2016 Annual Report

Operational Review Dental

DENTAL
81% OF ABANO’S FY16 GROSS REVENUE
GROSS REVENUE $241.9M / UNDERLYING EBITDA $27.7M

Dental remains Abano’s most significant investment and our primary growth opportunity, as we continue to target a 10% share of the $11 billion revenue trans-Tasman dental market.

We are well on the way to building one of the largest dental organisations in the region, through our two dental networks – Lumino The Dentists in New Zealand and Maven Dental Group in Australia. Our strategy is to build our networks through organic growth and the acquisition of quality dental practices, grow our market share and benefit from economies of scale.

FY16 gross dental revenues were $241.9 million (Lumino NZ$105.4m and Maven Dental Group A$124.6m) and accounted for 81% of Abano’s total FY16 gross revenue.

In FY16, we acquired 18 practices providing approximately $28 million in additional annualised gross revenue (A$10.8m and NZ$16.7m), opened a new greenfield practice in Christchurch and merged several closely located practices. As at 31 May 2016, Abano’s trans-Tasman dental network totalled 188 practices generating annualised gross revenues in excess of $254 million.

Lumino is New Zealand’s largest dental network. Having delivered another year of same store revenue growth, up 2.7% on the prior year, the business has just completed its ninth consecutive quarter of positive same store growth and third year of improved margins. Lumino is benefitting from its successful marketing activity, focus on excellent patient service and an experienced management team. Twelve practices were acquired during the year, with Lumino surpassing the 100 practice milestone in May 2016, and a strong acquisition pipeline is in place.

Lumino is a proven and successful business and we are utilising this knowledge and experience as we build our Australian dental network.

The Australian economy remains challenging and same store revenue for Maven Dental Group was mixed across Australia, with positive same store growth in NSW, South Australia and Victoria, offset by declining growth in Queensland and northern NSW, where 52% of Maven’s practices are located. In line with our previous guidance, overall same store revenue for Maven was down 3.6% for the full year.

With the below trend economy in Australia continuing, a number of initiatives have been completed or are underway at Maven Dental Group. In December 2015, Andy Tapper was appointed as Abano Dental CEO (previously CEO Lumino The Dentists), followed by a recently commenced restructure of the Australian leadership team and increasingly closer collaboration and shared resources between the two businesses. This provides the ability to leverage the talent, experience and expertise in both businesses across the dental group and allows for faster execution of initiatives and additional economies of scale. We expect to see benefits arising in the coming months as we continue to build a more collaborative, group-wide business model.

The brand rollout commenced in December 2015 and is continuing, with 10 practices branded to date and more currently underway. A new website was launched in April 2016 which will enable digital marketing and, following on from Lumino’s experience and success, a number of customer offers will be promoted under the Maven brand, such as interest free offers. As it did with Lumino when it was at the same stage, the cost of these initiatives continues to supress margins in the short term as we lay the foundations for future growth.

With the increase in the number of consolidators in the corporate dental sector in Australia over the last few years, we have seen increasing competition to acquire quality practices and, due to this, acquisition multiples in Australia have crept up. Maven continues to acquire quality practices where the owner/dentist is not simply looking for a good price or an exit strategy, but is attracted to our vision, values and culture along with the certainty of a long term owner.

This increased competition has not slowed down our acquisition rate and has in fact helped raise awareness and acceptance of the corporate dental model. There is a growing pool of dentists looking to join a corporate network and particularly one where flexible work arrangements combined with clinical freedom and best practice can provide ongoing career opportunities.

Our focus is on growing and diversifying the network’s existing footprint, particularly into the Victoria and NSW regions, with our acquisition model incorporating risk sharing mechanisms to incentivise long term performance and retention of key dentists.

Read a detailed review of Abano's Dental businesses here

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