2014 Annual Report

Dental

Dental remains the primary revenue generator for Abano and the sector provided 69% of Abano’s gross revenues in FY14. Over the past five years, gross revenue from our dental sector has grown over 100% from $92.1 million to $188.4 million. We expect this trend to continue as we invest into acquisition and organic growth in the very large and attractive trans-Tasman dental market.

We are continuing to build scale through acquisition and had 154 dental practices as at financial year end.

Organic growth was also a key focus during the year with extended clinical hours, increased patient buy-in to treatment plans and an emphasis on attracting new patients as we look at ways to increase the utilisation of our existing infrastructure. In New Zealand, this included the continuation of our successful Lumino marketing campaign, increasingly supported by online tools to improve the organisation’s interaction with Lumino customers.

We continued to invest into building strong organisational cultures with on-going investment into systems, communication and infrastructure to support our people in our two very large and widely spread dental networks. To assist with this, a number of new senior management appointments have been made in Australia, including, in recent days, a full time and highly experienced marketing manager to assist the organisation in a roll-out of a common brand and the development of consumer marketing strategies for implementation by FY16.

The increasing size of our dental group is providing a stronger negotiating position with suppliers and more economies of scale are being realised and achieved. The trans-Tasman integration of shared resources was extended to a common Chief Information Officer and a Procurement Manager to coordinate the centralisation of purchasing for both groups and to realise additional scale synergies.

The dental sector result in FY14 was impacted by the weak Australian dollar, which masked the performance of the Australian dental business, Dental Partners, with gross revenues depressed by $14.3 million and underlying EBITDA by $1.8 million had the exchange rate been the same as in FY13.

Diagnostics

Diagnostics is the second largest contributor to gross revenues at 16%. The Diagnostics sector comprises two businesses – Insight+Ascot Radiology and Aotea Pathology.

Radiology: The investment made into Insight+Ascot Radiology in Auckland over the last few years has provided a solid platform to build on. During the year, management focused on growing the demand for its services with good progress being achieved. Radiology gross revenues improved as demand grew in the both start-up clinics - the Millennium Centre, which officially opened in March 2013, and the PET-CT scanning centre at Ascot Central - along with pleasing increases in demand for all other scanning technologies that we have invested into in recent years.

Pathology: Gross revenue from the pathology business has been increasing in small increments, year on year, in line with the DHB contract under which it operates. Aotea Pathology maintained earnings in FY14 as it continued to deliver a high quality, community pathology service to the greater Wellington and Hutt Valley area, under its current DHB contract extension which runs until the end of October 2015.

Aotea and Abano management have been working closely with the area DHBs and we are currently involved in a RFP process looking to provide a regional pathology solution for the Wellington, Hutt Valley and Kapiti Coast communities. We hope that this process will lead to a substantially longer contract tenure, through an expanded service, and provide significant savings for the DHBs involved.

Audiology

Our joint venture audiology business significantly reduced its operating losses in FY14, primarily due to a strong improvement in same store sales in Australia. After losses of approximately $41 million during FY10 to FY14 for the joint venture audiology group, we now expect that the Australian business will breakeven at EBITDA in the FY15 year.

The sector results reflect the negative impact from the strong New Zealand dollar compared to the Australian dollar. While the return on our investment remains below our original expectations, positive progress is being made following the introduction of a new local management team with extensive retail experience. In local currency, gross revenue in Australia grew 44% compared to FY13.

The Bay Audio Asia group, which remains a very small part of the total audiology business, is still focused on achieving a monthly EBITDA breakeven performance.

Rehabilitation

Orthotics: The Orthotics Group, which provides clinical orthotic services in most major cities around New Zealand, delivered a steady result in line with expectations and last year. The business is predominantly funded by DHBs and ACC and it continues to work closely with these parties to renew and secure contract tenure. The rehabilitation sector results were slightly down on FY13, as the previous year’s result included one month of earnings from the brain injury rehabilitation business, which was sold in July 2012.