Our two radiology businesses are high end, specialised providers, and 59% of their revenue is from private payment. The New Zealand radiology market is worth an estimated $400 million pa, and has been identified as a growth and investment area for Abano.
FY12 saw strong year on year growth with revenues up 11% over FY11. However, increasing investment saw a flattening performance at EBITDA , largely due to the start up costs of the greenfield investment in the new PET CT centre in Auckland.
The slow down in ACC approved procedures eased in the final months of FY12 with growing referrals for ACC surgeries and improving private elective procedures.
To ensure our radiology businesses stay at the top end of the market, we continue to invest in leading edge technology and equipment.
At the end of the 2011 financial year, we officially opened a new $5 million PET CT scanning centre at Ascot Radiology in Auckland. This is a relatively new area of diagnostic imaging, and it was important that we took a leadership position from the start to capture the demand for this new technology. Although the predominant use is still in oncology, the benefits of other applications are now being recognised.
Funding by insurance companies, ACC and DHBs is still relatively limited, however it is likely that as the use of PET CT scanning becomes more accepted, this funding should expand.
In February 2012, we announced the development of a greenfield $4 million radiology clinic in the AUT Millennium Campus on Auckland’s North Shore. This new clinic, which is planned to open in the second quarter of FY13, is a joint venture between Ascot Radiology, which offers a full range of high quality imaging, and Insight Radiology, which provides a specialist ultrasound and obstetric service. Abano has majority shareholdings in both businesses. The planned merge of these two businesses will help to realise synergies and assist in the development of the new clinic.
The clinic will open with an array of new technology and equipment, including Australasia’s first GE second generation wide-bore 3T Magnetic Resonance Imaging (MRI) scanner. It offers a unique opportunity to expand into a new geographical area and access specialist referrals that are not currently seen at our other locations. We expect it to provide a reliable and fast growing income stream for Abano over the next few years.
Our joint venture pathology business operates in the wider Wellington and Hutt Valley region, under a fixed price DHB contract. We are currently in the first year of a $75 million, three year extension to the contract, which started in November 2011. Due to its reliance on public funding and the fixed price nature of the contract, we have a hold and maintain strategy in place for this business.
Aotea is recognised as an extremely professional pathology business, and a leader in its field. Although the contract extension provided increased confidence to continue to invest in this business in the short term, we have no certainty with regards to the service after this time.
This impacts on our ability to invest and attract and retain the highly skilled staff required in this business. Extensive discussions have been held with both DHBs and Government to explore better solutions for this vital medical service.
The new contract allowed for a modest price increase and revenues grew by 3% from FY11. However, the costs associated with retaining key staff and maintaining best practice technology and clinical standards meant that EBITDA remained flat.