Non-GAAP Financial Information
1. Underlying Earnings
2. Gross Revenue
In addition to reporting results under IFRS, the Abano Board also reports on underlying earnings as it believes this provides a more appropriate representation of Abano’s performance, and more useful information on the ‘normalised’ profit of the company.
Underlying earnings are reported for both Net Profit After Tax (“NPAT” a GAAP compliant measure) and Earnings Before Interest, Tax, Depreciation and Amortisation (“EBITDA” a non-GAAP financial measure) and excludes gains/losses arising on divestment of businesses, IFRS adjustments and impairments, including their tax effect, and both measures are reconciled back to reported NPAT. It is the measure used within the company to evaluate performance, establish strategic goals and to allocate resources.
EBITDA is reported within the segment note in the Financial Statements and is NPAT excluding GAAP compliant net finance expenses, gains/losses arising on sale of businesses, equity accounted investments (the Bay International joint venture), non-controlling interests, tax, depreciation and amortisation costs.
Underlying NPAT and Underlying EBITDA are non-GAAP financial measures and are not prepared in accordance with NZ IFRS.
Revised IFRS 3: Adopted by Abano 1 June 2010
The revised International Financial Reporting Standard 3 was introduced to ensure companies fully disclosed off-balance sheet and other earnings risk, and companies are now required to identify numerous non-cash items in their accounts.
Abano adopted the revised IFRS3 from 1 June 2010. This has changed how Abano reports and accounts for acquisitions and associated acquisition costs.
1. Time Value Interest Component of Acquisition Earn Out
Previously, both the full value of the purchase price and the deferred purchase price payment were capitalised in the balance sheet. Now, under the revised IFRS3, a component of the deferred purchase price payment, which reflects the time value of the deferred payment, is expensed. This does not increase the purchase price, is a non-cash expense and is non-deductible for tax purposes.
2. Change in Estimate of Deferred Payments on Acquisitions
Historically, there was no profit or loss impact from any change in the estimation of the deferred payment during the earn out period, with any movement simply a balance sheet movement. Under the revised IFRS3, any movement in the estimated deferred payment or liability is now expensed and is a non-deductible expense for tax purposes.
If acquisitions perform well, the resulting deferred purchase price payment over the earn out period increases due to the increased performance, and although positive, this also leads to an increased expense in Abano’s Profit and Loss account, providing a negative impact on the Net Profit After Tax.
3. Acquisition costs to be expensed
Historically, costs associated with an acquisition, such as legal or due diligence costs, have been able to be capitalised. Under the revised IFRS3, these costs must now be expensed. This is a non-deductible expense for tax purposes.
The impact of this change means that the level of acquisition related expenses in Abano’s Profit and Loss increases relative to the number and size of acquisitions made. That is, the more acquisitions made, the higher the expense, conversely providing a negative impact on the Net Profit After Tax.
Revenue excludes earnings generated by Bay International, in which Abano holds a 50% shareholding. Due to this being a joint venture, the results for the Bay Group are equity accounted and therefore not included in the consolidated EBITDA.
From FY12, the Australian dental business, Dental Partners, has rolled out a change in the basis for contracting dentists, which in effect means revenue is now recognised after the payment of dentists’ commissions.
Gross revenue includes audiology revenues and Australian dental revenues before payment of dentists’ commissions, which enables a like for like comparison with previous years, and more accurately reflects the true performance of the Group and its businesses. It is the measure used within the company to evaluate performance, establish strategic goals and to allocate resources and is reported within the segment note in the Financial Statements.