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Abano HY20 Results Announcement

Unaudited results for the six months ending 30 November 2019 (HY20)

  • For the six months ended 30 November 2019, Abano has reported gross revenue of $175.8m, EBITDA of $23.9m and NPAT of $0.1m, with an Underlying NPAT of $5.5m.
  • The result reflects the adoption of NZ IFRS 16 for leases and includes $4.4m of non-cash goodwill impairments and asset write downs in Maven Dental, as well as $1.7m costs to date related to the Expressions of Interest (EOI) process and Scheme transaction.
  • Recruitment has seen new and junior clinicians joining the group, boosting same practice clinical days worked, however, impacting revenue per clinical day and increasing labour costs as expected.
  • While corporate and overhead costs were reduced, higher labour costs impacted on margins, which were slightly down on the prior comparative period (excluding IFRS 16 adjustments).
  • Lumino The Dentists same practice revenue growth was 0.4%. Maven Dental Group continues to be impacted by more challenging trading conditions and some underperforming practices, with same practice revenue down 2.1%.
  • The Scheme of Arrangement process continues as planned and the Scheme Booklet and Notice of Special Meeting are expected to be distributed to shareholders in mid to late February 2020, with the Special Meeting planned for March 2020.

Listed trans-Tasman dental provider, Abano Healthcare Group Limited (NZX:ABA), has today reported its results for the six months to 30 November 2019 (HY20).

Following a detailed strategic review, in March 2019 Abano moved its focus from acquisition growth to organic growth, with a particular emphasis on improving clinician and practice utilisation across the two dental networks. In line with this, there were no acquisitions in the first half of the FY20 year.

Dental gross revenue of $175.8m for HY20 was slightly ahead of the prior comparative period (pcp), driven by continued same practice revenue growth in New Zealand as well as a full period contribution from FY19 acquisitions.  Lumino delivered 0.4% same practice revenue growth for the six months while Maven was down 2.1% as it continues to be affected by a number of factors, including the replacement of retiring dentists, some underperforming practices and the more challenging trading conditions in Australia.

As part of the continued focus on organic growth, recruitment in both Lumino and Maven has seen a number of new and junior clinicians joining the group. Initially, these clinicians will have a lower revenue per clinical day, which increases as they become more experienced, build their patient books and participate in the training opportunities offered by Abano.

While corporate and overhead costs reduced, labour costs have increased with new clinicians and clinical support staff joining the group. On a like for like basis excluding IFRS 16 adjustments, Lumino’s Underlying EBITDA margin reduced to 12.1% (HY19:12.4%) and Maven was down to 11.0% (HY19: 11.8%). Combined, this resulted in Abano’s Dental Underlying EBITDA margin, excluding corporate, being 11.5% (HY19: 12.1%).

Reported EBITDA including IFRS adjustments was $23.9m and NPAT was $0.1m. Abano also reports on underlying earnings[i] . The Company’s Underlying EBITDAii was $25.6m, with an Underlying NPAT of $5.5m including IFRS 16 adjustments. On a like for like basis excluding NZ IFRS 16 lease adjustments, HY20 Underlying EBITDA was down $0.7m on the pcp.

Results include $4.4m in non-cash goodwill impairments and asset write downs in Maven Dental associated with underperforming practices in Australia (two of these practices were sold in December 2019 and one is under a sales process)[ii]. Also included in the result is $1.7m of the costs to date associated with the EOI process, which resulted in the November 2019 announcement of a Scheme of Arrangement proposal with Adams NZ Bidco Limited (Bidco).

Net bank debt as at 30 November 2019 was $128.1m (FY19 year-end: $129.8m). As per the Scheme Implementation Agreement announced in November 2019, no HY20 interim dividend will be paid. The Board took this into account when considering the Scheme.

Abano CEO, Richard Keys, said: “Our focus on organic growth has seen an increase in the number of clinical days and we continue to leverage technology to assist in the delivery of operational and clinical excellence and increase patient visits. Recruitment has been a priority for both businesses, and we are pleased to have welcomed a number of new and junior clinicians to the group.  We will be investing in these clinicians and supporting them as they gain experience and build their patient books. Management continues to work hard to drive improvements in performance across the network, particularly in the challenging Australian market.”

Impact of NZ IFRS 16

NZ IFRS 16 is the new accounting standard in relation to the treatment of leases and significantly impacts those businesses with sizable portfolios of leased properties. It is important to note that the impact of NZ IFRS 16 is non-cash and is for financial reporting purposes only. All of Abano’s practice sites are leased, often with several rights of renewals for the benefit of Abano. The impact of NZ IFRS 16 classification resulted in an increase of $7.7m EBITDA and a reduction of $0.5m NPAT due to increased depreciation and interest expense.

Scheme of Arrangement

In November 2019, Abano announced a Scheme Implementation Agreement with Bidco, in respect of a proposed Scheme of Arrangement for the acquisition of 100% of the Abano shares at $5.70 per share. The Abano Board carried out a comprehensive competitive process and consideration of Expressions of Interest. It believes the Scheme proposed by Bidco provides the most compelling value for shareholders, accelerating a capital return and mitigating the risks that would otherwise be involved in delivering the opportunities from executing Abano’s strategic plan over time.

The Scheme process continues as expected and the Scheme Booklet and Notice of Special Meeting are expected to be distributed to shareholders in mid to late February 2020, with the Special Meeting planned for March 2020.

Shareholders are strongly encouraged to vote at the Special Meeting in person or by proxy.

For the Scheme to be approved, 75% or more of the votes cast must be voted in favour of the Scheme Resolution; and more than 50% of the total number of Abano Shares on issue must be voted in favour of the Scheme Resolution[iii].

Ends

[i] Underlying earnings are reported for both Net Profit After Tax (“NPAT”, a GAAP compliant measure) and EBITDA and exclude gains/losses arising on sale of businesses, fair value adjustments and impairments, including their tax effect. These are the measures used within the Company to evaluate performance, establish strategic goals and to allocate resources and provide the basis of Abano’s dividend policy.

More information on gross revenue, EBITDA and underlying earnings is available on the Abano website at https://www.abano.co.nz/investor-information/non-gaap-financial-information.

[ii] Under accounting standards, goodwill is required to be assessed at the practice level rather than on a group basis, and non-cash impairments may be required in some cases for practices which face longer term challenges and underperformance. Deferred acquisition consideration is paid to vendors based on practice performance and a fair value adjustment may be recognised if performance is above or below acquisition targets.

[iii] On the basis that all shareholders form a single interest class.  On the date of this announcement, the Board considers this to be correct.

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