Abano Healthcare predicts 2019 margins will get squeezed as it speeds up plans to acquire new dental practices while business across the Tasman still struggles.
Chief executive Richard Keys told shareholders at today’s annual meeting he expects a short-term impact on gross margins and earnings per share as Abano scales up the dental business at a faster pace, while contending with a softer start to the year.
The company’s Lumino brand in New Zealand registered same-store sales growth of 1.2 percent in the first quarter and Abano expects an annual increase of at least 2 percent. The Maven brand in Australia reported a 2.3 percent decline in same-store sales, with August offsetting positive months in June and July.
“Unlike some of our competitors who are looking at short to medium term exit plans including private equity sale or IPOs, we are investing for the long term,” Keys said. “We believe that to create a long-term, strong and sustainable business it is essential to invest into the areas that matter. In FY19 we will continue to focus on network growth, patient care and technology.”
Abano focused on its dental businesses after selling the bulk of its audiology divisions in 2010 and 2009. As at May 31, 2010, its Lumino The Dentists unit had 50 practices in New Zealand and its Dental Network in Australia had 26, accounting for $92 million of Abano’s $178 million of annual revenue.
In 2018, its 225 practices contributed $250.2 million of Abano’s $259.5 million, with 19 dental practices acquired in the year. So far this financial year, Abano has bought six Australian practices and one New Zealand practice expected to deliver annualised gross revenue of $14.2 million.
Keys said the company is assessing a number of larger and more profitable practices in Australia and recently increased its banking facility to $200 million to support that growth.
Alongside the acquisition pipeline, Abano is investing in data warehousing to develop analytics aimed at making the company more efficient. It’s trialling a service chatbot using artificial intelligence to help triage patients, providing simple information and directing them to an appropriate clinic for an easier booking system.
The annual meeting in Auckland was director Ted van Arkel’s last before his retirement. Chair Trevor Janes also stepped down from helming the board at the end of the meeting and will retire next year. His deputy Pip Dunphy assumed the chair at the end of the meeting.
Abano shares fell 1.2 percent to $8.50 today in a down market. Since the end of May 2010, the shares have climbed 74 percent, lagging behind a 121 percent gain on the S&P/NZX All Index over the same period.