Abano Annual Meeting Summary
INDEPENDENT VALUATION MIDPOINT PUTS ABANO SHARES ABOVE $9: An Independent Report prepared by valuation firm Grant Samuel at the request of the independent directors of Abano, has a mid-point equity valuation for Abano of $187 million or $9.17 a share, chairman Trevor Janes told shareholders at the Abano Healthcare Group annual meeting held today in Auckland.
An Independent Report prepared by valuation firm Grant Samuel at the request of the independent directors of Abano, has a mid-point equity valuation for Abano of $187 million or $9.17 a share, chairman Trevor Janes told shareholders at the Abano Healthcare Group annual meeting held today in Auckland.
The independent valuation from Grant Samuel was requested by the independent directors as part of a preparatory process, in the case of a possible takeover[i] following the receipt and rejection of an unsolicited, indicative, non-binding and conditional proposal from Archer Capital, together with interests associated with James Reeves, and with Peter Hutson.As part of that process, Grant Samuel undertook an independent valuation of the Abano Group, which it has provided to the Board. Shareholders are encouraged to read the full report, including the assumptions on which it is based, which is available on the company website www.abano.co.nz.
Trevor Janes said: “The Grant Samuel Independent Report provides a value per share of between $8.30 and $10.05, based on a 100% transaction. While no actual notice of takeover offer has been received from the Archer/Hutson/Reeves consortium, the indications of value we have had from them are still materially below this.
“The necessary activity surrounding this approach has been a major distraction for the Board and management; however, it has accelerated and brought forward a number of other attractive options which we are assessing.”
Management continue to focus on the company’s long term growth strategy and developing the potential of each business within the Group, and managing director, Alan Clarke, provided a detailed update to shareholders at the meeting.
“By staying focused on our overarching goal of better client and patient care, we have grown our businesses and added considerable value for all our stakeholders, from clients and patients to staff to shareholders. Currently, our portfolio consists of seven businesses in four different sectors, all in differing stages of maturity.
“Our growth businesses are headed by our two dental networks which are our primary revenue and earnings generators and our most valuable enterprises. We operate in the $9.6 billion trans-Tasman dental market and the current and future value of our dental group is substantial.
“Despite the soft economic conditions seen in both Australia and New Zealand, Abano’s dental group has performed strongly when compared to its competitors.
“Our Australian business, Dental Partners is the second largest group in Australia and it achieved the fastest compound growth rate over the last three years, out of the top four corporate consolidators. We rank second in EBITDA margin while continuing to invest in growth, with the leader being a business that is not investing in growth, has stagnant revenues and is effectively cashed up. We are generating returns on invested capital that are materially above our largest competitor which is also still investing for growth.
“In New Zealand, Lumino The Dentists’ successful marketing campaign has been a key factor in the business significantly outperforming the market over the last three years, on a same clinic basis.
“We are continuing to build our dental networks and, just as importantly, investing into the culture, people, brands and clinical knowledge that are key ingredients in our success. This heavy investment into the ‘organisational glue’ helps to align all stakeholders within our business and is creating substantial value for Abano’s shareholders.
“We are also investing into the growth of our audiology networks in Australia and Asia and are seeing excellent progress, especially in Australia where that business is now trading close to breakeven, many months ahead of plan. This is the result of consistent and careful work by the new management team, who delivered 17% year on year revenue growth during FY13, in a market where two larger competitors saw revenues decrease.
“Our other growth business, Insight+Ascot Radiology, continues to focus on building demand for the new technologies and clinics which have been established over the last five years. We are taking steps to address the fluctuating demand for some of these top end technologies and are confident in the long term value inherent in this business.
“Abano’s pathology business has recently agreed to a $26 million, one year extension of the existing community pathology contract in the wider Wellington region. It is now fully engaged with the DHBs to explore long term solutions for a continuation of the existing service for all communities in the region. The Orthotics Centre which operates in a fixed price, publicly funded environment, continues to provide a solid performance and consistent cashflows.”
Chairman, Trevor Janes, provided an update on the company’s guidance for the half year ending 30 November 2013.
“While we expect Net Profit After Tax to be above the 2013 first half year, revenue and EBITDA are expected to be slightly down, primarily due to soft economic conditions seen in Australia. In addition, the strong New Zealand dollar compared to the Australian dollar is having a non-cash but adverse effect on our reported results.
“For some time now, we have been operating in a soft New Zealand and, more recently, a soft Australian economy. We believe these conditions are cyclical and not structural. They have been affecting the dental industry in New Zealand, with a similar negative growth story now emerging in the Australian dental industry as the softer economic conditions and the removal of the Government-funded chronic disease dental subsidy impact on practice revenues.
“Dental, our flagship business, remains our major focus on both sides of the Tasman, and we have accelerated our investment in the first half year as we position our businesses for continued growth. While the new Millennium radiology clinic is showing good results, the fluctuating and soft demand for top end imaging technologies at Insight+Ascot Radiology, is also having an impact.
“In addition and regrettably, the first half result will also include costs being incurred by Abano in relation to the Archer/Hutson/Reeves proposal, which under a normal takeover offer would be at the bidders’ expense.”
Abano is expecting the reported half year Net Profit After Tax (NPAT) to be ahead of last year, at between $1.8 million to $2.3 million (HY13: $1.5 million). Reported revenue is expected to be slightly down at $104.9 million to $106.9 million (HY13 $107.9 million) along with EBITDA at $12.9 million to $13.9 million (HY13 $14.8 million).
Gross revenues which include the audiology group and Australian dental revenues before payment of dentists’ commissions are expected to be $120.5 million to $122.5 million (HY13 $119.7 million).
Underlying EBITDA excluding non-cash items required to be expensed under the International Financial Reporting Standards (IFRS) is expected to be between $13.8 million to $14.8 million (HY13 $15.4 million), resulting in an underlying NPAT of between $2.5 million to $3.0 million (HY13 $2.7 million).
Trevor concluded: “The Board and management are confident of the significant value inherent in Abano’s long term strategy and we see the current softer trading performance as a short term anomaly, primarily due to economic conditions in Australia, and also reflected in the weakness in the Australian dollar. Abano is in an exciting growth and investment phase as we build new, valuable and sustainable long term businesses for all our shareholders.”
Shareholders passed all resolutions at the annual meeting:
- Authorised directors to fix the auditors’ remuneration
- Re-election of Mr Trevor Janes as a director
- Re-election of Mr Ted van Arkel as a director
- Ratification of issue on 2 September 2013 of 1,554,622 ordinary shares in the Company
- Increase in total annual pool of funds that is reserved for flexibility to provide additional remuneration for non-executive Directors, from $50,000 to $150,000
Abano holds a 50% share in Bay International and therefore the results for the Bay group are equity accounted and not included in the reported revenue and EBITDA results.
More information on gross revenue and underlying earnings which are non-GAAP financial measures and are not prepared in accordance with NZ IFRS, is available on the Abano website at www.abano.co.nz/underlyingearnings.
[i]In preparing for a possible takeover process, Abano requested Grant Samuel to be available as an independent expert for the purposes of preparing a report on the merits of any offer that may be forthcoming. While no notice of offer had been received at that time, Grant Samuel was asked to develop sufficient familiarity and understanding of Abano and its businesses to equip it to prepare a comprehensive merits report on a timely basis, should this become necessary. As part of that process, Grant Samuel undertook an independent valuation of the Abano Group, which it has provided to the Board. The Board has sought and obtained Grant Samuel’s approval to the release of the report. The report is not a merits report for the purposes of the Takeovers Code, has not been prepared on that basis, nor has Grant Samuel been approved as an independent expert by the Takeovers Panel for the purposes of any Archer/Hutson/Reeves offer, should one proceed.