For the six months ended 30 September 2016 - Orion Health · PDF file5 Orion Health Interim...

For the six months ended30 September 2016

ContentsLetter from the Chairman and CEO 4

Financial Performance 6

Financial Commentary 7

Independent Review Report 15

Financial Statements 16

Directors 27

Directory 28

There are forward-looking statements included in this Interim Report. As forward-looking statements are predictive in nature, they are subject to a number of risks and uncertainties relating to OHE, its operations, the markets in which it competes and other factors (some of which are beyond OHE’s control). As a result, actual results and conditions may differ materially from those expressed or implied by such statements.

4Orion Health Interim Report

for the six months ended 30 September 2016

Dear Shareholder

We are pleased to update you on Orion Health’s progress in the first half of the 2017 financial year. We have completed a solid first half showing improved performance, particularly in the United States and a path to profitability during fiscal year 2018. Our business expansion through the period is such that we estimate the number of patient health records managed by Orion Health software to now be over 110 million. This important metric evidences Orion Health’s steady progress towards its goal of being the custodian of the world’s health records.

Operating Revenue of $104m represents 9% growth in constant currency terms (2% GAAP) and we expect to see even stronger growth in the second half of the year. Recurring revenue is 44% of Operating Revenue, up from 41% in 1H2016 and we are ahead of schedule in achieving our goal of exceeding 50% recurring revenue in 2019. We are managing our cost base prudently and, coupled with increasing revenues, we have seen margins improve in implementation, support and managed services. Overall regional contribution has improved from 14% to 24% and we expect further improvement in the second half of the year.

After two challenging years in the U.S. there is clear evidence of business improvement with a return to growth and a significant increase in contribution. Overall our outlook remains positive, albeit we are operating in a period of some uncertainty in the U.S. as the Trump administration prepares to take office. There has been some commentary about changes in the healthcare regulatory environment, however we note that there is bipartisan support for Healthcare IT initiatives and adoption. Past experiences suggest that change in regulatory environments often creates opportunity from an information systems perspective. In this environment, it is possible that some customers may defer decisions in the short term although we have seen no evidence of any deferral thus far.

As already noted, we expect growth to accelerate in 2H2017, which will result in satisfying overall revenue growth for the year albeit less than 20% in constant currency. However, in the circumstances, it is difficult to be precise in forecasting the timing of transactions for the balance of the current fiscal period.

We have continued to invest in R&D at similar levels through the period and managed our overheads. Good cost control, together with a significant step up in performance in North America, has delivered an Operating Loss for the six months of $17m, a $10m improvement from 1H2016.

The past twelve months have been marked by substantial volatility in the New Zealand currency against the primary currencies in which Orion Health trades. The significant appreciation of the New Zealand currency in the past six months has muted our revenue growth in GAAP terms and affected our regional contribution and cash balances.

With the New Zealand dollar representing less than 7% of our revenue, the inherent volatility of the NZ$ will inevitably result in corresponding volatility in reported revenue and contribution in GAAP terms from year to year.

Cash balances at 30 September stand at $24m. The net cash outflow for the period of $33m reflects the Operating Loss of $17m and abnormally large timing differences in receipts from customers, primarily reflected in the adverse movement of $14m cashflow impact of the reduction in the revenue in advance liability. The outlook for continuing revenue growth and improved EBIT is such that the Board continues to believe that the company has sufficient cash and facilities to execute its strategy until profit is generated, which it still expects to occur during FY2018.

The first half of this financial year has been characterised by the actioning of many of the new initiatives and customer deployments that we announced at the end of FY2016.

Strategic partnerships

Of particular note is our strategic alliance with the Fortune 500 Information Services Company, Cognizant to deploy the Amadeus precision medicine platform. The first sale occurred in April with EmblemHealth, one of the U.S.’s largest health insurers, serving 3.4m people in the New York tristate area.

This significant contract is an excellent start to what we believe will be an extremely fruitful partnership. Cognizant’s reach is immense and the pipeline of opportunities is expanding. Its solutions touch over half of the U.S.’s insured population and reach more than 250,000 healthcare providers. The benefits of the partnership include Cognizant’s large and dedicated sales force, its significant customer base and its expansive technology agenda. Together we are collaborating on an innovative development programme in North America.

The Cognizant alliance is another example of a global tier one technology vendor choosing to partner with Orion Health because of our proven technology and innovative product roadmap. We have also renewed and expanded our 15-year partnership with Philips. The new fixed term OEM enterprise license agreement will enable the company to deploy Orion

Letter from the Chairman and CEO

5Orion Health Interim Report for the six months ended 30 September 2016

We are also investing in the future of precision medicine as a co-founder of Precision Driven Health (PDH), the seven-year NZ$38m research joint venture aimed at improving health outcomes through data science. PDH has received over 70 research proposals, with the first two projects announced at the official launch in early October. This research will become a key contributor to the development of Orion Health’s product roadmap.

We continue to be recognised by prestigious organisations globally. FierceMarkets, a global technology business publisher with two million subscribers, awarded Orion Health its annual Innovation Award for Health Information Exchange. We were recently awarded the 2016 European Frost & Sullivan Award for Product Leadership and in June we received the 2016 Canadian Health Informatics Award for ‘Innovation in the Adoption of Health Informatics’.

Finally, in September, we welcomed Ronald Andrews to our board as an independent director. Ronald has close to 30 years in governance and executive roles in the U.S. Clinical and Molecular Diagnostics industry and has extensive experience working with the U.S. government in Washington D.C. Most importantly, he shares our vision of enabling a revolution in healthcare so that every individual receives the perfect care for them. The board, along with our talented team at Orion Health, are united in this goal and we thank you, our shareholders, for your support and commitment to our company.

Andrew FerrierChairman

Ian McCraeDirector and Chief Executive Officer

28 November 2016

Health’s Rhapsody Integration Engine embedded in its medical equipment and software solutions.

Regional overview

From a regional perspective, North America is showing pleasing improvement following the restructuring programme in the previous year. We are pleased to report Cal INDEX is gaining market momentum having recently signed four Provider groups encompassing 11 hospitals and six medical groups and expects more signings before the end of the year. Earlier this month we secured a significant contract extension to provide a service to manage primary care integration with a Canadian Province, which has been a long-term customer. In April, we announced a major contract with another large Canadian province to provide managed services for its existing care coordination solution. In June, we signed an agreement with Minnesota state-certified health information organisation Koble-MN to deploy the Amadeus precision medicine platform. We continue to focus on transitioning our existing customers to Amadeus in the public cloud.

In EMEA we secured the first contract for our Enterprise solution in the United Arab Emirates in June, with leading maternity provider Oasis Hospital. This followed the announcement in April that Orion Health had signed contracts with two hospitals in London, and is implementing an integrated and social care solution for NHS Fife in east Scotland.

Significant New Zealand milestones were achieved in the APAC region, with the Regional Health Informatics platform going live in Whanganui and the Burwood Hospital opening in Christchurch, marking the start of SIPICs (South Island Patient Information Care System). We continue to make good progress across the Tasman, with the announcement in April of an agreement with Metro North, one of the largest health services in Queensland.

Innovation and recognition

The expansion of our global footprint has meant that the estimated number of patient health records managed by Orion Health software has increased to over 110 million. This ensures we are strategically positioned for the move of patient health records to the cloud. Our cloud partner Amazon Web Services (AWS) continues to extend its reach and we expect it to announce healthcare cloud availability beyond the U.S. into most of the markets that we operate over the coming months, enabling the launch of the Amadeus precision medicine platform as a cloud delivered service. Orion Health has received a ‘well architected’ designation from AWS, which is further endorsement of our product roadmap.



$104m Operating Revenue 9% constant currency growth on 1H2016

44% Recurring RevenueCompared to 41% in 1H2016

$25m Regional contribution$11m improvement on 1H2016

$32m R&D expense In line with R&D expense in 1H2016

Financial Performance

$17m Operating loss Strongest operating performance since IPO

$24m Net cash balance


The results for the six months to 30 September 2016 reflect improving business performance and the drive toward profitability through cost control in the face of currency headwinds. Operating Revenue growth from 1H2016 to 1H2017 of 2% was affected by adverse foreign exchange movements against the New Zealand dollar. On a constant currency basis our Operating Revenue growth was 9%, which comprised 18% growth in North America, (11)% decrease in EMEA and 1% growth in APAC.

We have seen promising improvement in our North America results following the restructuring, which took place earlier in the year. EMEA has been through a challenging period following exceptional growth in FY2016, which has turned the focus to implementing recently won contracts. APAC had a steady 1H2017 as it lays the platform to upgrade existing customers and shift to a subscription based business.

We are continuing to progress our change to a subscription model with recurring revenue now 44% of Operating Revenue as we track towards achieving greater than 50% Recurring Revenue over the next three years. We continue to sell Perpetual License contracts where appropriate and often see these contracts roll over with expanded usage as was demonstrated in our recent Philips agreement, signed in 1H2017. Our annualised recurring revenue is now $86m, which is up $1m since 31 March 2016 and has been challenged by foreign exchange movements. In constant currency annualised recurring revenue has increased by $6m.

Operating expenses decreased to 119% of Operating Revenue in 1H2017 from 128% in the first half of the 2016 financial year. Through prudent cost control we have seen our operating loss decrease to $17m, a $10m improvement on 1H2016. We remain focused on driving the business to profitability during FY2018 and believe this demonstrates our commitment to reach this target.

FinancialCommentary

Cash and Financial PositionCash balances at 30 September stand at $24m. The net cash outflow for the period of $33m reflects operating losses of $17m and abnormally large timing differences in receipts from customers, primarily reflected in the $14m cashflow impact of the reduction in revenue in advance.

The company has maintained a longstanding and supportive banking relationship with the ASB Bank. Following a review with the ASB, the company has just renegotiated its facilities on more favourable terms. The Board continues to believe that the company has sufficient cash and facilities to execute its strategy until profit is generated, which it still expects to occur during FY2018.

Research & DevelopmentExpenditure on R&D was $32m in 1H2017. This is in line with the corresponding period in the 2016 financial year. We expect to continue to see modest growth in R&D in the future and R&D as a proportion of revenue will decrease as revenue grows. R&D investment remains staff-driven with the focus on improvement in the functionality of Amadeus, automation, developing value added applications and maintenance of existing products.



Summary Financial Results

Operating Revenue 1H2017 (NZ$m) 1H2016 (NZ$m)

Implementation Services 31.2 36.3

Perpetual Licenses 26.0 22.8

Managed Services 25.8 21.7

Support Services 19.9 19.8

Other 1.3 1.1

Total 104.2 101.7

Segment Contribution

Implementation ServicesContribution %

5.819%

7.320%

Perpetual Licenses 26.0 22.8

Managed ServicesContribution %

5.220%

1.78%

Support ServicesContribution %

17.689%

16.985%

Other 1.9 0.7

Regional Sales, Marketing and G&A (31.3) (35.4)

Regional Contribution - external 25.2 14.0

Other Income 2.5 2.6

Research and Development (31.6) (31.5)

Corporate Expense (12.4) (12.5)

Net foreign exchange gain (loss) (0.2) 1.1

Operating Loss (16.5) (26.3)

Net Finance Income 0.1 1.3

Loss before Income Tax (16.4) (25.0)

Income Tax Expense (1.6) (1.9)

Loss after Income Tax Expense (18.0) (26.9)


Currency Impacts Constant currency information is prepared each month to enable the Board and management to monitor Orion Health’s underlying financial performance without the distortion caused by fluctuations in currency. This is of particular relevance for assessing Orion Health’s underlying business performance given it reports in NZD, but less than 7% of its revenue is earned in NZD.

The table below provides estimated NZ dollar results that would have been achieved if FY2017 budget exchange rates had been applied to both periods. FY2017 budget exchange

rates have been applied to 1H2017 and 1H2016 to provide constant currency percentage change information contained in this financial commentary. Information that is provided on a constant currency basis in this Financial Commentary is shown in italics. The constant currency analysis is non GAAP financial information, as defined by the NZ Financial Markets Authority, and has been provided to assist users of financial information to better understand and assess the company’s financial performance without the impacts of spot foreign currency fluctuations.

Operating Revenue 1H2017 (NZ$m) 1H2016 (NZ$m) % Change

NA 75.6 64.0 18%

EMEA 20.5 23.0 (11)%

APAC 16.4 16.3 1%

Total 112.5 103.3 9%

Regional Contribution external – before abnormal items

NA 24.4 4.8 414%

EMEA (0.3) 7.2 (104)%

APAC 3.6 3.2 12%

Total Regional Contribution 27.7 15.2 82%

The significant exchange rates used in the constant currency analysis, being the budget exchange rates for the year ending 31 March 2017, are USD 0.65, GBP 0.44, CAD 0.88, EUR 0.62, AUD 0.91.

Regional Summary – Constant Currency

Orion Health is exposed to movements in foreign exchange rates. The value of the New Zealand dollar moved higher against most of the currencies in which the company operates. Revenue earned in each of the major currencies is shown above.

Other currencies 3%

US Dollars 64%

British Pounds 13%

Euros 3%

Australian Dollars 5%

New Zealand Dollars 6%

Canadian Dollars 6%



Support Services Implementation Services

Perpetual Licences

Managed Services

Other

1H16 1H17

19.919.8

21.7 25.8

26.0

31.2

22.8

36.3

1.1

Operating Revenue by Type NZ$m

Operating Revenue by Region NZ$m

1H16 1H17

69.762.3

22.817.9

16.216.2

104.2m

1.3

101.7m

104.2m 101.7m

0.4 0.4

North America APACEMEA Other



% Change Constant Currency

Implementation Services 14.2 22.3 (36)% (33)%

Perpetual Licenses 21.3 9.7 120% 136%

Managed Services 23.0 19.9 16% 21%

Support Services 10.5 9.9 6% 10%

Other 0.7 0.5 27% 35%

Total 69.7 62.3 12% 18%

Regional Contribution


3.122%

5.424%

(43)% (40)%

Perpetual Licenses 21.3 9.7 120% 136%


3.917%

1.16%

255% 279%


9.591%

7.980%

20% 25%

Other 1.7 0.6 200% 222%

Sales, Marketing and G&A expense (17.4) (19.7) 12% 9%

NA Contribution external - before abnormal items 22.1 5.0 339% 414%

North AmericaNorth America was our strongest performing region in the first six months of the financial year and remains our largest region in dollar terms with Operating Revenue growth of 18% on a constant currency basis, compared to the same period last year. This was primarily as a result of strong Perpetual License sales and steady growth in Managed Services. Our perpetual revenue growth was driven by a strong performance by our Rhapsody activities where demand continues to increase and was assisted by the new agreement with Philips, a leader in healthcare technology. The new fixed term OEM enterprise license agreement enables Philips to embed Orion Health’s Rhapsody Integration Engine in a wider range of medical equipment and software solutions.

Cal INDEX is gaining market momentum having recently signed four provider groups encompassing eleven hospitals and six medical groups, and Cal INDEX expect more signings before the end of the year. The fall in Implementation revenues and associated contribution is largely as a result

of delays in anticipated contracts in Canada. Recent and anticipated contract success will see these revenues increase moving forward.

We continue to prepare for the transition of existing customers to Amadeus in the public cloud and anticipate that this will occur over the next 18 months. When the transition to the public cloud is completed we will achieve greater scale economics and improved contribution. The improvement in managed service contribution isstarting to occur with a contribution of 17% in 1H2017 compared to 6% in 1H2016.

As a result of growth in revenue and improved contribution, we were able to achieve a record contribution of $22.1m for 1H2017 in North America. We believe North America is positioned for continued growth after the restructuring, which occurred earlier in the year and anticipate we will recognise the benefits of scale as we grow in the region.





Implementation Services 8.7 6.8 27% 40%

Perpetual Licenses 2.7 9.7 (72)% (66)%


Support Services 4.3 4.9 (12)% (0)%

Other 0.2 0.1 144% 137%

Total 17.9 22.8 (21)% (11)%



0.78%

0.69%

13% 13%



1.258%

0.857%

55% 92%


3.786%

4.490%

(16)% (6)%

Other 0.2 0.1 144% 137%

Sales, Marketing and G&A expense (9.1) (8.4) (8)% (21)%

EMEA Contribution - external (0.6) 7.2 (108)% (104)%

EMEAEMEA experienced a challenging 1H2017 after growing extensively in FY2016. A combination of the Northern Hemisphere summer period, focusing on existing client execution and needing to backfill the large sales volume from FY2016 lead to a decrease in Operating Revenue of 11% on a constant currency basis. The decrease in Operating Revenue was largely driven by the reduction in Perpetual License sales. These sales are lumpy by nature and we expect to see them to revert to more normalised levels in the near term.

The large customer sales volume in FY2016 was reflected in an increase in Implementation Services revenues of 40% on a constant currency basis as we focused on delivering customer projects. Implementation Services contribution was slightly down at 8% and we remain focused on improving standardisation and automation

in projects undertaken in the region so that they are at levels consistent with our other regions around the world. Regional contribution has fallen as a result of the decrease in Perpetual License revenues and increased investment in sales and marketing to support future growth.

We have a number of deployment projects underway in the UK including the contract for two hospitals in London and NHS Fife in Scotland announced earlier this half. We have reached important milestones in France and are pleased with the results we are achieving in the Paris and Burgundy pilot projects. We are on track to go live with Amadeus for SaCyl, a Spanish Public Healthcare Provider in the region of Castilla y León, in the first half of calendar year 2017. We continue to extend our reach into new markets as demonstrated by the Enterprise deployment we announced at Oasis Hospital in the United Arab Emirates.




Implementation Services 8.3 7.2 16% 17%



Support Services 5.1 5.1 0% 1%

Total 16.2 16.2 (0)% 1%



2.024%

1.318%

57% 57%



0.222%

(0.2)(41)%

189% 196%


4.486%

4.589%

(2)% (1)%

Sales, Marketing and G&A expense (4.9) (5.8) 16% 14%

APAC Contribution - external 3.7 3.2 14% 12%

APACAPAC Operating revenue was flat in 1H2017 compared with the same period last year. As a result of our recent contract wins in Australia we saw an increase in the Implementation Services revenue of 17% on a constant currency basis. There was a decrease in the Perpetual License revenues as we continue to push a change to selling licenses on a subscription basis. All sales in Australia in the first half of the financial year were completed on a subscription basis.

In Australia we are continuing to work through the implementation phase of Queensland Health’s interoperability project and completing strategic projects with Metro North Health Service, Hunter New England Health in NSW and ACT Health. In New Zealand we are pushing forward with our strategy of offering additional products for customers to upgrade existing systems and access new functionality, with good progress across the country.

We have recently reached several key milestones, including the delivery of the Enterprise solution, to facilitate a complete go-live at Burwood Hospital in Christchurch, as part of our South Island Enterprise Development.

We continue to push forward with deploying our Enterprise product throughout South East Asia with the implementation phase in Vietnam for the VINMEC project still underway. We are achieving good progress on major system upgrades in several other Southeast Asian sites that will bring all customers to a sustainable and supportable version of the Enterprise product. Rhapsody sales via existing partners are continuing in China and we are looking to pursue opportunities with additional products where appropriate in the region.




To the shareholders of Orion Health Group LimitedReport on the Interim Financial StatementsWe have reviewed the accompanying interim condensed consolidated financial statements (“financial statements”) of Orion Health Group Limited (“the Company”) on pages 16 to 26, which comprise the balance sheet as at 30 September 2016 and the statement of comprehensive income, the statement of changes in equity and the statement of cash flows for the period ended on that date, and selected explanatory notes.

Directors’ Responsibility for the Financial StatementsThe Directors are responsible on behalf of the Company for the preparation and presentation of these financial statements in accordance with International Accounting Standard 34 Interim Financial Reporting (IAS 34) and New Zealand Equivalent to International Accounting Standard 34 Interim Financial Reporting (NZ IAS 34) and for such internal controls as the Directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Our ResponsibilityOur responsibility is to express a conclusion on the accompanying financial statements based on our review. We conducted our review in accordance with the New Zealand Standard on Review Engagements 2410 Review of Financial Statements Performed by the Independent Auditor of the Entity (NZ SRE 2410). NZ SRE 2410 requires us to conclude whether anything has come to our attention that causes us to believe that the financial statements, taken as a whole, are not prepared in all material respects, in accordance with IAS 34 and NZ IAS 34. As the auditors of the Company, NZ SRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial statements.

A review of financial statements in accordance with NZ SRE 2410 is a limited assurance engagement. The auditors perform procedures, primarily consisting of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. The procedures performed in a review are substantially less than those performed in an audit conducted in accordance with International Standards on Auditing (New Zealand) and International Standards on Auditing. Accordingly we do not express an audit opinion on these financial statements.

We are independent of the Group. Our firm provide other related assurance services and carries out other services for the Group in the areas of advisory services. The provision of these other services has not impaired our independence.

ConclusionBased on our review, nothing has come to our attention that causes us to believe that these financial statements of the Company are not prepared, in all material respects, in accordance with IAS 34 and NZ IAS 34.

Restriction on Distribution or UseThis report is made solely to the Company’s shareholders, as a body. Our review work has been undertaken so that we might state to the Company’s shareholders those matters which we are required to state to them in our review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the shareholders, as a body, for our review procedures, for this report, or for the conclusion we have formed.

For and on behalf of:

Chartered Accountants Auckland 28 November 2016

Independent Review Report



The accompanying notes form an integral part of these financial statements

Consolidated Statement of Comprehensive Incomefor the six months ended 30 September

Note

6 monthsUnaudited

30 Sep 2016NZ$’000

6 monthsUnaudited

30 Sep 2015NZ$’000

Operating revenue 3 104,169 101,679Other income 3,505 2,631Total Income 107,674 104,310

ExpensesDirect operating costs and expenses 18,695 22,347Employee benefits expense 84,095 85,757Promotional expenses 1,277 1,807Administration and other expenses 8,910 10,029Occupancy expenses 5,747 5,157Depreciation and amortisation expense 3,617 3,691Net foreign exchange (gains)/loss 234 (1,153)Other operating losses 1,619 2,990

4 124,194 130,625Operating loss 3 (16,520) (26,315)Finance income 203 1,456Finance costs (68) (111)Finance income – net 135 1,345

Loss before income tax (16,385) (24,970)Income tax expense 1,581 1,883Loss for the period attributable to equity holders of the Parent (17,966) (26,853)

Other comprehensive incomeItems that may be reclassified subsequently to profit or lossCurrency translation differences (1,534) 2,735Total other comprehensive income (1,534) 2,735Total comprehensive loss attributable to equity holders of the Parent (19,500) (24,118)

Earnings per shareBasic and diluted loss per share (cents) (11.2) (16.9)


Note

Unaudited30 Sep 2016

NZ$’000

Audited31 Mar 2016

NZ$’000ASSETSCurrent assetsCash and cash equivalents 24,714 58,576Trade and other receivables 7 49,158 53,487Accrued revenue 16,367 18,851Current income tax asset 373 430

90,612 131,344Non-current assetsNon-current accrued revenue and trade receivables 11 9,955 2,503Deferred tax assets 3,151 3,622Property, plant and equipment 13,688 15,764Intangible assets 3,060 4,148

29,854 26,037TOTAL ASSETS 120,466 157,381LIABILITIESCurrent liabilitiesBank overdraft 7 560 -Trade and other payables 12,961 15,593Current income tax payable 769 555Employee benefits 18,078 15,404Revenue in advance 39,120 57,715Provisions for other liabilities 3,301 3,676

74,789 92,943Non-current liabilitiesTrade and other payables 41 829Revenue in advance 845 869Provisions for other liabilities 953 764Deferred tax liabilities 15 118

1,854 2,580TOTAL LIABILITIES 76,643 95,523NET ASSETS 43,823 61,858EQUITYShare capital 8 158,476 158,651Treasury shares 8 (2,120) (2,787)Share-based payment reserve 8 1,993 1,020Accumulated losses (115,163) (97,197)Foreign currency translation reserve (1,739) (205)Revaluation surplus 2,376 2,376TOTAL EQUITY ATTRIBUTABLE TO THE OWNERS OF THE PARENT 43,823 61,858

For and on behalf of the Board, 28 November 2016

Ian McCraeDirector and Chief Executive Officer

Andrew FerrierChairman

Consolidated Balance Sheetas at 30 September




Consolidated Statement of Changes in Equityfor the six months ended 30 September

Note

Issued capital

NZ$’000

Treasury shares

NZ$’000

Share-based

payment reserve

NZ$’000

(Accumulated losses)/

Retained earnings NZ$’000

Foreign currency

translation reserve

NZ$’000

Asset revaluation

reserveNZ$’000

Total equity

NZ$’000GROUP (unaudited 30 September 2016)Balance at 1 April 2016 158,651 (2,787) 1,020 (97,197) (205) 2,376 61,858

Loss for the period - - - (17,966) - (17,966)Other comprehensive income for the period - - - (1,534) (1,534)

Total comprehensive (loss)/income for the six months ended 30 September 2016

- - - (17,966) (1,534) - (19,500)

Issue of share capital 8 243 - - - - - 243Issue of share capital – employee share schemes 8 (667) 667 - - - - -

Accrual of share-based employee benefits 8 - - 1,222 - - - 1,222

Vesting of shares – employee share schemes 8 249 - (249) - - - -

Total transactions with owners in their capacity as owners

(175) 667 973 - - - 1,465

Balance at 30 September 2016 158,476 (2,120) 1,993 (115,163) (1,739) 2,376 43,823

GROUP (unaudited 30 September 2015)Balance at 1 April 2015 159,752 (4,388) 1,257 (42,797) (1,042) - 112,782

Loss for the period - - - (26,853) - - (26,853)Other comprehensive income for the period - - - - 2,735 - 2,735

Total comprehensive (loss)/income for the six months ended 30 September 2015

- - - (26,853) 2,735 - (24,118)

Issue of share capital 154 - - - - - 154

Issue of share capital – employee share schemes 93 - (93) - - - -

Accrual of share-based employee benefits - - 638 - - - 638

Vesting of shares – employee share schemes - 101 (101) - - - -

Total transactions with owners in their capacity as owners

247 101 444 - - - 792

Balance at 30 September 2015 159,999 (4,287) 1,701 (69,650) 1,693 - 89,456



Consolidated Statement of Cash Flowsfor the six months ended 30 September

Note

6 monthsUnaudited

30 Sep 2016NZ$’000

6 monthsUnaudited

30 Sep 2015NZ$’000

CASH FLOW FROM OPERATING ACTIVITESCash provided from: Receipts from customers 87,590 109,083Interest received 122 1,231

87,712 110,314Cash applied to:Payment to suppliers (39,811) (44,618)Payment to employees (76,545) (81,386)Interest paid (10) (17)Taxation paid (3,011) (3,673)

(119,377) (129,694)Net cash outflow from operating activities 12 (31,665) (19,380)

CASH FLOW FROM INVESTING ACTIVITIESCash provided from:Term deposits - 37,800Cash applied to:Property, plant and equipment – additions (1,115) (1,364)Intangible assets – additions (283) (1,135)Net cash inflow/(outflow) from investing activities (1,398) 35,301

CASH FLOW FROM FINANCING ACTIVITIESCash provided from:Issue of shares - -Net cash inflow from financing activities - -

TOTAL NET CASH INFLOW/(OUTFLOW) (33,063) 15,921

Cash and cash equivalents as the beginning of period 58,576 30,944Effect of exchange rate on foreign currency balances (1,359) 3,724Net cash inflow/(outflow) (33,063) 15,921Cash and cash equivalents at the end of period 24,154 50,589

Composition of cash and cash equivalentsCash and cash equivalents 24,714 50,589Bank overdraft (560) -Total cash and cash equivalents 24,154 50,589

Term deposits – within investing activities - 26,400Total funds available and on deposit 24,154 76,989




1. REPORTING ENTITYThese unaudited consolidated condensed interim financial statements (‘interim financial statements’) for the ‘Group’ are for the economic entity comprising Orion Health Group Limited (‘Parent’ or ‘Company’) and its subsidiaries (together referred to as the Group and individually as ‘Group entities’).

The Parent and Group are designated as profit oriented entities for financial reporting purposes.

These interim financial statements were approved by the Directors on 28 November 2016.

2. BASIS OF PREPARATION OF FINANCIAL STATEMENTSThese interim financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice and comply with the requirements of International Accounting Standard (IAS) 34 Interim Financial Reporting and with New Zealand Equivalent to International Accounting Standard (NZ IAS) 34 Interim Financial Reporting.

The interim financial statements of the Group for the six months ended 30 September 2016 have been prepared using the same accounting policies and methods of computation as, and should be read in conjunction with, the financial statements and related notes included in the Group’s Annual Report for the year ended 31 March 2016.

The preparation of the interim financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the interim financial statements. Actual results may differ from these estimates. The same significant judgements, estimates and assumptions included in the notes to the financial statements in the Group’s Annual Report for the year ended 31 March 2016 have been applied to these interim financial statements.

The comparatives figures in these interim financial statements have been presented on a consistent basis with the prior year, except for a reclassification of $2,458,000 of costs from 'Direct operating costs and expenses' to 'Other operating losses' for consistency with the classification adopted in both the annual financial statements for the year ended 31 March 2016 and the current period interim financial statements.

3. SEGMENT INFORMATIONThe Group has four reportable segments, three of which are the regions of the Group’s business operations in the sale, implementation, hosting and support of software in the healthcare IT market and one is for corporate and development. For each reportable segment the Executive Leadership Team (‘ELT’, our Chief Operating Decision Maker) reviews internal management reports on a monthly basis.

Information regarding the results of each reportable segment is included below. The segment contribution is the key measure of performance, as included in the internal management reports that are reviewed by the ELT. The segment contributions shown below are non-GAAP measures. The assets and liabilities of the Group are reported to and reviewed by the ELT in total and are not allocated by operating segment. Therefore, operating segment assets and liabilities are not disclosed.

There has been a reallocation of research and development expenses and recharges from the regions to Corp/Dev and a provision from Corp/Dev to the regions. The comparatives have been restated to align with the new reporting structure.

Segment revenue is based on customer location.

The inter-segment transactions are to meet the Group’s international transfer pricing policies.

Condensed Notes to the Financial Statementsfor the six months ended 30 September


3. Regional segmentation by category of product/service:

6 months to 30 September 2016Unaudited

NANZ$’000

APACNZ$’000

EMEANZ$’000

Corp/DevNZ$’000

TotalNZ$’000

Revenue – externalPerpetual licenses 21,315 1,950 2,743 - 26,008Implementation services 14,209 8,311 8,696 - 31,216Support services 10,453 5,091 4,316 - 19,860Managed services 22,994 803 2,015 - 25,812

Other revenue 711 30 152 380 1,273

Operating revenue 69,682 16,185 17,922 380 104,169

Segment contribution – external 22,115 3,684 (592) (41,493) (16,286)

Inter-segment transactions (17,665) (1,018) 842 17,841 -

Segment contribution 4,450 2,666 250 (23,652) (16,286)

6 months to 30 September 2015Unaudited, Restated

NANZ$’000

APACNZ$’000

EMEANZ$’000

Corp/DevNZ$’000

TotalNZ$’000

Revenue – external

Perpetual licenses 9,702 3,386 9,703 - 22,791

Implementation services 22,264 7,193 6,836 - 36,293

Support services 9,870 5,075 4,901 - 19,846

Managed services 19,893 484 1,319 - 21,696

Other Revenue 558 76 62 357 1,053

Operating revenue 62,287 16,214 22,821 357 101,679

Segment contributionexternal - before abnormal items 5,037 3,232 7,200 (41,437) (25,968)

Abnormal items (1,500) - - - (1,500)

Segment contribution - external 3,537 3,232 7,200 (41,437) (27,468)

Inter-segment transactions (6,147) (5,945) (6,093) 18,185 -

Segment contribution (2,610) (2,713) 1,107 (23,252) (27,468)



Reconciliation from segment contribution to consolidated operating loss:

6 monthsUnaudited

30 Sep 2016NZ$’000

6 monthsUnaudited

30 Sep 2015NZ$’000

Segment contribution (16,286) (27,468)Net foreign exchange gains/(loss) (234) 1,153Operating loss (16,520) (26,315)

4. OPERATING EXPENSESThe following disclosure provides additional information in relation to expenses included within the Consolidated Statement of Comprehensive Income.

6 monthsUnaudited

30 Sep 2016NZ$’000

6 monthsUnaudited

30 Sep 2015NZ$’000

EXPENSES: BY FUNCTIONResearch and development 31,593 31,548Sales and marketing 17,230 21,004Implementation services 25,439 29,109Support services 2,218 2,980Managed services 20,575 20,037General and administration 27,139 25,947

124,194 130,625

5. TAXATIONIn accordance with section DB34(7) and EE1(5) of the Income Tax Act 2007, the Group has elected to defer the deduction of research and development expenditure of $46,364,000 incurred in the 2015 financial year, previously classified as income tax losses carried forward. The Group intends to elect to defer a further $57,070,000 of research and development expenditure incurred in the 2016 financial year, and $17,334,000 for the six months ended 30 September 2016.

As at 30 September 2016 the Group has $120,768,000 total research and development expenditure that is deferred or intended to be deferred, and unrecognised income tax losses in New Zealand of $30,840,000. As at 30 September 2015, the tax losses carried forward amounted to $107,952,000 and no election had been made at that time to defer research and development expenditure.

6. ADDITIONS AND DISPOSALS OF NON-CURRENT ASSETSDuring the six months ended 30 September 2016, the Group acquired property, plant, equipment and software assets with a total cost of $1,711,635 (30 September 2015: $3,266,000).

Property, plant & equipment with a net book value of $529,674 was disposed of during the period (30 September 2015: $53,000).

7. BANK FACILITYThe Group maintains a multi-currency working capital facility with a limit of NZD 30,000,000 (2015: NZD 10,000,000) and a standby facility with a limit of NZD 10,000,000. The NZD 30,000,000 working capital facility expires on 23 May 2018.

On 25 November 2016 a formal amendment to the facility agreement was approved by the Group’s bankers providing for an extension of the expiry date of the standby facility to coincide with the expiry of the working capital facility, and the relaxation of a key financial covenant.


8. SHARE CAPITAL

6 monthsUnaudited

30 Sep 2016No. shares

12 monthsAudited

31 Mar 2016No. shares

Balance at the beginning of the period 159,916,167 160,557,586Issue of ordinary shares 127,679 108,581Shares cancelled (166,667) (750,000)Ordinary Shares on issue at the end of the period 159,877,179 159,916,167Treasury shares (636,554) (803,221)Net Ordinary Shares on issue at the end of the period 159,240,625 159,112,946

Share-Based PaymentsOrion Health Long Term Share Incentive SchemeThe Orion Health Long Term Share Incentive Scheme (‘LTI Scheme’) was introduced for selected executives and employees of the Group. The number of awards is determined by the Board of Directors taking into account the recommendations of the Remuneration Committee of the Board.

The Group has no legal or constructive obligation to repurchase the shares or settle the LTI Scheme for cash.

There were six active variants of this scheme as at 30 September 2016. The extent of the range is driven by the requirements of local law in different countries.

The six active variants of this scheme as at 30 September 2016 were:

(a) Share Awards Scheme (SAS)(b) Extended Share Awards Scheme (ESAS)(c) Restricted Stock Award Agreement (RSAA)(d) Restricted Stock Unit Agreement (RSUA)(e) Restricted Stock Unit Scheme (RSUS)(f) Varied Restricted Stock Unit Scheme (VRSUS)

Movements in the total number of shares held by the Trustee in relation to the SAS, ESAS and RSAA variants of the LTI Scheme are as follows:

6 monthsUnaudited


6 monthsUnaudited


Unvested shares at the beginning of the period – allocated to employees 437,174 1,432,886Awarded pursuant to the LTI Scheme -Forfeited (50,050) (33,750)Vested - (40,000)Unvested shares at the end of the period – allocated to employees 387,124 1,359,136Shares held by Trustee and not yet allocated – beginning of the period 362,001 160,335Shares issued - -Shares cancelled - -Awarded pursuant to the LTI Scheme - -Forfeited and unallocated (28,750) 33,750Shares held by Trustee and not yet allocated – end of the period 333,251 194,085

Both facilities are secured by a general security deed over all the present and future assets and undertakings of the Group. In funds balances and any overdrafts held with ASB Bank are subject to a netting arrangement. This allows for settlement on a net basis in the event of default.

The facilities are subject to a number of external bank covenants. These covenants are calculated and reported either monthly or quarterly. The Group has complied with all tested covenants during the current and prior year.



SASNo. of

Shares

RSAANo. of

Shares

RSPANo. of

Shares

ESASNo. of

Shares

RSUANo. of Units

ERSUANo. of Units

RSUSNo. of Units

VRSUSNo. of Units

Unvested shares/units at 1 April 2016 131,250 74,090 - 33,334 63,997 - 472,253 329,480

Awarded pursuant to the LTI Scheme - - - - - - 923,344 -

Forfeited (28,750) (21,300) - - (22,780) - (170,534) -Vested - - - - (19,812) - - (57,650)Unvested shares/units at 30 September 2016 102,500 52,790 - 33,334 21,405 - 1,225,063 271,830

Unvested shares/units at 1 April 2015 245,756 78,136 750,000 200,000 165,350 250,000 - -

Awarded pursuant to the LTI Scheme - - - - - - 472,253 -

Forfeited (33,750) - - - (6,686) - - -Vested (13,334) - - - (25,667) - - -Unvested shares/units at 30 September 2015 198,672 78,136 750,000 200,000 132,997 250,000 472,253 -

Movements in the number of share awards and Restricted Stock Units allocated to employees and outstanding are as follows:

Fair value of awards grantedThe weighted average fair values of the awards granted during the period under RSUS variants was $3.14 (30 September 2015: RSUS variant $3.57).

The RSUS variant has been valued using a Black-Scholes (Merton) pricing model with a Monte Carlo simulation approach. The key inputs for the rights granted in the current period were as follows:

Weighted average

share priceNZ$

Expected volatility of share price

%

Expected volatility of peer group comparatives

%

Contractual life

years

Risk free rate

%

Expected divided

yield%

Restricted Stock Unit Scheme – 30 September 2016 3.22 37.8 21.3 3.0 2.02 -

Restricted Stock Unit Scheme – 30 September 2015 4.87 38 27 3.0 3.09 -


9. RELATED PARTIES(a) Key management compensationKey management includes Directors (executive and non-executive) and members of the Executive Leadership Team. The compensation paid or payable to key management personnel for employee services is as follows:

6 monthsUnaudited

30 Sep 2016NZ$’000

6 monthsUnaudited

30 Sep 2015NZ$’000

Short-term employee benefits 3,639 3,645Share-based payments 941 606Directors’ fees 234 258

4,814 4,509

As at 30 September 2016, the ELT consisted of 20 members (30 September 2015: 18 members).

(b) Transactions with related partiesMcCrae LimitedThe Group is controlled by McCrae Limited, which owned 50.58% of the shares in the Parent as at 30 September 2016 (31 March 2016: 50.56%). McCrae Limited is the Group’s ultimate parent. The Group’s ultimate controlling party is Ian Richard McCrae.

Pioneer Capital PartnersNeil Cullimore, Director, is an Operating Partner at Pioneer Capital, which provided professional services to the Group. These transactions were at arm’s length on normal trade terms.

(c) Trading transactionsDuring the period, Group entities entered into the following transactions with related parties:

Precision Driven HealthThe Group has entered into an agreement with Auckland UniServices Limited and Waitemata District Health Board, under which the parties have agreed to jointly undertake research activities in the area of precision driven medicine. Transactions with Precision Driven Health were at arm’s length on normal trade terms.

6 monthsUnaudited

30 Sep 2016NZ$’000

6 monthsUnaudited

30 Sep 2015NZ$’000

Purchase of goods or servicesPioneer Capital Partners 1 1Sale of goods or servicesPrecision Driven Health 153 -

10. CONTINGENT LIABILITIESThe Group has outstanding letters of credit totalling $1,162,000 (31 March 2016: $1,884,000). These include standby letters of credit, lease bonds and performance bonds.



11. EVENTS AFTER REPORTING DATEAs set out in Note 7 the Group negotiated variations to its bank facility during November 2016 providing an extension of the term of the standby facility and relaxation of a key financial covenant.

12. RECONCILIATION OF NET LOSS FOR THE PERIOD WITH NET CASH FLOWS FROM OPERATING ACTIVITIES

6 monthsUnaudited

30 Sep 2016NZ$’000

6 monthsUnaudited

30 Sep 2015NZ$’000

NET LOSS AFTER INCOME TAX (17,966) (26,853)

Adjusted for:

Non-cash items

Depreciation and amortisation 3,617 3,691

Loss on disposal of property, plant and equipment 528 63

Impairment allowance – trade receivables 499 470

Deferred tax 190 (407)

Net (gain)/loss on foreign exchange 234 (1,104)

Share based payments 856 1,126

Impact of changes in working capital items

Increase/(decrease) in trade and other payables (971) 955

Increase/(decrease) in employee entitlements payable 2,943 (1,477)

Increase/(decrease) in revenue in advance (14,187) (6,216)

Increase/(decrease) in provisions for other liabilities 1,006 630

(Increase)/decrease in trade and other receivables (8,751) 9,642

(Increase)/decrease in accrued revenue 1,957 1,483

(Increase)/decrease in taxation payable (1,620) (1,383)

Net cash flow from operating activities (31,665) (19,380)

Included in Non-current accrued revenue and trade receivables is $7,369,000 that the Group is negotiating to be paid in cash before 31 March 2017 by way of a securitisation agreement.


Directors

Change in DirectorsRonald Andrews was appointed as an independent director on 1 September 2016 and elected to the board at the company’s Annual General Meeting on 22 September 2016. Mr Andrews has close to 30 years in governance and executive roles in the US Clinical and Molecular Diagnostics industry. He sits on the Board of Directors for several companies, both public and private, and is active on a number of charitable boards. He has extensive experience working with the US government in Washington and speaks regularly to industry groups. Mr Andrews served as the President of the Genetic Science Division for Thermo Fisher Scientific until December 2014. Prior to this he held a number of high profile executive roles including President of the Medical Sciences Venture within the Life Technologies Corporation, and he served as Chief Executive Officer of Clarient, a public company on the NASDAQ, which was sold to General Electric Healthcare in December 2010

Andrew Ferrier Chairman and Independent Director, appointed December 2011

Roger France Deputy Chairman and Independent Director, appointed February 2013

Ian McCrae Director and Chief Executive, appointed March 2001

Neil Cullimore Non-Executive Director, appointed June 2009

Paul Shearer Independent Director, appointed February 2013 (adviser to the Board since 2006)

Ronald Andrews Independent Director, appointed September 2016



Directory

Our principal administrative and registered office in New Zealand is:Orion House, 181 Grafton Road, Grafton, Auckland 1010, New ZealandPO Box 8273, Symonds Street, Auckland 1150

Telephone: +64 9 638 0600Facsimile: +64 9 638 0699

www.orionhealth.com

Our registered office in Australia is:Level 4, 180 Flinders Street, Melbourne, Victoria 3000

Telephone: +61 3 8376 9447Facsimile: +61 3 8080 0724

www.orionhealth.com

Share registrarsNew ZealandLink Market Services LimitedLevel 11, Deloitte Centre80 Queen Street Auckland 1010

Facsimile: +64 9 375 5990Investor enquiries: +64 9 375 5998Email: [email protected]

www.linkmarketservices.co.nz

AustraliaLink Market Services Level 12, 680 George Street, Sydney, NSW 2000, Australia

Locked Bag A14, Sydney South, NSW 1235, Australia

Facsimile: +61 2 9287 0303Investor enquiries: +61 2 8280 7111Email: [email protected]

www.linkmarketservices.com.au


Notice pursuant to clause 30 of schedule 4 of the Financial Markets Conduct Act 2013Orion Health Group Limited (NBNZ: 9429036974542) of Orion House, 181 Grafton Road, Grafton, Auckland 1010, New Zealand, will be transitioning to the Financial Markets Conduct Act 2013 (FMCA) with effect from 1 December 2016. On and from 1 December 2016, all the requirements of the FMCA will apply to Orion Health Group Limited.

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