2013 Annual Report

Richard Keys, Chief Operating Officer and Chief Financial Officer

Reported vs Gross Revenue

Abano’s reported revenue and EBITDA results exclude the returns from our joint venture audiology business, where we only equity account for our 50% share of the NPAT result in the financial period.

The revenue result also reflects the impact of a change in how we account for dental revenues in Australia. Previously, 100% of patient spend was recognised as revenue; however, following a change in the basis for contracting dentists, now we recognise ‘patient spend after dentists’ commissions’ as revenue.

To enable shareholders to review our revenue performance on a like for like basis with previous years, we have also reported gross revenues which includes the total equity accounted audiology revenues and 100% of Australian dental patient spend as revenue.

Due to this, reported revenues were relatively flat while gross revenues increased by 9% year on year. This was primarily due to an 18% increase in gross dental revenues, offset by the loss of approximately $10.5 million in revenue following the sale of the brain injury rehabilitation business at the beginning of the financial year.

EBITDA (excluding audiology) increased by 8%, predominantly driven by the expanding dental networks, where we are now starting to benefit from scale and improving margins, particularly in the purchase of materials and laboratory supplies.

Capital Expenditure

The biggest capital expenditure in FY13 was into the dental sector, for the acquisition of the 30% minority holding in Dental Partners and the acquisition of 24 dental practices, totalling a $35.2 million investment.

In addition, across the Group, there was new income generating capital expenditure of $4.1 million and $8.4 million operational and replacement capital.

Our primary capital expenditure item is dental acquisitions, which are funded by debt. These are made up of an initial upfront payment and further payments over the earn out period.

We have also had significant investment into our radiology businesses in the past five years, however, we have no major new investments in this area planned in FY14. The cost of the new Millennium radiology clinic accounts for most of the new income generating capital spend in FY13.


As at 31 May 2013, Abano had confirmed banking facilities of $151.6 million. We reviewed our bank funding in FY13, and refinanced our existing Australian debt facilities with ASB Bank. We also refinanced our existing New Zealand facilities, gaining improved pricing and tenure. In addition, at the end of May 2013, we negotiated a new funding facility of A$30 million to be used for future acquisitions.

As at 31 May 2013, Abano had undrawn bank funds of $61.1 million.

The proceeds from the sale of Abano Rehabilitation, our brain injury business, in June 2012, were used to repay debt and to fund business growth.

At all times during the 2013 financial year, Abano met and complied with its banking covenants.

Interest Rate Policy

Abano has a policy which provides guidelines for terms and tenure of banking facilities, as well as fixed versus floating interest rates. The primary objective of interest rate risk management is to reduce risk and uncertainty to the business from movements in interest rates. The policy provides for certain percentages of debt to be fixed over a 1 – 10 year period. In addition, to manage the risk of a large portion of facilities maturing in any one year, no more than 33% of debt facilities can mature in any 12 month period over the next 24 month duration.

Foreign Exchange

Generally, all consumables and other purchases are paid for in local currencies and therefore there is no exchange risk. One exception is a small orthotics purchasing contract worth approximately US$1million where forward foreign exchange contracts are in place within each financial year.

Any debt required for the Dental Partners acquisition programme in Australia is provided through local currency facilities and therefore the loan is in the same currency as the underlying asset and the revenue generated from that asset.

Given we are growing all our overseas businesses, we reinvest the earnings from each business back into growth of that business. Therefore, the foreign exchange risk is largely limited to when new capital or funding is required and on the translation of the financial results into New Zealand dollars for reporting purposes. Given we do not repatriate the funds, any gain or loss on exchange rates movements for reporting purposes are not crystallised and are non cash.