2012 Annual Report

Dental is now the company’s primary revenue generator and, along with our audiology and radiology businesses, is targeted for ongoing investment. In FY12, dental growth was predominantly through acquisition, with our trans-Tasman group expanding to 117 practices in total by year end. We acquired 26 practices during the year, which will provide approximately $42 million in additional gross annualised revenues. The total consideration for these acquisitions was $30 million.

Organic growth was the focus for radiology, as we concentrated on building patient bookings for our new PET CT scanning centre at Ascot Radiology, which was opened at the end of FY11, as well as maximising utilisation of our numerous other services. Including the confirmed $4 million investment into the new Millennium clinic due to open in late 2012, Abano’s radiology group is now one of the largest specialist referral practices in Auckland.

We continued to strengthen the infrastructure of our emerging audiology businesses in Australia and Asia.

Good progress is being made in audiology, after a year of bedding in the new regional management teams and improving our unique lead generation through self testing touch screens. We have been operating in Australia for several years longer than in Asia, and therefore our Australian business is more developed and larger than our Asian network. Audiology revenues have grown steadily over the last twelve months and we are on track to achieve break even in the next two to three years.

Hold and maintain strategies continued for our brain injury rehabilitation, orthotics and pathology businesses, as we maximised their performance in a restrictive, publicly funded environment. Following year end, we announced the sale of our brain injury rehabilitation business, which presented limited opportunities for growth and was mostly funded by public health contracts, and therefore was not in line with our investment strategy.

During FY12, our business leaders were charged with continuing to find growth opportunities within their organisations and lifting performance.

Pleasingly, all businesses delivered improvements in margins over the previous year. Of particular note was the success of the nationwide marketing campaign for Lumino the Dentists, which aimed to increase customer visits and increase utilisation of dentist capacity. Results to date have been outstanding with new patient count up by 13% year on year, and an average dentist utilisation of over 80% since the campaign began.   



FINANCIAL REVIEW

Organic growth was an important part of our focus across the Group in FY12. Initiatives included adding additional dental chairs to existing practices, investment in new dental IT and infrastructure, and the opening of the PET CT scanning centre in Auckland. 

We also increased our debt facilities by A$30 million to fund future Australian dental acquisitions. The costs of these initiatives impacted immediately on the bottom line, with the financial benefits flowing through from FY13 and onwards.

In addition to this, under IFRS, acquisition costs are now expensed rather than capitalised, negatively impacting on reported profitability. These acquisition costs include legal and due diligence costs, as well as a stamp duty on most Australian acquisitions. Therefore, as Abano’s acquisition programme accelerates, there will be a corresponding negative impact on NPAT.

Further information on the impact of IFRS is available here.

Capital Expenditure

Capital expenditure in FY12 was $37.1 million, up $10.9 million on the previous year. This was made up of acquisitions of $30.0 million, new income generating capital expenditure of $0.9 million and $6.2 million of normal operational and replacement capital.

Dental Partners - Change in Dental Partners Practice Contracts

During FY12, Dental Partners began to roll out a change in the basis for contracting dentists. The change in contract more accurately reflects the provision of facilities and services by Dental Partners to the dentists, and brings Dental Partners contracts into line with Australian industry practice.

Previously 100% of patient spend was recognised as revenue. Following the change in contracts, Dental Partners will only account for revenue earned for the provision of facilities and services. In effect, this means recognising the ‘patient spend after dentists’ commissions’ as revenue.

While this will result in a drop in reported revenue for Dental Partners (as the revenue received is now after dentist commission), it will be neutral at EBITDA and therefore have no impact on bottom line profit.

Banking

As at 31 May 2012, Abano had confirmed banking facilities of $40 million with ASB in New Zealand (drawn to $16.5 million) and A$55 million with CBA in Australia (drawn to A$40.4 million). Total net bank debt was $57.6 million at year end, providing a net bank debt equity ratio of 39%.
 
In August 2012, the ASB bank facility was increased to $50 million. Both CBA and ASB are both very supportive of the Group, and we will be looking to renew and increase the CBA facility that is due to expire in July 2013.

As at year end, 56.6% of the total facilities were hedged, reducing both maturity and interest rate risk and uncertainty.

The proceeds from the sale of Abano Rehabilitation, which settled on 29 June 2012, have been used to pay down debt and to fund future growth.

At all times during the year, Abano met and complied with its banking covenants.

Richard Keys, Chief Operating Officer/Chief Financial Officer