2015 Annual Report

THE ABANO BOARD IS FOCUSED ON INVESTING IN VALUE, CONTINUING OUR GROWTH AND DELIVERING IMPROVING RESULTS. WE MADE GOOD PROGRESS AGAINST THESE GOALS IN FY15.
We are investing in value in the private healthcare market where we believe our model of building scale and adding value can help us capture market share and generate attractive returns for our shareholders.
We are continuing our growth and building scalable businesses in targeted sectors of the private healthcare market.
We are focused on delivering improving results and increasing returns from our businesses.

The opportunity for Abano is significant with projected demand for quality private healthcare services increasing. Our consistent long term strategy is to invest into scalable businesses, in the private, fee for service healthcare market. This year, we have refocused our investment into private payment sectors where we believe we can add value and deliver attractive returns for our shareholders.

In particular, dental and audiology operate in very large fragmented market places where we see real opportunities to consolidate and generate long term returns. Each of these markets is worth hundreds of millions of dollars, with proven long term and growing demand from private paying customers.

We have the opportunity to increase our share of these lucrative markets by building scale, investing into infrastructure, expanding our resources and realising the benefits of our size over time.

We are expanding our businesses in three ways. Through acquisitions in dental, the opening of new greenfield stores in audiology and through organic growth in all three of our business groups including radiology. Our organic growth is coming from extending our existing facilities, expanding the services we offer, improving efficiencies and focusing on driving growth at our existing clinics, practices and stores. As our businesses mature, this is an increasingly important part of our strategy.

Our primary investment focus continues to be into the acquisition growth of our trans-Tasman dental networks, which generated 70% of Abano’s gross revenue in FY15. We are also investing into our audiology joint venture business in Australia with three new greenfield stores opened in 2015, and into an improved customer experience and offer for our radiology group in Auckland.

In FY15, the Board made a decision to divest our pathology and orthotics businesses, both of which fell outside of Abano’s investment criteria due to their high reliance on Government funding and limited scale opportunities.

Our capital structure is efficient and our acquisition growth is predominantly funded by debt. We have strong, long term relationships with our banking partner and during 2015, we extended our bank facilities and improved pricing. At year end we had over $50 million in undrawn facilities, providing headroom for continued investment.

The continuing year on year improvement in Abano’s underlying performance is attributable to the long term investment that we have made into creating a strong platform to support the expansion of our group.

As our businesses mature, we are realising the benefits of our size. Our dental businesses now have in excess of $240 million in annualised gross revenues and are generating margins that we expect will improve over the next few years, as scale advantages and benefits from the new Australian dental brand are realised. Bay International achieved a positive EBITDA result in 2015, with Bay Australia delivering a maiden net profit after tax. Meanwhile, demand for our high end radiology services continues to grow.

At the heart of our strategy is putting in place the best people, resources, information systems and infrastructure needed to support the increasing scale of each business. Central to this isa clear picture of where we are going and what the future looks like and we are committed to building an enduring and sustainable business.

FINAL DIVIDEND 15 CENTS PER SHARE
We have paid a dividend of 21 cents per share for the past six years and our new dividend policy,which we introduced in late-2014 will see even greater returns delivered to our shareholders as underlying earnings grow.
The Directors were pleased to confirm a final dividend for FY15 of 15 cents per share, raising the full year dividend by 19% to 25 cents per share. This is in line with our new dividend policy where, subject to relevant factors at the time, including working capital and growth requirements, the annual dividend paid will be between 50-70% of Underlying NPAT.
CEO TRANSITION

At last year’s annual meeting, Abano’s chief executive officer, Alan Clarke, announced his plans to retire at the upcoming 2015 annual meeting. Alan has been with Abano since 2000 and has been instrumental in the development and implementation of our long term strategy. He is a passionate advocate for Abano and has overseen the transformation and evolution of our company during his tenure.

His vision was to create a multi-national medical and healthcare business and during his time, Abano has grown from a company generating less than $20 million to one that has over $300 million in gross revenues. Abano is now an organisation of more than 2,000 people providing medical and healthcare services to thousands of people every single day, making a positive difference in their lives.

It is no exaggeration to say that without Alan, there would be no Abano; he has been a driving force in building our company to where it is today and it has been a pleasure working with him. It is perhaps the greatest tribute to Alan that he has attracted and retained such a high quality executive team.

We will take the opportunity to thank Alan and celebrate his achievements at our annual shareholders’ meeting later this year.

The Board was delighted to announce the appointment of Richard Keys, Abano’s chief operating officer and chief financial officer, to the role of incoming chief executive officer. Richard has been with Abano for 13 years and has played a significant role in Abano’s evolution.

Richard has the respect of the Board, our management teams, shareholders and the wider investment community, and the experience, skills and qualities to lead Abano going forward. We were pleased to be able to appoint an internal candidate to the role, which is an endorsement of Abano’s policy to invest in talented people.

BOARD APPOINTMENT

Abano’s directors offer a wide range of complementary skills and experience that we believe add value and benefit to Abano as we continue to roll out our growth strategy. We review Board membership regularly to ensure we have the appropriate capabilities on the Board as Abano evolves.

At our most recent review, the Board identified the desirability of appointing an Australian based director, as Abano’s Australian businesses contribute an increasing proportion of our earnings. This led to the appointment of Murray Boyte in February 2015. Murray has considerable experience in the Australian marketplace and has been involved in the growth and evolution of companies in Australia, New Zealand, North America and Hong Kong. Murray will stand for election by shareholders at the 2015 annual meeting and has the unanimous support of the Board.

OUTLOOK

Demand for quality private healthcare services is projected to grow and Abano is well positioned to take advantage of this opportunity. We are growing our established businesses in dental, audiology and radiology and we will continue to invest in them to support their future size and scale.

The opportunities ahead are significant and the Board is focused on utilising shareholder capital effectively to maximise growth and shareholder returns.

Trevor Janes, Chairman