Directors’ letter to shareholders 4 Dec 07

In the knowledge that the Masthead Portfolios’ conditional partial takeover bid closes on the 10th of December, I would like to offer you some thoughts which may assist with your decision.

Dear Shareholder,

In the knowledge that the Masthead Portfolios’ conditional partial takeover bid closes on the 10th of December, I would like to offer you some thoughts which may assist with your decision.

I would also like to outline our performance for the half year ended 30th November 2007 and to let you know about an interim dividend payment we propose making in January 2008 if the takeover offer is unsuccessful. The intention is also to protect some of Abano’s imputation credits given the potential interest in the company.

I have previously signalled that you have three options:

  • Don’t sell
  • Sell into the conditional partial Masthead offer
  • Sell on market

I will discuss them in that order.


This remains the board’s unanimous recommendation to you.

I believe that we have communicated effectively and well, the extent to which Abano is embarking on an aggressive and already very rewarding growth strategy which will provide significant and sustainable value growth for shareholders.

The short term benefit has been a significant re-appraisal of Abano by the investment market, with a consequent re-rating of our share price in recent months, based on strong operational performances. Based on this growth and the sustainable improvement in our financial performance, your board does not believe that there is currently any reason for it to seek your mandate to offer the company for sale.

This is not to say that the board will not continue to evaluate genuine propositions that are received, where it believes these have the potential to materially enhance shareholder value and accelerate the delivery of real value and options to shareholders. You can rely on a board recommendation in that event.


The difficulty with a conditional partial offer such as Masthead’s, is that it offers shareholders the opportunity to sell as little as 39 percent of their shares, with an underlying prospect that shareholders may retain 61 percent of their shares but still lose control of the company should the offer succeed.

In addition, the offer contains much uncertainty, it is conditional, and a number of Masthead’s actions and statements seem contradictory.

Masthead has questioned our Australian and Asian business expansion strategy, yet they wish to buy control of the company.

Masthead believes it has a right to say in the future direction of Abano, but it has not identified any expertise it could offer and has, in the past on two occasions, declined invitations for Board representation.

Importantly, as it is a partial bid, Masthead has not indicated in any meaningful way, what plans it has for the business, to allow any remaining shareholders to assess.

These issues are something all shareholders need to understand very carefully, because if successful, Masthead will control the future direction of the company, and minority shareholders will have no control. This change in control will also be reflected in the future share price and market rating, as the control premium will have been sold.

If you accept the Masthead offer, there is no certainty that it will succeed. In addition to this, if you accept, you will have limited your options as you will not be able to withdraw that acceptance.


For those shareholders who need to realise cash, a serious option is to await further developments and look to realise market value in respect of their total shareholding, not only part of their shareholding.

In summary, I believe shareholders should base their decision not just on an interpretation of the events of recent months but on a very simple proposition:

‘Do I believe that Abano has a good business and a strategy which will sustain its growth, and is that growth at the front half of the cycle rather than the end?’

If you agree we are early in the cycle, and provided you don’t have any pressing need to sell part of your shareholding, then I think you are justified in remaining a shareholder for the longer term and enjoying the benefits that our growth strategy can provide.

Abano is proving to be a great New Zealand growth story, with a rising share price and an increasing and regular dividend stream. This is something to remember should you be looking to sell your shares and reinvest in a replacement investment.

The final important factor is that the medical and healthcare sector is relatively unaffected by external economic factors. Being sick and needing care is not discretionary and seeking medical or healthcare services ranks far above buying discretionary items such as a new television. So short term concerns that the stock market may be looking weak does not necessarily apply to Abano’s businesses or to Abano’s fundamental value as a company.

We have consistently stated that the benefits of the current strategy are just starting to emerge and higher values than the $5.00 to $5.80 range indicated in the Independent Report will be achievable if the company is successful in implementing its strategic plans and capitalising on the market opportunities it perceives.


Several parties have carried out due diligence in recent weeks and one of those parties was prepared to produce a conditional offer at the bottom of the independent valuation range which the board rejected.

A number of separate and unrelated parties continue to express interest in Abano. The board understands that with the Masthead conditional partial offer shortly due to expire, these parties have chosen to await the outcome of the offer before deciding whether and/or how to proceed.

Clearly if the Masthead offer succeeds, Masthead will be in a position to benefit the most from any offer or other transaction that emerges after the current Masthead offer expires.

Potentially, Masthead could on sell any shares which they may have recently acquired under their offer, and shareholders who had sold their shares, whether to Masthead or otherwise, would not be able to participate in this.


Because the Masthead offer closes on the 10th of December we have released a preliminary half year result for the period ended 30th November 2007 so that you can assess the company’s performance for yourself, while considering the Masthead conditional partial offer.

The detail is contained in the News Release attached. You will note the comparison with the first six months of 2007 financial year.

Revenue has increased by over 42% to $59.2 million
EBITDA has increased by over 74% to $11.0 million
NPAT has increased by over 35% to $3.8 million


Based on the current dividend policy, which commenced with a maiden dividend paid in August 2007, the board has signalled its intention to pay an interim dividend of 8.5 cents per share in January 2008. This interim dividend can only be declared by the board once the current Masthead offer expires, unless Masthead otherwise agrees. The reason is that the Masthead offer precludes Abano from declaring a dividend during the offer period, and if one is declared, it would breach one of the conditions Masthead has imposed on the company.

As previously advised, Abano has operational cash flow and banking facilities which are sufficient for the planned capital expenditure and acquisition growth programme for the foreseeable future, including the planned dividend programme.

An early payment of the 2008 interim dividend is the prudent course of action to protect shareholders’ value by distributing some of Abano’s imputation credits in a timely manner.

The interim dividend, which the board intends to declare if the Masthead offer is unsuccessful, would be 8.5 cents per share, fully imputed. This is in line with the current dividend policy of 50% of NPAT and is based on Abano’s half year NPAT of $3.8 million.

Based on the current year’s NPAT guidance of $7.1 million, the total 2008 dividend would be 41% higher than the 2007 dividend. In addition, a higher dividend is likely to be paid should a full offer be made for the company or after a year end NPAT performance of greater than $7.1 million.

The board will continue to balance a prudent dividend policy with the company’s clear growth strategy and we will also carefully watch the build up of our imputation credits.

I wish to thank you for continuing to support the company.

Yours sincerely and with very best wishes for the festive season,

Alison Paterson