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CHAIRMAN’S REPORT

YEAR IN REVIEW

Alison Paterson
The board of Abano is very pleased to present the annual report and financial statements for the year ended 31 May 2008.

Abano achieved a record Net Profit After Tax (NPAT) of $7.8 million after allowing for one-off non recoverable takeover and other associated costs of $0.5m (pre tax) as well as adjustments relating to foreign exchange movements, interest rate swaps, accounting estimates, capital gains and Australian tax, as detailed in the annual accounts.

This result was a 56 percent increase on the previous year’s NPAT of $5.0 million and in line with guidance provided by the company of $7.9 million which was stated to exclude takeover costs.

Revenue for the year was $123.9 million, an increase of 38 percent year on year, with Earnings Before Interest, Tax, Depreciation and Amortisation up 68 percent to $23.3 million including the takeover costs.

The result also represents a margin improvement at EBITDA from 15.5 percent to 18.8 percent of revenue and Operating Earnings Per Share increased by 67 percent to 101 cents per share.

Return on Invested Capital also continues to improve, up from less than five percent in 2000 to 17.5 percent in 2008.

Abano’s performance has been well communicated to shareholders this year, both through our regular shareholder newsletters and company releases, as well as numerous additional communications around the corporate takeover activity that occurred during the period.

As previously signalled, the improved performance is being driven by increased returns from all sectors, supported by organic and acquisition growth, particularly in Audiology, Dental and Radiology.

This growth is continuing as the company enters a new phase of expansion into overseas markets while progressing its development of the New Zealand market. A number of additional acquisitions and growth initiatives have continued into the ostart of our new financial year, extending our business in both New Zealand and abroad and continuing our established record of profitable growth.

SHAREHOLDER DIVIDEND

On expiry of the Crescent bid in March 2008, a delayed interim dividend of 13 cents per share was paid in April 2008 from the earnings of the first nine months of the 2008 financial year. Unfortunately, as Crescent did not allow the interim dividend to be declared and paid on the original date it was due, imputation credits of approximately $3 million were lost.

The Abano board has declared a fully imputed final dividend of 5 cents per share. This maintains the Group’s policy of distributing 50% of NPAT, (excluding the one off takeover costs) and takes the total dividend paid by Abano this year to 18 cents per share.

The dividend policy will be reviewed annually to ensure the dividend return and use of imputation credits is carefully balanced with the growth opportunities of the company.

CORPORATE ACTIVITY

During the 2008 financial year, Abano shareholders received takeover offers from two parties – Masthead Portfolios Limited and Crescent Capital Partners.

Directors advised shareholders to reject both offers, on the basis that they fell below or at the lower end of the Independent Adviser’s value range, as commissioned by the board, and that shareholders were only now starting to reap the benefits of Abano’s established growth strategy.

The Masthead bid which was lodged on the 13 September 2007, lapsed on 11 December 2007. On 17 January 2008, Masthead sold its 19.9% stake in Abano to Healthcare Industry, which is owned by interests associated with Bay Audiology founders, Peter Hutson, Scott Wright and Anya Hutson. The Crescent offer, lodged on the 5 December 2007, lapsed on 14 March 2008.

This activity consumed an extraordinary amount of board and senior management time with both directors and executives contributing time well beyond normal expectations (see record of board meetings on page 32). Special mention should be made of Trevor Janes [Deputy Chair] and Phil Newland who with me constituted an informal negotiating committee. Their particular skills were especially valuable in this situation. Included too in this acknowledgement is Richard Keys, Abano’s chief financial officer.

On behalf of shareholders, I would like to thank all directors and management for their commitment and input over the past nine months. I include all management in this acknowledgement as I am pleased to report that the takeover distraction did not have a material impact on the day to day business. This is a tribute to the effective operating and reporting structure of Abano, value adding partnerships with the clinical founders of the sectors we have invested in and the dedication of all involved to ensure we delivered on our market guidance despite distractions.

The board endeavoured to conduct a best practice response to the takeover bids and I would like to take this opportunity to also recognise the exceptional professional support from our advisers.

Despite the economic downturn, Abano’s share price has continued to outperform most of the NZX indices as the business continues to grow and provide increasing returns.

OUR OUTLOOK

We are now entering a second growth phase as we consolidate our efforts into those areas of the healthcare and medical services market which we have identified as providing excellent future potential and value.

In two of these sectors we have implemented carefully researched strategies to replicate these businesses in new and bigger markets, through partnerships which will mitigate our implementation risks.

Over the next twelve months, we will be looking to further our investigations and negotiations into Asia, build on our initial entry into the Australian dental and audiology markets, as well as continue our growth in New Zealand.

Based on our current performance, the directors’ expectation is that the company will still achieve an EBITDA of $28.9 million for the 2009 financial year and a NPAT of $10.5 million, as advised in the Independent Appraisal Report. We do note however, that while directors consider the company to be reasonably insulated from economic conditions, the extent of the current economic downturn must now be regarded as a material risk factor.

I would like to thank all directors and senior management for their input and commitment to the business during the year.

Our appreciation is also extended to the wonderful teams of people who are the lifeblood of Abano, providing professional, quality care and treatment to the thousands of people we diagnose, care for and treat each day. We have profiled some of these great people in this year’s annual report and hope you enjoy reading their stories about their profession and roles with Abano.

Finally, thank you to all our shareholders, whose support for our management, board and strategy enables us to continue our growth journey as a leading healthcare and medical services operator. We welcome your feedback and I, or any member of the board, can be contacted through enquiries@abanohealthcare.co.nz.

I look forward to seeing you at the annual meeting in Auckland later this year.

Thank you

 Alison Paterson Signature

 


Alison Paterson
Chair

Click to download the "Chairman's Report" document as pdf ( 58 kb )