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MANAGER COMMENT LHC CUMULATIVE NET RETURNS j LHC Capital Partners Pty Limited AFSL: 438285 ABN: 15 163 162 561 LHC MONTHLY NET RETURNS Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD 2015 0.65% 6.29% -0.59% 3.36% 2.27% 0.08% 5.42% 2.46% -0.22% 21.25% 2014 1.06% 2.14% 2.98% -0.87% 1.07% 0.38% 3.00% 1.01% - 0.04% 1.49% -2.70% 3.05% 13.14% 2013 0.12% 3.01% 1.83% 2.45% 2.95% 0.82% 9.70% 0.64% 7.94% 6.74% 5.34% -1.86% 46.85% 2012 3.77% 4.16% 2.27% 0.71% -2.65% -1.86% -1.17% 2.12% 3.40% 1.49% 4.22% 3.03% 20.96% LHC CAPITAL AUSTRALIA HIGH CONVICTION FUND Monthly Report – September 2015 The LHC Capital Australia High Conviction Fund returned -0.22% during September. The Fund’s long positions contributed -0.94% and the short positions contributed +0.72% to performance. In September the Fund established a long position in Pro Medicus (PME), which made a significant contribution to performance. PME develops and sells software used by radiology practices and hospital groups to view medical images. Their software delivers images to specialists and referring physicians for diagnostic and clinical viewing, and is increasingly utilised on an enterprise-wide basis, distributing everything from X-rays to CT/PET scans. Over the past 24 months the company has experienced a material uplift in contract wins in the United States, and we anticipate that their exceptional performance will continue. A series of industry and company specific dynamics are supporting increased sales of PME’s Visage software. Visage is widely recognised as a cutting-edge solution that is ideal for integrating and displaying the wide range of imaging data produced by enterprise health systems. PME invested in their technology ahead of the curve, and have developed a best-of-breed solution that satisfies both the current and future needs of their growing $4 billion target market. As PME’s larger competitors derive far greater revenues from imaging hardware sales than than software sales, they have failed to improve their software products, a segment of their business which is usually loss-making. This has occurred in the context of accelerating demands for speed and efficiency - Visage can deliver images in seconds rather than minutes; performance which few competitors can match. Consequently, Visage is priced at a significant premium to its competitors. The superiority of Visage was demonstrated in April 2014 when PME won a 6 year, $26 million contract with Sutter Health, a top 10 US health system. At this point PME had a limited track record in the US, and thus being selected demonstrated great confidence in their product. Sutter acts as an ideal reference site for PME that provides certainty to other potential enterprise customers. The company has since won several multi-million dollar contracts whilst commanding a premium price, including an $11 million, 5 year deal announced in September. Their reputation and footprint is growing in step with increased opportunities as they are invited to more tenders; the value of PME’s pipeline has doubled in the past year, and the long-term nature of their contracts provide excellent earnings visibility. Moreover, the company enjoys a low, relatively fixed cost base which will deliver substantial operating leverage as their contracted revenues grow in the years to come.