Final Abano Shareholder Letter April 20 online PDF

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Download Final Abano Shareholder Letter April 20 online PDF

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20 April 2020 Dear fellow shareholder I hope that you and your families are well and staying safe in these unprecedented times. On behalf of the Abano Board, I wanted to provide you with an update on our business, the initiatives we have put in place to see us through the lockdown and subsequent period, and the effect COVID-19 has had on our company, including termination of the Scheme Implementation Agreement, under which Adams NZ Bidco Limited (Bidco) was to acquire all the shares in Abano. UNITING AGAINST COVID-19 During the first half of March this year, Lumino’s performance was in line with management expectations, and Maven was slightly below. From mid-March, we started to note a decline in patient numbers in both New Zealand and Australia. Then on Sunday 22 March, the New Zealand Dental Council announced that dental practices should cease all non-essential treatments. As a business, we had made the decision to follow industry advice to protect our people and our patients and meet our health and safety obligations. This meant that from 23 March we stopped all non-essential treatments in New Zealand. Later that day the New Zealand Government announced we were moving to alert level 3 and, within 48 hours, to alert level 4 and lockdown. One week later, the Australian regulatory and Government bodies also issued similar guidelines and we temporarily closed all our Australian practices for non-essential dental services. These measures had a significant impact on our people and our business. Revenue dropped from approximately $29 million per month to almost zero and we immediately moved to managing our cost base where possible.

We have implemented a number of initiatives and cost measures to support our people and our business during this time: •

The majority of staff have been temporarily stood down and we have sought Government support in both countries. We recognise the impact this has had on our dentists and employees who are not able to work during this period. Our skilled people are highly valuable to us and our aim is to retain close connections with them and bring them back to work as soon as restrictions are lifted.

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We have established an Emergency Dental Care service for our communities, across a small number of our practices. We are using enhanced precautions including high level PPE (personal protective equipment), additional sanitisation and infection control protocols and safe distancing. I would like to acknowledge and thank all our staff who are working to care for patients during this time.

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The senior leadership team and a small number of support staff are continuing to work full time, from home, to ensure business continuity during this period and that services can recommence as soon as permitted. For the next three months, the Board and executive team have agreed to reduce remuneration and director fees by 20% and no discretionary bonuses or short-term incentives will be paid to the executive team for FY20.

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We have reviewed our cost base. All non-essential capital and operating spend has been cancelled or deferred and we have engaged with landlords for rent relief.

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As at the end of March 2020, Abano had net debt of approximately $130m and total bank facilities of approximately $163m1. The company remains in constructive discussions with its banking partner to assess and provide for future requirements.

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The Board is looking to put in place arrangements to ensure the company has sufficient resources to get beyond the impacts of COVID-19.

It is clear that our financial performance in FY20 will be materially impacted by the COVID-19 restrictions. With the likely closure of practices into May 2020, we now expect Abano’s Underlying EBITDA for FY20 to be approximately $17m (pre-IFRS 16). FY21 financial performance will be materially impacted, the extent of which will depend on when the restrictions are lifted and the timing of a recovery in patient demand. Given the uncertainty, we are unable to provide guidance for FY21. Dental is an important component of health, and the business is expected to make a full recovery, however, clarity cannot be provided on how long this will take. While there has been no change to dividend policy, given the expected impact of COVID-19 on financial performance, it is unlikely a dividend will be paid in FY20 or FY21. Our focus has now moved to ensuring the future of our business. This includes exploring a range of opportunities to address the short-term impacts of COVID-19 whilst securing the best long-term outcome for the business. Your Board remains committed to continuing to act in the best interests of all our stakeholders. Management are preparing to recommence dental services as soon as permitted and when safe to do so. Deferred dental appointments will be rebooked at that time, we will recommence treatment plans that were interrupted by the lockdown and marketing activity will be initiated so that we continue to build on the increasing new patient numbers we were seeing before the lockdown.

TERMINATION OF SCHEME IMPLEMENTATION AGREEMENT On 30 March 2020, we announced that the Scheme Implementation Agreement with Bidco had been terminated due to the occurrence of a Material Adverse Change (MAC). This means that the Scheme of Arrangement, under which Bidco was to acquire all of the Abano shares for $5.70 per share, will not go ahead. In broad terms, in the Agreement a MAC was defined to include a one-off event reasonably likely to have the effect of reducing Abano’s EBITDA by $10 million or more for the 12-month period commencing on the date of the event, subject to certain exclusions. After extensive financial analysis and legal advice, the Abano Board concluded that the impact of COVID-19 was likely to reduce Abano’s EBITDA by more than $10 million over a forward looking 12-month period. The Board also concluded that Abano was unlikely to be successful if it sought to argue that either of the two key exclusions in the Scheme Agreement, being changes in general economic conditions and changes in law, were applicable. Specifically, the shutdown was a regulatory response implemented under existing legislation; and was not a change in general economic conditions as that phrase is generally understood, nor a change in law. There is always a degree of judgement in these decisions and the Board weighed the merits of a legal challenge against the likelihood of both success and meaningful compensation for shareholders. While Bidco elected to terminate the Scheme, Bidco and its principals remain engaged with us and have indicated that they are willing to explore whether there is an alternative potential transaction.

Comprised of $49m NZD and $112m AUD bank facilities (AUD:NZD 0.98)

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We are conscious that, like all businesses around the world, we are now in a different world to that which we were in just a few weeks ago. We believe that our dental businesses in New Zealand and Australia have good prospects in the medium to long-term and we expect them to make a full recovery over time. People will still need to visit the dentist and will continue to seek out trusted, high quality dental services. Our clinical and management teams are working extremely hard to ensure we are prepared and well positioned to recommence services as soon as we are able. To stay informed, we encourage you to sign up to receive our company announcements as they are released to the NZX https://www.abano.co.nz/investor-information/electronic-communication/. Stay well, stay safe.

Pip Dunphy Chair of the Board Abano Healthcare Group Limited...