2013 Annual Report

Our dental sector is comprised of Lumino The Dentists in New Zealand and Dental Partners in Australia. It was again the primary focus for Abano, as we invested into growing our trans-Tasman dental network and increased our ownership of our Australian dental business, Dental Partners, from 70% to 100%.

In FY13, we acquired 24 practices providing $23.1 million in additional annualised gross revenues. and grew our trans-Tasman dental footprint to 138 practices at year end. The acquisition rate was slightly lower than planned, largely due to delays in settlement arising from the timing preference of vendors. In the first two months of the 2014 financial year, we have settled a further three large practices, providing $7.4 million in additional annualised gross revenues.

Our dental networks are now of the size where we are starting to see the benefits of scale across New Zealand and Australia, particularly with laboratory and materials purchasing which will continue to be a focus in the FY14.

Dental remained the largest revenue contributor for Abano in FY13, providing 69% of gross revenue. It was also our largest investment area, with $35.2 million invested into the acquisition of 24 dental practices and the 30% holding in Dental Partners.

As a part of our acquisition programme, we also at times consolidate smaller practices which are located near to each other, and where the merger would generate increased efficiencies. During FY13, we had three mergers.

Organic growth also continued in dental with the successful Lumino TV-led national advertising campaign in New Zealand moving into its second year. This has been an important contributor to year on year, same store growth in New Zealand and in the latest Colmar Brunton survey, prompted brand awareness was up to 74% (from 22% in March 2011) and most importantly, unprompted brand awareness reached 42% (from 7% in March 2011).This is a huge jump and shows just how our presence has grown nationwide in only a few years.

Practices in the Australian network currently operate under their individual brands, but following Lumino’s success, we are now looking at the potential for a similar national branding and marketing strategy for Dental Partners.

Our national presence in New Zealand was also a key ingredient in allowing us to support KidsCan, with the inaugural Lumino Day providing free dental treatments to parents and caregivers at KidsCan schools, and 8,500 free oral care packs for school children.

Our clinical advisory boards, led by dentists from each business, are an important part of our business model. In FY13, we appointed new chairs to both the New Zealand and Australian boards, and also introduced clinicians from each Australian State to the Dental Partners board. These clinicians act on behalf of the dentists within our groups and work in partnership with management to ensure the ongoing success of our dental group.

Outlook

In FY14, we will continue our acquisition programme, and are targeting over $30 million in additional annualised gross revenues from new acquisitions for the 2014 financial year. As always, this will depend on availability and timing of settlements.

We are also looking to increase dental margins by developing synergies across our two networks and taking advantage of bulk purchasing and the use of preferred suppliers for both materials and laboratories.

Dental Partners has now reached a new level of maturity and size and to support this we will be expanding the management team in FY14. This will include a general manager of marketing who will review the branding opportunities for Dental Partners, as well as additional IT and HR support.

We are the largest private dental provider in New Zealand and one of the two largest dental networks in Australia. There is increasing interest in the corporate dental model from investors, and we see this as an exciting growth opportunity going forward.

Recent multiples for transactions in the corporate dental sector range from an estimated Enterprise Value of 8.8x EBITDA for the Pacific Smiles transaction in July 2012 through to an estimated Enterprise Value of 9.1x historical annualised EBITDA for the recent Dental Corp acquisition in May 2013. These indicate a significant uplift in the value of our dental business and validate our ongoing dental strategy.