We also report on underlying earnings, which exclude a number of items required to be expensed under IFRS. We believe this provides a more accurate portrayal of the Company’s true performance on a like for like basis with previous years.
Excluding items required to be expensed under IFRS, the one off gain from the sale of the Company’s brain injury rehabilitation business and a review of Bay International’s goodwill and tax losses, the underlying EBITDA in FY13 was $28.6 million (up 5% on a comparable basis), resulting in an underlying NPATof $4.5 million (up 50% on a comparable basis).
Changes to IFRS have also affected how acquisitions of minority holdings are accounted for. The result is that Abano’s $17.9 million acquisition of the 30% minority holding in Dental Partners is accounted for as a reduction in equity rather than an increase in the value of assets owned. This treatment results in a significant understatement of Abano’s equity and the carrying value of Dental Partners in Abano’s financial statements.
Under IFRS, acquisition costs are expensed rather than capitalised, and therefore negatively impact on reported profitability. These acquisition costs include legal and due diligence costs, as well as stamp duty on most Australian acquisitions.
Abano is a growth company, and as acquisitions increase, there will be a corresponding negative impact on NPAT.
In addition, under IFRS 3, a portion of the deferred purchase price payment, which reflects the time value of the deferred payment, is expensed. Any movement in the estimated deferred payment or liability is also now expensed. These are both noncash expenses and are non-deductible 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 NPAT.
More information on the impact of IFRS and the reporting of underlying earnings is available at www.abano.co.nz/underlyingearnings.