visageimaging.com 

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