Interim Results to 30 November 2009
ABANO DELIVERS VALUE TO SHAREHOLDERS IN FIRST HALF
Abano Healthcare Group Interim Results to 30 November 2009
Listed healthcare investor and operator, Abano Healthcare Group, today reported its results for the six months to 30 November 2009. The results, based on unaudited management accounts for the six months ended 30 November 2009, show revenues of $102.3 million, Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) of $13.0 million and Operating Net Profit After Tax (Operating NPAT) of $3.4 million.
In addition to the Operating NPAT contribution, there was a net one off gain on sale of $76.6 million following the sale of Abano’s New Zealand audiology business, Bay Audiology, to National Hearing Care for $157.8 million. This resulted in the reported Group NPAT for the period being $80.0 million.
Operating NPAT was below the same period in the last financial year as the first six month result included only five months trading of the New Zealand audiology operations, following the sale of Bay Audiology New Zealand in early November 2009. In addition, there was only one month of 50 percent of the equity accounted results from the new joint venture in Bay International, which now includes all of Abano’s remaining audiology operations in Australia and Asia.
Chairman, Alison Paterson commented: “It has been a busy and pleasing first half year for Abano, particularly given the very difficult economic climate and trading conditions in New Zealand. We were delighted to complete the sale of Bay Audiology’s New Zealand business for $157.8 million and return $29.5 million to our shareholders. After retiring debt, this has also left us with a very strong balance sheet to realise the long term potential for growth and future investment in the years ahead.”
The sale of Abano’s New Zealand audiology business, Bay Audiology, to National Hearing Care for $157.8 million, resulted in a net gain on sale of $76.6m. Over $29.5 million was able to be returned to shareholders through a special early interim dividend of 52 cents per share, as well as a pro rata, voluntary 1 for 3 share buy-back and cancellation offer of $5.93.
Of note is that the buy back and cancellation offer was undersubscribed by $28.6 million with only $17.3 million taken up. As a consequence, Abano has applied the surplus to retiring more debt. It was planned to cancel approximately 7.7 million shares through the buy-back, reducing the shares on issue to just over 15 million, however only 2.9 million shares were cancelled resulting in just over 20.9 million shares remaining on issue. While the board accepts this as a vote of confidence by shareholders, the impact going forward will be that the planned earnings per share profile in the medium term will be lower than anticipated as the new business streams generate positive earnings going forward with more shares on issue.
Abano also took this opportunity to cancel selected interest rate swaps and reduce the New Zealand ASB debt facility from $100 million to $80 million. The one off cost of these changes has been accounted for in the transaction costs associated with the sale of Bay Audiology.
Abano now has no New Zealand debt and a gearing ratio of under 15 percent being the Australian dental debt. The company therefore has ample funding in place to continue investment into its existing growth businesses, being Audiology in Australia and Asia, Dental in New Zealand and Australia and Radiology in New Zealand. These are all strong businesses in varying stages of maturity and development with considerable growth potential.
Excluding Bay Audiology New Zealand, which was sold during the six month period, Abano’s other audiology businesses in Australia and Asia continued to grow through Greenfield development. A further ten stores were opened in high profile retail malls and shopping centres in Australia, and Abano entered the Malaysian market with the acquisition of two stores. Abano’s move into both Australia and the Asia region is still very much in its infancy.
With growth predominantly through Greenfield development requiring significantly lower up-front investment and capital costs compared to growth by acquisition, each Greenfield site is initially cash negative during the start up phase. Once fully established, the Greenfield sites generate strong returns on the modest initial investment costs. The programme of new openings is extensive and therefore it will be some time before there are any material positive cash flows from this sector as the joint venture invests and extends its footprint across Australia and Asia.
Both the Australian and New Zealand dental businesses continued to grow, with particularly pleasing results from the Australian business. During the first half, the dental acquisition rate in Australia was temporarily slowed while the business consolidated operations and management watched the impact of the global credit crisis on the local economy. During the six months, the network grew to 22 locations after only one year of operations. Given the pleasing result and a resilient Australian economy, accelerated growth plans are now in place and Dental Partners will resume growth through acquisition in coming months. A further two practices were acquired and one new practice was opened in December 2009.
Although consolidated results from the New Zealand dental business were up on the same period last year, there was a more noticeable impact from the recession with flat to lower same-practice revenues during this period, however an improvement in performance was noted in November. Growth also continued in New Zealand with six new acquisitions, taking the Lumino The Dentists network to a 48 practice network nationally.
Performance from Abano’s radiology sector also showed improvement over the first six month period due to the expanded offering from the second clinic at Ascot Central, and the investment made into additional modalities and leading edge technologies has proven itself. The new Insight Radiology acquisition made in December 2008 contributed well in the period with expanded resources and modalities.
With the exception of brain injury rehabilitation, Abano’s hold businesses in orthotics and pathology all returned steady performances in the first half of the year.
Once again, ongoing ACC changes impacted on referral levels for Abano’s brain injury rehabilitation business, which along with costs of upgrading and expanding facilities, led to a lower performance in the first six months. ACC referrals slowed down, as they have done before when ACC undertakes corporate restructuring, and a recovery in referral levels is expected in coming months.
The orthotics group, following a management restructure, provided a solid performance in the six months with a pleasing improvement in contract relationships and operating margins. Following this improved performance, we are currently investigating opportunities to expand the national footprint of this business, which will increase the range of services offered and diversify income sources.
Abano’s pathology business in Wellington continued to perform well. However, the renewal of the Wellington community diagnostics contract with the local DHBs is now only 18 months away. Aotea Pathology has established and resourced a project team to ensure that the Auckland community diagnostics tender and contracting debacle is not repeated in Wellington and that Aotea retains the contract going forward.
Chairman, Alison Paterson, commented: “For the second six months of our financial year, we will continue to implement our co-invest and build strategies with our clinical partners. The sale of our New Zealand audiology business will result in a new look for our portfolio in the next few years.
“There will now be an increase in the significance of the dental sector’s role within the group and accelerated growth plans, particularly for Australia, are in place. Both dental businesses are profitable and both will continue to grow through the acquisition of quality practices providing immediate income and positive cash flow benefits.
“As previously discussed, our audiology businesses are now all off shore in Australia and Asia. They are operated through a new 50:50 joint venture with our long term partner Peter Hutson, who is the CEO. We have a long term mutually agreed growth strategy in place and a clear vision forward. However, due to the nature of Greenfield developments which take time to generate positive cash flows, it will be some time before Abano sees any material, positive contributions from this sector.
“I, as a director of National Hearing Care, will represent our joint 13 percent interest with Peter and interests associated with him, where we each have $15 million invested.”