Abano expects first half to drop as much as 14%, flagging Australian slowdown

Abano Healthcare [NZX: ABA], the listed medical and dental centre investor, expects first half earnings to decline as much as 14% as an expanding exposure to the cooling Australian economy weighs, even as its dental network grows and audiology unit improves.

Net profit in the six months ending November 30 is expected to be between $3 million and $3.6 million, down from $3.5 million a year earlier, the Auckland-based company told shareholders at its annual meeting. Gross sales will be between $150m and $154m, little changed from $153.2m.

"The year-on-year comparison reflects the growth of our dental networks and the improvements in audiology, while the divestment of the pathology and orthotics businesses last year means there are no longer earning contributions from these businesses in this financial period," incoming chief executive Richard Key said in speech notes lodged with the NZX. "A like-for-like comparison for the half year, excluding the pathology and orthotics businesses which were sold, has been provided to give you further clarity on the relative performance of Abano's ongoing businesses."

Abano sold its orthotics business in November last year, reasoning the exposure to government contracts wasn't compatible with Abano's investment criteria to operate on a fee for service basis. It also divested its Aotea Pathology unit after quitting the lower North Island district health board tender process.

Stripping out earnings from the orthotics and pathology units, profit last year was $1.9 million on gross sales of $132.7 million.

The sales of the two businesses transformed Abano into more of an offshore business, with the company telling shareholders today that more than 60% of gross revenue will be generated outside New Zealand, especially from Australia. Mr Keys warned that tough economic conditions across the Tasman, where the mining boom is winding down, will impact on sales.

"We are facing more challenging economic conditions in Australia where economic growth is below trend, particularly in Queensland where 40% of our practices are based," Keys said. "Our Queensland practices are offsetting the positive same store growth we are achieving with our practices in all the other states with an overall drop in same store sales for Maven Dental Group of approximately 3%."

Earnings before interest, tax, depreciation and amortisation, will be between $12.5 million and $13.7 million, down from $15.4 million it reported, but up from $11 million on a continuing business basis.

Abano shares fell 0.5% to $8.25 and have gained 7% since the start of the year.

(BusinessDesk)