PRIMARY HEALTH CARE LIMITED Discussion

MAJOR INTEGRATION SAVES $13M WHILE COMBINED PROFIT ON TARGET

Sydney - Monday - April 6: (RWE Aust Business News)
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OVERVIEW
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Ferret by chance was taking in the sun and waves at the weekend
when he bumped into a local surfer who asked how the stock market was
travelling.
The grizzled Ferret declared that last week was the fourth week
in a row that the market had improved.
But he warned that the bears were still lurking around and that
many sectors were going to feel the chill winds of recession and
corporate profit slides.
Ferret was surprised that the local lad had picked a solid
performer in the health care sector called Primary Health Care Ltd
(ASX RY) and had enquired about its progress.
The point being that demand for pathology, medical centres,
radiology and health technology are unlikely to fall despite the economic
climate.
In addition, Primary Health Care merged with Symbion during 2008
and recently reported an excellent half-yearly result, indicating the
strategy of bringing the two companies together had worked well.
Directors said management's focus continued to be on the
integration of Symbion's medical centre, pathology and imaging activities
whilst maintaining the organic growth of the Primary medical centre
business.
The combined group is on track to realise $95-$105 million of
synergies by the end of FY2010 and meet its target of 50 large-scale
medical centres by December 31.
During the period Primary completed the sale of the Symbion
Consumer and Symbion Pharmacy businesses (C&P), with cash proceeds of
$765 million applied to the reduction of debt during the period.
Primary has taken up its option to roll its $1.538 billion
syndicated debt facility until February 2010.
Key features of the half year were:
* Total operating EBITDA of $155 million, up from $59 million in
the prior period;
* Margin improvement in all divisions on a like-for-like basis;
* Underlying organic EBITDA growth of 14 per cent from the
existing Primary large scale medical centre business;
* Successful integration of New South Wales pathology
laboratories;
* Successful sale of C&P businesses and significant reduction of
total debt; and
* Symbion integration on track and expected synergies in line
with expectations.
Meanwhile, Primary has continued to roll out its large scale
medical centres, with 43 of these centres now operational.
EBITDA margin was 53.8 per cent compared to 60.7 per cent for the
prior year Primary stand-alone business.
The decrease is expected and reflects the acquisition of the
lower-margin Symbion medical centres in March.
On a stand-alone basis the large scale Primary medical centres
increased margin from 60.7 per cent to 61.4 per cent while the Symbion
centres achieved an EBITDA margin of 35.6 per cent, a very significant
increase in their historical performance prior to acquisition by Primary.
Primary large scale centres continued to show strong organic
EBITDA growth of 14 per cent over prior period and GP patient growth of
11 per cent in the period.
Integration of the Symbion medical centre business is progressing
well and is ahead of expectations.
A total of 14 Symbion centres have been merged into the Primary
operations.
Doctor retention from these merged Symbion sites remains strong
at approximately 70 per cent of GPs.
Symbion state office operations have been closed.
Operational improvements and efficiencies have been quickly made
with the introduction of Primary's system of medical centre controls and
procedures.
The backfilling and upgrading of certain Symbion sites is now
underway.
The supply of suitable medical centre sites is growing.
Merger of the NSW-based SDS and Laverty pathology laboratories
successfully occurred in the period.
Related synergies are now expected to flow in the second half of
the financial year following this merger and the renegotiation of many
reagents and consumables contracts.
Respective operations had already been successfully merged in
each of Queensland, Victoria and the ACT.
The further automation of the laboratories in Queensland (QML)
and Western Australia (Western Diagnostic) is now a focus for the second
half of the financial year.
During the six-month period EBITDA margin was 17.25 per cent and
has shown an increase of 0.7 per cent from 16.55 per cent by comparison
to the combined Symbion and Primary operations.
Revenue growth for the period for the combined operations was 2.3
per cent.
The growth was satisfactory during a period of transition and
integration for the pathology operations.
On the imaging division, the company reported revenue of $162.2
million and EBITDA of $26.6 million.
After allowing for closed sites, revenues were stable for the
combined Primary and Symbion revenues compared to prior period.
The retention of revenue is satisfactory in a time of significant
change within the imaging division.
EBITDA margins of the combined business have shown a modest
improvement from 16.1 per cent to 16.4 per cent compared to the combined
operations for prior period.
The imaging business specifically is undergoing significant
structural change with a real reduction in workforce numbers occurring
and the introduction of productivity incentive schemes for staff.
In health technology, EBITDA grew by 22 per cent to $6.9 million
reflecting growth in the core Medical Director and other software
products in particular.
Hospital applications and sponsorship EBITDA contributions were
steady in a more challenging environment for those particular products.
Underlying EBITDA margins were firm overall at 30.9 per cent.

SHARE PRICE MOVEMENTS
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Shares of Primary Health Care on Friday rose 7c to $4.74. Rolling
high for the year is $6.63 and low $3.46. Dividend is 12c to yield 2.53
per cent. Earnings per share was a negative 10.14c and the price/earnings
ratio was 46.75. The company has 377.2 million shares on issue with a
market cap of $1.7 billion.
Primary announced that it had completed the sale of Symbion
Pharmacy to Zuellig Australia Pharmacy Services Pty Ltd on October 31.
The net cash proceeds of about $203 million1 have been applied to
reduce the debt facilities established in connection with Primary's
acquisition of Symbion Health Ltd in February 2008.
Tranche B of the Primary Group debt facilities totalling $220
million has now been fully repaid.
Primary's financial adviser is Caliburn Partnership and its legal
adviser is Mallesons Stephen Jaques.

BACKGROUND
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Primary Health Care joined the ASX list on July 3, 1998 and is a
service provider to a wide range of health care professionals which
provide comprehensive care to patients.
The company is a leading medical centre operator in Australia
with operations in all states and territories (with the exception of
Tasmania and the Northern Territory).
Over six million general practitioner consultants per year will
take place in its medical centres.
Additionally, Primary operates licensed and accredited day
surgery facilities, specialist eye clinics and automated pathology
laboratories.
The company claims it is the largest domestic pathology provider.
It has 87 medical centres, 87 pathology labs and 782 collection
centres.
It has a leading presence in the pathology industry with a
presence in all mainland states and the largest pathology business in
Australia (based on number of collection centres).
About 11.5 million pathology episodes per year will be conducted
by the company.
Primary is Australia's second-largest diagnostic imaging network
(by revenue) with a total of 161 diagnostic imaging sites in NSW, the
ACT, Victoria, South Australia and Queensland.
About 2.5 million examinations per year will be conducted.
Primary is also the leading provider of clinical and practice
management software for Australian general practitioners and specialists.
Over 16,000 general practitioners and specialists use Primary's
"Medical Director" clinical software, and 3,500 medical practices use
Primary's practice management software.
Over 80 per cent of Australia's major hospitals use Primary's
online content and information resource tools.
Earnings composition is pathology 47 per cent, medical centres 28
per cent, radiology 19 per cent and health technology 6 per cent.

PRY - Always good for a new appendix.

Nice and green today on what was essentially the Red Sea. And just a little bit of director appendix transplanting action recently too:

Appendix 3Y - Change of Director`s Interest Notice
11-05-2009
Appendix 3Y - Change of Director`s Interest Notice
29-04-2009
Appendix 3Y - Change of Director`s Interest Notice
22-04-2009
Appendix 3Y - Change of Director`s Interest Notice
20-04-2009
Appendix 3Y - Change of Director`s Interest Notice
08-04-2009
Appendix 3Y - Change of Director`s Interest Notice
02-04-2009
Appendix 3Y - Change of Director`s Interest Notice
27-03-2009
Appendix 3Y - Change of Director`s Interest Notice
20-03-2009
Appendix 3Y - Change of Director`s Interest Notice
20-03-2009
Appendix 3Y - Change of Director`s Interest Notice
13-03-2009.......

they are all selling though, aren't they?

sounds like they might just burst.

then they might have to rename themselves to Secondary Health Care.

There is some trading there, but essentially there has been accumulation for some time.

My $3.70 entry is looking healthy (for now).

Absolutely pumping now. Heart beat is strong. Systolic pressure good.

Last Analyst Update: 2 June, 2009

Strong Buy 4
Moderate Buy 7
Hold 5
Moderate Sell
Strong Sell

Contributing Analysts:

SHAW STOCKBROKING LTD
GOLDMAN SACHS JB WERE
J.P.MORGAN
MORGAN STANLEY
COMMONWEALTH EQUITIES RESEARCH
UBS
DEUTSCHE BANK SECURITIES
BAS-ML INTL
BBY LTD.
E.L. & C. BAILLIEU STOCKBROKING LTD.
MACQUARIE RESEARCH EQUITIES
CREDIT SUISSE - AUSTRALIA
CITI
ABN AMRO
AUSTOCK LIMITED
LINWAR SECURITIES PTY LTD

Tuesday 5pm. The recent institutional offer was oversubscribed, so PRY snaffled the excess as well. But with the share price slipping, seems they have tempered their enthusiasm. For the last five days, trades have opened lower with volume rising at each close without an associated significant price increase.

Debt still around $1b on EBITDA of $350m for profit of $12m. Bateman has unloaded 4m of his 50m holding since December.

The usual market commentators, for what their worth, have given it the thumbs up. I buy the long term picture, but what's missing is the govt looking to cut costs by further regulations on health care. No doubt that would be a vote winner.

From a medium term perspective, I'll pass on looking to stag this SPP and wait to see what happens over the next few months as we see a correction before or at the US reporting season.

I agree. I didnt subscribe either. Figured I can bag more cheaper at the end of the year.

Oops. Missed out on that but there's been plenty of others. I'll be running out of readies soon. Anxious time to be a bear with a sore head.

The directors report doesn't inspire confidence but the SP doesn't care. A few things caught my interest.

p5 reduced medicare rebates.

p26 there are reasonable grounds to believe that the Company will be able to pay it's debts. (Maybe this is just accountancy parlance).

p29 Net Assets 2009 2.07b, 2008 1.8b

p46 and p48
checking option exercise dates against prices it seems the smaller volume prices are high whereas the conversion prices for the larger option allocations are very very low. Directors get to cash options in the black even if the share price dives. That doesn't inspire me but I hope the sp continues to rise as I am losing faith in governance and will be glad to exit and look to better stocks with better growth potential as long term holds.