2014 Annual Report

OUR STRATEGY IS TO CONTINUE TO INVEST INTO OUR GROWTH BUSINESSES AND TO OPTIMISE RETURNS FROM OUR PORTFOLIO.

Trevor Janes, Chairman

Fourteen years ago, we outlined our multi-sector healthcare strategy.Since then and in line with this growth strategy, our portfolio has changed as we have exited businesses which we believed had reached maturity or had limited potential for further growth. We have invested the proceeds into other businesses which we believe will provide more attractive and sustainable long term value for our shareholders. We have also made three significant surplus capital returns to shareholders over that time,reflecting our careful and prudent management of the Company’s capital base.

Our main focus is on long term value rather than short term gains,which we believe will deliver the best outcome for our shareholders.Our annual dividend at of 21 cents per share, which we have held atthe same level for the last six years, is yielding a gross return of 4.8%(based on the closing share price on the day prior to the release of ouryear end results). Since 2006, we have delivered an average grossannual return of over 30% to our shareholders, compared to a 4.4%return from the NZX50 over the same period.

We were pleased with Abano’s progress during the FY14 year as management continued to focus on growing our trans-Tasman dental group, which currently provides 69% of Abano’s gross revenues.We have identified the $10-billion trans-Tasman dental market as offering significant near and long term potential and it remains the primary investment area and focus for Abano.

FUNDING FOR GROWTH

Abano has an appropriate and hard-working balance sheet which we manage carefully. Our investments and growth are predominantly funded by debt and as we continue to grow, our gearing ratio (net bank debt/net bank debt+equity) will increase. The 44% gearing ratio as at financial year end is within the range acceptable to Directors.

A successful $18.5 million capital raising was completed in September 2013, to provide additional capacity for Abano to continue to invest into the dental sector and into our other businesses. I would like to again thank all our shareholders, brokers and institutional investors who supported this capital raising, which was significantly oversubscribed.

Following the capital raising and the continuation of the existing Dividend Reinvestment Plan, the Company has a sound and solid capital structure with significant undrawn debt facilities to cover all our budgeted and projected capital investment and acquisition needs for the foreseeable future. At 2014 financial year end, we had undrawn facilities in excess of$60 million.

DIVIDEND

The Directors have confirmed a final dividend of 13.7cps, maintaining the annual dividend at 21cps for the financial year ended 31 May 2014. This is equal to 67%of underlying NPAT. The Dividend Reinvestment Planwas again offered to shareholders, and in line with previous periods, over 50% of the dividend was taken up in shares.

Directors are reviewing the dividend policy and expect to implement a new policy for the FY15 interim dividend,following the steady and continuing growth achieved in NPAT and underlying NPAT.

EXTRAORDINARY BOARD ACTIVITY

The actions by Mr Hutson and Mr Reeves over the past twelve months have resulted in an extraordinary demand on Board time, with 32 Board meetings held in FY14 and numerous committee meetings.

Additional Board activity included the necessary response to the unsolicited, indicative proposal to acquire Abano, which was received from Archer Capital,along with interests associated with Mr Hutson and Mr Reeves; the need for management and the Board to respond to and clarify a number of misleading claims and statements made by Mr Hutson and Mr Reeves over the past twelve months; the requirement to respond to numerous complaints made by Messrs Hutson and Reeves to regulatory bodies, the NZX and FMA (all of which were reviewed and then dismissed); and finally the communication and planning necessary around the special meeting, which was requisitioned by Messrs Hutson and Reeves.

Abano’s shareholders voted in record numbers at the special meeting in June 2014 and there was a clear and strong message sent to Mr Hutson and Mr Reeves, that shareholders support the Company’s chairman and our operational strategy.The vast majority of retail shareholders voted against the resolution to “remove Trevor Janes as a director of the Company”, as did the New Zealand Shareholders Association and all institutional shareholders who voted.

Mr Hutson and Mr Reeves received the support of less than one percent of Abano’s other shareholders for their resolution.Excluding shareholdings associated with Mr Hutson and Mr Reeves, there were 0.79% of votes for the resolution. Including their associated shareholdings, there were 23.36% of votes for the resolution.

I would like to express my personal appreciation for the record voting turnout and support from Abano’s shareholders.

Since the special meeting, members of the Board have met with Messrs Hutson and Reeves several times to try and find acceptable solutions and we hope to continue with this engagement process.

The costs associated with this extraordinary activity were $0.7 million in the financial year ended 31 May 2014.This does not include additional costs incurred for the requisitioned special meeting which was held on Friday 13 June 2014, post-year end, nor responding to the High Court hearing brought by Mr Reeves to delay or cancel the special meeting which he requisitioned. While an increase to the pool of funds to recompense Directors for necessary additional time and activity was approved by shareholders at the November 2013 annual meeting, no additional payments will be made to Directors for their extraordinary work carried out in FY14.

BOARD MEMBERSHIP

Abano’s Directors offer a wide range of complementary skills, experience and expertise. Our independent Directors all hold other senior director positions on a wide range of significant New Zealand public and private boards and all have many years of governance experience.

In September 2013, Peter Hutson was asked to resign from the Board as Directors believed the terms of the 2013 takeover attempt were incompatible with Mr Hutson’s duties as a Director to act in the interests of the Company and all shareholders. The Directors therefore sought and received his resignation from the Abano Board in September last year and he was not replaced.

We review Board membership on an annual basis to ensure we have the appropriate skills and competencies, with new Directors recommended to shareholders as new skills are identified. For example, when we moved into Asia, Danny Chan was appointed to the Board and in the past three years, we have refreshed the Board with two new Directors. As we rolled out our audiology retail model and dental brand strategy, Ted van Arkel was appointed. Pip Dunphy similarly was appointed to strengthen our financial skill set when Dame Alison Paterson retired.

The Directors have commenced a process to identify new skills that can strengthen the Board. This is likely to be concluded during the balance of this calendar year.

LOOKING FORWARD

Abano is a growth company, with a solid track record of success. We continue to be well positioned to take advantage of increasing demand for healthcare services.

Our goal is to again deliver improved underlying EBITDA and NPAT in FY15. In line with this, Directors are reviewing the dividend policy and expect to implement a new policy for the FY15 interim dividend.

On behalf of the Board, I would like to thank our shareholders, clinical partners, staff and customers for their continued loyalty and support.