2013 Annual Report

Trevor Janes, Chairman

The 2013 year was one of continued growth with Abano delivering record revenues of $207.0 million and strengthening profitability.

Investment was primarily into Abano’s New Zealand and Australian dental networks and our radiology business in New Zealand. We also strengthened the platform for our audiology businesses in Australia and South East Asia, which remain in an early start-up phase. Our orthotics and pathology businesses continue to provide solid returns, however they operate in a restrictive public contract funding environment.

Dental is now the largest business within the Group and the primary revenue generator. In the past five years, we have grown our trans-Tasman dental network to 140 practices across Australia and New Zealand as at the end of July 2013 and our acquisition programme remains in place as we continue to build this profitable business. Economies of scale are only now starting to become apparent with the margins from our dental group showing pleasing improvements and increasing profitability.

As well as the acquisition of quality dental practices, in FY13 we significantly increased our investment in our Australian dental business, buying out our 30% minority partners for A$14 million and increasing our ownership of the trans- Tasman dental group to 100%. We have been the majority shareholder in Dental Partners since its inception in 2008 and were delighted at the opportunity to invest further into the dental industry and this very valuable company.

There has been increasing interest from investors in the corporate dental market and recent transactions indicate a significant uplift in the value of our dental business and validate our ongoing dental strategy.

Corporate dental consolidators hold less than 5% of the trans-Tasman dental market, providing the opportunity for continued growth for our dental group for many years yet.

Radiology is also an important strategic investment area for Abano and in the past five years, we have invested $17 million into the development of three new radiology clinics and latest generation equipment and technologies, such as PET CT scanning for cancer diagnosis and a wide bore MRI scanner. We are seeing demand for these modalities building as their benefits become apparent to both referrers and public funders.

Our strategy is to identify opportunities in targeted areas of the healthcare market which offer the potential for growth. We achieve a presence in these markets in two ways – by investing in existing businesses where we believe we can improve performance, enhance the business’ value and deliver greater shareholder returns, or by establishing and growing start up businesses, such as our audiology businesses and the new radiology clinics, where returns are generated following the initial seeding phase.

Our investments and growth initiatives are predominantly funded by debt and we expect investment into growth opportunities to continue at similar levels for the foreseeable future.

As we continue to expand and utilise debt to fund our growth, the Company’s debt to debt+equity ratio is increasing. The Board carefully monitors gearing levels as we invest.

Under recent IFRS changes, acquisitions of minority holdings are now accounted through equity rather than an increase in the assets owned. The result is that Abano’s $17.9 million acquisition of the 30% holding in Dental Partners resulted in a decrease in Abano’s equity, rather than an increase in assets to reflect the acquisition.

To offset this, the Board has resolved to raise $18.5 million of capital. The offer will consist of a placement and Share Purchase Plan to allow all shareholders to participate substantially on a pro-rata basis. This is expected to be completed within the second quarter of our current financial year.

Dividend

We were pleased to continue our dividend payout of 21 cps for the year ended 31 May 2013. This takes the total dividends and capital returns paid to shareholders over the past five years to $74.0 million.

Our Dividend Reinvestment Plan (DRP) was in operation for the 2013 interim dividend payment, with shareholders holding 53% of shares in Abano participating in the DRP. This is a good indication of the confidence shareholders have in the Board and management’s ability to successfully deliver on our strategy and I would like to thank you for your support.

Directors are also demonstrating their confidence in the future of our Company, with a new policy introduced in June 2012 whereby 50% of after tax fees for non-executive directors are paid in shares, which are acquired on market on a quarterly basis. In the 2013 financial year, directors acquired $116,571 of shares on market under this policy.

The 2013 dividend is fully imputed, however, the ability to pay fully imputed dividends in future years may be limited, as an increasing portion of our tax paid profits will be generated overseas.

Governance

We were pleased to welcome Pip Dunphy to the Board during the financial year to replace outgoing director Alison Paterson, whose term expired at the end of the 2012 shareholder meeting and who chose not to seek re-election. Pip was appointed by the Board in September 2012 and was elected by shareholders at the annual shareholders’ meeting in October 2012.

Pip has extensive experience and knowledge in capital markets, finance and investment management. She also has governance experience in the healthcare sector with previous directorships of ACC and Crown Health Financing. Her knowledge of the health sector and investment expertise are of value to Abano as we continue to grow and strategically invest into the healthcare market.

Looking Forward

Dental and radiology remain our primary growth engines. We continue to expand our dental footprint in New Zealand and Australia and are now starting to see benefits of scale. Demand for the new radiology modalities and clinics we have invested into over the last five years is continuing to build as the new clinics move from start up to an emerging phase.

While relatively small and still in a start up stage, audiology continues to offer significant future potential in the markets in which we now operate, which all have large, wealthy and sophisticated populations. The audiology group remains on track to breakeven at EBITDA in the 2016 financial year.

The New Zealand economy is showing signs of improved business and consumer confidence. However, the Australian market remains soft, with a downturn in the mining industry which had previously supported the economy, and political uncertainty leading up to the election. Over the past three years, we have gained considerable experience operating in the soft New Zealand market and we are now applying these strategies in Australia. We anticipate that the Australian downturn will have a limited impact on our business and our mid to long term view of the opportunities offered in Australia remains positive.

Abano has a proven and successful strategy, a strong Board and an excellent management team. We have identified several key areas for investment and growth which will generate excellent long term returns for our shareholders. We will continue to build on our success and the 2014 financial year is expected to deliver continued growth and improving profitability for the Company.