Reply from Andrew Harrison

I wrote to Andrew Harrison suggesting that we needed more information as to why the cap raise was a good idea before voting.   Reply underneath - I am voting all my shares yes and taking up my entitlement

Thank you for your email.  I am working through replying to a range of investors queries on the capital raising.

I have set out below the reason we have undertaken a capital raising, the underlying business performance, and the better outlook for the future.

The recent performance of the business has been unacceptable and since taking over late last year I have taken a number of steps to drive better performance and along with regulatory changes in our favour should provide a solid base for a more optimistic outlook.

While we expect to take out up to $4 mill of overhead costs in this financial year, see the green shoots of growth in the total Medicare billings in our markets, and the reduced regulatory headwinds, our total debt position remained high.  Total debt owed by the business is in excess of $100 mill ($88 mill net of cash) and in the range of 4.3 times EBITDA at the half year ending Dec 2016 (See chart below).  In terms of comparable listed entities this is around double the level that is generally acceptable.  We noted last year that along with cost reduction and staff re-engagement that deleverage was a top priority for the Company.  Possible options we have considered included asset sales and capital management.


Improving company performance along with a more optimistic industry view from investors delivered some recovery in our share price and institutional interest in our stock.  We have seized upon that to provide certainty that we can reduce debt to acceptable levels, initially through raising capital, then applying increased earnings for further debt reduction.  The result based on our FY17 earnings guidance is Net Debt/ EBITDA in the range of 1.9 – 2.3 x at the end of FY17.

This provides 2 very important building blocks for a recovery in our share price, 1) the capital was placed to a handful of well-respected institutional investors that cornerstone the rebuilding of a institutional share register, and 2) unlocking a higher EV/EBITDA trading multiple that has been enjoyed by some other listed peers with more acceptable levels of gearing.

Without significantly reducing our debt levels cashflow would have to be focussed on debt reduction rather than shareholder returns and dividends.

We have also tried to include to the extent possible (given we need certainty of the quantum of $ raised to achieve the reduced leverage target) all shareholders through the SPP offer.

In raising this money the board weighed up the dilutive effects versus the certainty and stability of reducing leverage and decided to move ahead with the placement.  As a large shareholder myself I agree that dilution is never welcomed, but sometimes (as in this case) necessary.

The capital raised will go exclusively to reduce leverage.  All materials used to present to institutional investors has been released to the market through the ASX platform.

There are a number of reasons to be optimistic, among them our recent Joint Venture in China, transfer of full MRI license to Olympic Park from our Mildura practice, exciting developments at ENLITIC, improved regulatory environment, and growth in future earnings.  On the back of these along with the capital raising, recent analyst reports suggest price targets in excess of $0.20 per share.   Without this capital raising we would be need to consider asset sales, as a substantial reduction in debt through free cash generation would be a number of years away.

I urge my fellow shareholders to support the approval of the placement at the upcoming EGM, and if possible take up their SPP entitlements.  As the resolution to approve the placement is an ordinary resolution, it requires more than 50% of the votes (by attendance or proxy) that are voted to be in favour.

Regards

Andrew Harrison
Managing Director