Interim Results to 30 November 2013

Abano Healthcare Group has today reported its results for the six month period to 30 November 2013. The result is at the top of the guidance range provided with a Net Profit After Tax (NPAT) of $2.3 million, up from $1.5 million in the previous first half year period, EBITDA of $13.9 million and revenues of $106.1 million. The results are based on unaudited management accounts.

Abano Healthcare Group has today reported its results for the six month period to 30 November 2013. The result is at the top of the guidance range provided with a Net Profit After Tax (NPAT) of $2.3 million, up from $1.5 million in the previous first half year period, EBITDA of $13.9 million and revenues of $106.1 million. The results are based on unaudited management accounts.

Gross revenues[i], which include the equity accounted audiology group and Australian dental revenues before payment of dentists’ commissions, were $136.2 million. Underlying earnings[ii], which exclude non-cash items required to be expensed under the International Financial Reporting Standards (IFRS), were $14.8 million at EBITDA, giving an underlying NPAT of $3.0 million, up from $2.7 million in the previous first half year period.

In line with the previous years, the directors have confirmed an interim dividend of 7.3 cents per share (cps). With earnings per share for this six month period increasing from 8.87cps to 12.56cps, the dividend will be paid out of the current period earnings. Abano’s Dividend Reinvestment Plan will continue to be in effect.

Chairman, Trevor Janes, said: “In the first half of FY14, we increased investment into our growth businesses, particularly into building the organisational and clinical strength of our dental networks.

“Including revenue from our equity accounted audiology business, over 50% of our revenues are now generated in Australia and the very strong New Zealand dollar impacted on our reported performance in the first half. There has been a year on year negative movement of approximately 13% in the New Zealand dollar when compared to the Australian dollar, with the exchange rate moving from $0.79 in November 2012 to $0.89 in November 2013.

“This translated to a negative, non-cash $7.5 million impact at gross revenue and $0.7 million at Underlying EBITDA when compared to the previous first half year. In addition, the first six months of the previous year included $0.9 million of revenue and $0.1 million at EBITDA from our brain injury rehabilitation business, which was sold in July 2012.

“The 2014 half year also included approximately $0.4 million in extraordinary costs incurred by Abano in relation to the unsolicited, indicative proposal from Archer Capital, along with interests associated with Peter Hutson and James Reeves (Archer/Hutson/Reeves), which reduced our reported EBITDA and NPAT. Had this proposal proceeded with notice of a formal Code compliant takeover offer, these costs would have been recovered from the bidder.”

HY14 Key Events

  • Completion of an oversubscribed $18.5 million capital raising, providing sufficient capital for the foreseeable future
  • Aotea Pathology signed $26 million contract extension
  • Acquisition of 10 dental practices providing $18.8 million in additional annualised gross revenues, with a further three practices acquired since 30 November 2013 providing $6.3 million in annualised gross revenues
  • Received and rejected unsolicited, indicative, conditional, non-binding proposal from the Archer/Hutson/Reeves consortium. Proposal withdrawn on 28 November 2013
  • Resignation of Peter Hutson from the Abano Board following unanimous request from the independent directors
  • Grant Samuel independent valuation provides a value per share of between $8.30 and $10.05, for 100% of the business.

Management commentary

Abano’s two dental businesses remain our major revenue and income generators, and they collectively provided 69% of gross revenuesi for HY14, with 10 new acquisitions made in the period, and a further three since 30 November 2013, adding a combined $25.1 million in annualised gross revenues.

We continued to invest heavily into building the organisational and clinical strength of our dental businesses during the past six months, including holding two large clinical conferences and making several new management appointments, which have strengthened the Dental Partners senior management team in Australia.

The deteriorating economy and consumer confidence in Australia is now impacting on Dental Partners’ revenues with year on year same store sales down by 8% in the period, due in part to the termination of the Australian Government Chronic Disease Dental Scheme (Scheme) in November 2012.

Revenues in HY13 received an artificial boost, unmatched in HY14, as outstanding treatments were brought forward and completed before the Scheme ended. Other Australian dental consolidators experienced this as well, with some reporting a very high exposure to the Scheme of up to 20 to 30% of their revenues. Because of Abano’s strategy to concentrate on private revenue sources, Dental Partners’ exposure was around 5% of total revenues.

Dental Partners has achieved a three year gross revenue compound annual growth rate of 36%, compared to the next highest Australian corporate consolidator which grew by 22%. The group also had one of the highest revenue to EBITDA margins of all the Australian dental consolidators and was ahead of the largest growth corporate at Return on Invested Capital during this period[iii]. For more detail, view the Annual Meeting presentations at

Lumino the Dentists achieved a compound same store revenue growth of 5.2% during FY12 and FY13, outperforming the New Zealand dental market which declined by 8.8%, based on the New Zealand Dental Association surveys.

Following this strong growth, same store growth is currently flat in the first half of FY14, with estimates that Lumino is performing approximately 8% above the New Zealand dental market.

The accelerating acquisition programmes in New Zealand and Australia, when combined with soft same store sales, means that our dental gross margin in the period is slightly down. Pleasingly, despite the heavy investment in the first half of FY14 into management appointments and clinical conferences, Abano Dental is still expected to achieve the same full year gross margin as last year.

The significant size and scale of Abano’s dental group is now starting to translate into increased negotiating power with dental suppliers, manufacturers and laboratories. During the six month period, we negotiated a number of new arrangements that will continue to reduce cost in these areas.

Insight+Ascot Radiology, another of our growth businesses, is focused on building demand for the state of the art PET-CT scanning centre and the full service Millennium Clinic on Auckland’s North Shore, both of which were greenfield start-ups with no instant revenues available. While the uptake of services at these clinics has been growing, a referrer review is underway to ensure that clinical specialists and their patients are taking full advantage of the leading edge diagnostic technologies and the depth of specialist radiologist skills that we have on offer.

Our audiology businesses in Australia and South East Asia continue to provide improving results. Pleasingly, Bay Audio in Australia is building on last year’s 17% revenue growth, in a market where competitor groups are reporting declining sale volumes. We are seeing growing conversion of the approximately 6,000 self test touch screen leads generated on average every month in Bay Audio’s high visibility retail locations. The leadership provided by the new management team is a key factor in the Australian business now trading close to break even at EBITDA, ahead of plan.

Aotea Pathology, Abano’s joint venture pathology business, has signed a $26 million contract extension to October 2015 and is working closely with the DHBs to ensure a long term, sustainable pathology service for the communities in the wider Wellington region. Following a successful Expression of Interest process, Aotea Pathology has now been invited to proceed into the Request for Proposal process once it is released by the DHBs in early 2014.

The Orthotics Centre continues to provide solid cashflows in the restricted public funded environment in which it operates and the management team are also making good progress in renewing and securing longer term tenure for their DHB contracts.


Our strategy is on track as we continue to build strong, sustainable businesses. With the exception of audiology, each of our existing businesses has increased their EBITDA contribution compared to five years ago.

Over this time, we have seen strong revenue growth and improving earnings performances, and this is continuing as we maintain our focus on achieving better client and patient care, which in turn delivers enhanced investment value to our shareholders.

As we indicated at the Annual Meeting, the Archer/Hutson/Reeves proposal resulted in a number of approaches from other parties who expressed an interest in various potential initiatives involving Abano.

The process of building relationships, gaining comfort with prospective business partners and assessing the long term value of potential acquisition opportunities is one which the Board undertakes with care and detailed analysis. At this time, the Board is not of the view that any of the opportunities presented ought to be advanced. However, the approaches received do provide the Board with additional confidence that its assessment of Abano’s current and long term value potential remains appropriate and that Abano’s strategy is well founded.

Summary of Key Dates

  • Record date for interim dividend 10 January 2014
  • Confirmation of issue price of shares under DRP. Shares will be issued at a 2.5% discount on closing price 17 January 2014
  • Payment date of interim dividend/Issue of shares under DRP 24 January 2014
  • Release of interim report February 2014

[i]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. Gross revenues include the equity accounted, jointly controlled audiology businesses and Australian dental revenues before payment of dentists’ commissions

[ii]More information on gross revenue, EBITDA, Underlying EBITDA and Underlying NPAT, all of which are non-GAAP financial measures and are not prepared in accordance with NZ IFRS, is available on the Abano website at

[iii] Competitor analysis includes Dental Corporation, Pacific Smiles Group and 1300 Smiles and the data analysed has been extracted from published financial statements. The following assumptions have been made: DC commissions 30% of gross revenue to derive gross revenue from published net revenue, the 2011 DC information derived from both published statutory financials and Fortis investor presentations to derive an extrapolated 12 months for 2011. Pacific Smiles Group 2013 data is an estimate extracted from a Broker report. EBITDA used for all entities is NPBT adding back net finance expenses, depreciation and amortisation.