2012 Annual Report

Lumino The Dentists, New Zealand
Dental Partners, Australia

Abano’s two dental businesses provide high quality, professional dental care for private paying clients in New Zealand and Australia. During 2012, dental revenue was 93% private payment with 7% derived from publicly funded school dental services contracts in New Zealand and Government subsidies in Australia.

While the industry is still dominated by sole practitioners or small groups run by owner/ dentists, the corporate model is becoming more accepted and there are now five significant dental consolidators active in the region. Abano is the second largest consolidator behind Dental Corporation. In total, corporate consolidators hold less than 7% of the available market.

In FY12, our dental businesses provided 63% of the Group’s income. Dental revenue for the year was $143.5 million, a year on year increase of 25%. This was largely due to new acquisitions, however, organic growth, driven by the Lumino The Dentists marketing campaign, also had a growing impact.

Earnings at EBITDA , including acquisition costs of $1.3 million, were $17.4 million, an increase of 51% over FY11.

We have an accelerated acquisition programme in place for both businesses, and we have seen the trans-Tasman group expand from 92 to 117 practices in the 2012 financial year. A total of 26 practices, providing over $42 million in gross annualised revenues, were acquired in FY12. Under IFRS, expenses relating to the cost of acquisitions are required to be expensed as they are incurred. These costs are largely non deductible for tax purposes and are reflected in both our EBITDA and NPAT.

The existing A$25m CBA bank facility used for Australian dental acquisitions, in place since the commencement of Dental Partners, has almost been fully utilised. Therefore, a new A$30 million banking facility was established with CBA in early FY12, to continue to fund the accelerated growth of the Australian dental network during FY12 and FY13. The increased fees and costs associated with this new facility impacted on the FY12 reported profit result, while the full benefit from the acquisitions funded by this facility will be seen in FY13 onwards.

Our focus is to provide the best possible clinical dental care and patient experience. To do this, we invest in leading technologies, software and equipment, as well as creating modern, appealing practice environments. Both our dental businesses also invest heavily in professional development for all clinicians, including established conference programmes for practice managers, lead dentists and annual clinical conferences for all clinical staff.
 
Following year end, in July 2012, we acquired the outstanding 30% shareholding in Dental Partners, our Australian dental business. The acquisition was a logical step to increase our shareholding in a highly scalable, private payment, growth business that operates in a very large market ($A4.5 billion). Dental Partners CEO, Mike Timoney and Dental Partners board member, David Garofalo, two of the original shareholders, will remain in their current roles within Dental Partners.

They have also invested NZ$2 million into new Abano shares, demonstrating their commitment to both Abano and to Dental Partners going forward. The acquisition of the minority shareholding will not change the way Dental Partners is managed or governed as there is a vital and vibrant culture that we value greatly. However, we do see more opportunities to integrate ideas and initiatives in marketing, materials and laboratory purchasing and IT development. 

OUTLOOK

Organic growth will be a key focus of the marketing campaign in New Zealand, and increasing patient visits and utilisation will continue to be a common focus in both businesses. The trans-Tasman dental market is worth over $6 billion, and there are significant opportunities for continued expansion and increased profitability.

In FY13, we will continue with our accelerated growth plans and acquisition target of over $30 million in annualised gross dental revenues.

PERFORMANCE