Primary Health Care Limited Primary Health Care Limited Takeover - - PowerPoint PPT Presentation

Primary Health Care Limited Primary Health Care Limited

Takeover offer for Takeover offer for Health Communication Network Limited Health Communication Network Limited 10 December 2004 10 December 2004

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Important Notice Important Notice

DISCLAIMER This presentation contains information regarding the proposed offer by Primary Health Care Limited (Primary) of fully paid

• rdinary shares (Shares) as part of a proposed institutional placement (Placement).

This presentation is for distribution only under such circumstances as may be permitted by applicable law and ASX listing rules. The distribution of this presentation and disclaimer in jurisdictions outside Australia may be restricted by law and any such restrictions should be observed. This presentation, including the information contained in this disclaimer, does not constitute an offer, invitation or recommendation to subscribe for or purchase any security and neither the presentation, disclaimer nor anything contained in them forms the basis of any contract of commitment other than in respect of the obligations or parties who agree to accept firm allocations. This presentation does not take into account your individual investment objectives, financial situation or particular needs. You must not act on the basis of any matter contained in this presentation, but must make your own assessment of the Shares subject of the Placement and conduct your own investigations and analysis. No representation or warranty express or implied, is made as to the fairness, accuracy, completeness or correctness of information contained in this presentation, including the accuracy, likelihood or achievement or reasonableness of any forecasts, prospects, returns or statements in relation to future matters contained in the presentation. It is not intended to be a complete statement or summary of the business or securities referred to in the material. To the maximum extent permitted by law, neither Primary or UBS AG (Australia Branch), their related corporations, directors, employees or agents, or any other person, accepts any liability, including, without limitation, any liability arising form fault or negligence, for any loss arising from the use of this presentation or its contents or otherwise arising in connection with it.

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Index Index

Transaction overview – Summary of transaction – Benefits of transaction Overview of HCN – Industry leader – Financial and operational leverage – Core product discussion – Stand alone growth prospects attractive Primary Health Care Combination – discussion – Natural owners of business – Business development – PRY => HCN – HCN => PRY – Timing Financial / funding impact Bid structure and bookbuild

Transaction overview Transaction overview

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Overview Overview

Primary has secured a 19.8% shareholding in Health Communication Network (HCN) and will announce a takeover

• ffer for HCN at $1.75 per share, implying an EV of $100.7m (1)

HCN’s Board will recommend shareholder acceptance of the Primary offer in the absence of a superior offer and the Board has indicated that they intend to accept the Primary offer for their own shareholdings on the same basis To finance this takeover offer, Primary is undertaking an equity placement of 13.3 million shares, underwritten by UBS and a SPP

• f $5,000 per shareholder(2) subject to ASX approval

The transaction is expected to be 5%(3) EPS accretive in 2006

(1) Diluted EV and assuming $12.1 million of surplus cash (2) Maximum 0.9 million shares (3) Assuming 100% ownership of HCN, $1.75 acquisition cost per HCN share and Primary shares are issued at $7.93 (ex entitlement to interim dividend of 11cps

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Combination highlights Combination highlights

HCN and Primary are a natural fit: – Same core markets – Both act as service companies to medical professionals – Both are leaders in their respective fields HCN and Primary afford each other significant new business development opportunities HCN and Primary together further strengthen each company’s service delivery to the gatekeepers of the health care industry

Overview of HCN Overview of HCN

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HCN: Industry leader HCN: Industry leader

HCN is a clear Australian market leader in the provision of electronic desktop services to medical practitioners, medical practices, and hospitals Products: – Clinical software for general practitioners: – 16,000 doctors use Medical Director. Market share 80-85% – Approximately 70 million consultations, 25 million diagnostic tests, 90 million scripts are generated using Medical Director – Practice Management Software for doctors: – 3,500 practices use HCN’s software. Market share 35-40% – Online content and applications for hospitals: – 80% of large Australian hospitals use HCN’s knowledge resources

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HCN: Strategic position HCN: Strategic position

HCN have leading positions in the “gateway” applications: – Gateway to health care transactions – Gateway to Government online health record – Gateway to knowledge sources – Gateway to decision support – Gateway to enhance and manage patient health and associated cost of doing so The HCN businesses are surrounded by strong protective moats: – Functionality and clinical utility of Medical Director, difficult and expensive to replicate – Users develop deep seated preferences for clinical applications

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Strong leverage to revenue growth Strong leverage to revenue growth

Strong sales growth expected in 2005F Strong growth in NPAT

Source: Company accounts / announcements Note: Financials have been normalised for discontinued UK business

5.5 3.5 1.0

2 4 6

2003 2004 2005F

A$m

28.9 26.4 10 20 30 2003 2004 A$m

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28% 38% 34%

Sales revenue 2004 Sales revenue 2004

Source: Company accounts / announcements Note: Financials have been normalised for discontinued UK business

Total $28.9m

State Governments Online health resources Corporates and Governments Main customer Sponsorship, research, transactions, diagnostics Product / revenue GPs Subscription revenue from products including Medical Director and the Practice Management Systems

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HCN: Stand alone prospects HCN: Stand alone prospects

Examples of HCN’s stand alone prospects include: – Integration with the Government’s EPR (Electronic Patient Record) – Improved diagnostics transaction fees – Take-up of auto report on paper transactions

Primary Health Care Primary Health Care

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Primary Health Care Primary Health Care

Primary is a service company to medical and paramedical practitioners: – Developed out of need – Effective and efficient – Development of IT platform critical to efficient, scalable, stable and profitable delivery of service

Combination Combination -

• discussion

discussion

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Primary + HCN = natural fit Primary + HCN = natural fit

Primary and HCN are service companies to medical professionals and have leading positions in the key GP market: – GP market - the gatekeepers of health care delivery Primary understands the customer and the market Both companies have the same key function: – Offering products/services that offers clinical and financial benefits to medical professionals and in turn their patients – Deriving additional value from “add ons” to core functionality HCN offers suppliers an unrivalled position for distribution of services to medical practitioners Desktop solutions and practice management services already key component of service delivered by Primary to medical professionals

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Going forward Going forward

HCN to operate as stand alone business with same stakeholder relationships: – Open access – Encourage and enhance existing relationships HCN to continue to execute its own existing plans HCN to develop and roll out relevant products into Primary centres and to its users Primary to provide new product/service lines to HCN customers

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Combined growth prospects Combined growth prospects

HCN provides the platform that enables Primary to provide “other services” to stand-alone medical practitioners Development of Primary’s common software gateway project: – Enable Primary to provide “other services” to stand-alone practices – Billing, collection and admin services – Medical and other consumable ordering and management – Payroll management – CME, accreditation services – demand for this type of service is apparent

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Combined growth prospects Combined growth prospects

Primary adds another 1,000 professionals and another 3-4 million consultations to the HCN customer base: – Enhanced transactional, sponsorship and other income – New segment of market not currently accessed Enhance the HCN iRIS product (radiology booking and workflow) – add in DDI (radiology image transmission) HCN provides opportunity for providing decision support to Primary Health Care doctors – improved health outcomes for patients

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Timing of combination Timing of combination

HCN’s management has now demonstrated: – the financial viability of HCN together with clinical utility – the strong leverage to grow inherent in the business Primary has now demonstrated: – it is able to concurrently service internal medical practitioner clients and external medical practitioner clients The Government has made its intentions clear with respect to computerised health records The development of both businesses, government objectives clarified, and the IBA bid have crystallised the opportunity for Primary and HCN

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HCN / Primary HCN / Primary

Features of the combined entity – A leading position in providing services to the gatekeepers in the health care industry – An entity that has the capability of enabling health outcome improvements and control health care costs – An entity that has the capability of enhancing communications and integration of the various health modalities – An entity that has the capability of profitably expanding its product / service lines

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Due diligence and integration Due diligence and integration

Due diligence covering the following work streams: – IT – Operations – Financial – Legal

Integration

$2.0 million of synergies Additional revenue opportunities have been identified

Financial / funding impact Financial / funding impact

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Funding and financial impact Funding and financial impact

Transaction is expected to be at least 5%(1) accretive to EPS in 2006 after the capital raising Prudent financial leverage to enable Primary to maximise future expansion opportunities – Greenfield expansion of new centres – Bolt on diagnostic opportunities

(1) Assuming 100% ownership of HCN, $1.75 acquisition cost per HCN share and Primary shares are issued at $7.93 (ex entitlement to interim dividend of 11cps)

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Funding and financial impact Funding and financial impact

104.1 104.1 Total 3.5 Expenses (1.4) 105.5 (1) $m Debt funding / (paydown) Sources 12.1 112.7 $m Net cash Uses Equity raising Diluted market capitalisation

(1) Based on an issue price of $7.93 per share (ex expected interim dividend of 11c per share and excluding any proceeds from the SPP (2) Based on management forecasts and proforma $2.0 million synergies (3) Assuming 100% ownership of HCN

13.1x Interest cover 2005 $93.4m Net debt 2004 14.2x PE (normalised) Proforma combined gearing (3)

(3)

2005 HCN Multiple (2)

Bid structure and bookbuild Bid structure and bookbuild

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Bid structure Bid structure

Primary has secured a 19.8% shareholding in HCN Primary will make an unconditional offer of $1.75 cash for each HCN share HCN’s Board will recommend shareholder acceptance of the Primary offer in the absence of a superior offer HCN’s Board have indicated that they intend to accept the Primary

• ffer for their own shareholdings in the absence of a superior offer

IBA: – own 19.9% of HCN - average price $1.55 – Have offered IBA shares equivalent to $1.72 per HCN Share – Have declared their bid final

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Offer and bookbuild process Offer and bookbuild process

0.9 million Maximum SPP shares(1) 13.3 million Shares to be issued 2.30pm Australian / NZ books closes 10.30am Australian / NZ books open A$7.40 upwards (ex expected interim dividend of 11cps) Price range Institutional and sophisticated investors through Broker Firm Investor participation

(1) Primary intends to offer SPP at the final price ($5,000 per shareholder), subject to ASX approval

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Timetable for offer Timetable for offer

20 January 2005 Offer close (estimate) 20 December 2004 Offer document despatched Date Event 10 December 2004 Capital raising 10 December 2004 Announcement to market of offer and capital raising

Note: Timetable is indicative only and may change. Offer may be extended as permitted by the Corporations Act

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Capital raising and acquisition risks Capital raising and acquisition risks

• Primary is subject to a number of risks associated with the acquisition of HCN. Without

limitation those risks include: – Primary may not gain control of HCN – Primary may not realise the benefits it expects from the acquisition – The proposed integration may be more difficult than expected – Primary may be unsuccessful in retaining key staff – Changes in health care legislation and regulation including changes in reimbursement arrangements with the Government – Primary’s competitors who use the HCN system may choose to seek alternate software providers – HCN may lose contractual suppliers and customers – Competitor products and services may take market share – On completion of the acquisition, Primary will assume certain liabilities and

• bligations of HCN, including legal and regulatory liabilities and obligations which

may not have been identified or indemnified

Q&A Q&A