interim results presentation - pacific...
TRANSCRIPT
Interim
Results
Presentation
Presented by:
John Gibbs
Managing Director & Chief Executive Officer
Jane Coleman
Chief Financial Officer
19 February 2016
Pacific Smiles Group - Interim Results Presentation 2
Important disclaimer
Important notice and disclaimer
This document is a presentation of general background information about the activities of Pacific Smiles Group Limited (Pacific Smiles) current at the date of the presentation (19 February 2016). The
information contained in this presentation is of general background and does not purport to be complete. It is not intended to be relied upon as advice to investors or potential investors and does
not take into account the investment objectives, financial situation or needs of any particular investor. These should be considered, with or without professional advice, when deciding if an
investment is appropriate.
Pacific Smiles, its related bodies corporate and any of their respective officers, directors and employees (Pacific Smiles Parties), do not warrant the accuracy or reliability of this information, and disclaim any
responsibility and liability flowing from the use of this information by any party. To the maximum extent permitted by law, the Pacific Smiles Parties do not accept any liability to any person, organisation
or entity for any loss or damage suffered as a result of reliance on this document.
Forward looking statements
This document contains certain forward looking statements and comments about future events, including Pacific Smiles’ expectations about the performance of its businesses.
Forward looking statements can generally be identified by the use of forward looking words such as, ‘expect’, ‘anticipate’, ‘likely’, ‘intend’, ‘should’, ‘could’, ‘may’, ‘predict’, ‘plan’, ‘propose’, ‘will’,
‘believe’, ‘forecast’, ‘estimate’, ‘target’ and other similar expressions within the meaning of securities laws of applicable jurisdictions. Indications of, and guidance on, future earnings or financial
position or performance are also forward looking statements.
Forward looking statements involve inherent risks and uncertainties, both general and specific, and there is a risk that such predictions, forecasts, projections and other forward looking
statements will not be achieved. Forward looking statements are provided as a general guide only, and should not be relied on as an indication or guarantee of future performance. Forward
looking statements involve known and unknown risks, uncertainty and other factors which can cause Pacific Smiles’ actual results to differ materially from the plans, objectives, expectations, estimates
and intentions expressed in such forward looking statements and many of these factors are outside the control of Pacific Smiles. As such, undue reliance should not be placed on any forward looking
statement. Past performance is not necessarily a guide to future performance and no representation or warranty is made by any person as to the likelihood of achievement or reasonableness of
any forward looking statements, forecast financial information or other forecast. Nothing contained in this presentation nor any information made available to you is, or shall be relied upon as, a
promise, representation, warranty or guarantee as to the past, present or the future performance of Pacific Smiles.
Pro forma financial information
Pacific Smiles uses certain measures to manage and report on its business that are not recognised under Australian Accounting Standards. These measures are referred to as non-IFRS financial
information.
Pacific Smiles considers that this non-IFRS financial information is important to assist in evaluating Pacific Smiles’ performance. The information is presented to assist in making appropriate comparisons
with prior periods and to assess the operating performance of the business. In particular, this information is important for comparative purposes with pro forma information contained in Pacific Smiles’
IPO Prospectus lodged with ASIC on 3 November 2014.
For a reconciliation of the non-IFRS financial information contained in this presentation to IFRS-compliant comparative information, refer to the Appendices of this presentation.
All dollar values are in Australian dollars (A$) unless otherwise stated.
Pacific Smiles Group - Interim Results Presentation 3
Agenda
1
2
3
4
Performance Highlights
Growth and Outlook
Results Detail
Business Overview and Update
5 Appendix A - Statutory to Pro Forma Results Reconciliation
Section one
Performance
Highlights
Pacific Smiles Group - Interim Results Presentation 5
Performance highlights
► Revenue $41.6 million, up 10.8% (1H15: $37.6 million)
► Patient fees $67.0 million, up 9.3% (1H15: $61.3 million)
► Same centre patient fees growth +4.9% (1H15: +6.0%)
► EBITDA $9.4 million, up 2.3% (1H15 pro forma: $9.2 million)
► NPAT $4.9 million, down 1.9% (1H15 pro forma: $5.0 million)
► Interim dividend of 2.0 cps (fully franked) declared
► Net cash of $9.1 million
► Network expansion with 5 new Pacific Smiles Dental centres opened
► Key senior hires completed (People & Culture, IT, Business Development)
► Strategic initiatives launched (online bookings, television brand advertising)
Pacific Smiles Group - Interim Results Presentation 6
$9.2m $9.4m$4.4m $5.0m
$6.8m$8.0m
$10.2m
$13.3m
$15.1m
$18.2m
$20.3m
FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 Pro formaFY2015
FY2016
EBITDA
Note 1. Low end of FY2016 EBITDA guidance range
History of strong financial performance
1
Return on Invested Capital (EBIT)
$61.3m$67.0m$40.0m
$48.9m
$59.7m$69.8m
$85.6m$94.8m $95.9m
$121.3m
1719
2528
3134
41
49
54
$0.0m
$20.0m
$40.0m
$60.0m
$80.0m
$100.0m
$120.0m
$140.0m
0
10
20
30
40
50
60
FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 1H2016
Patient Fees and Number of Centres
$7.0m$6.2m
$2.6m
$5.2m$5.9m
$7.1m
$8.9m
$11.5m
$13.4m
$14.4m
FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 Pro formaFY2015
1H2016
Operating Cashflow
14% 14%
22%25%
33%
48%52%
56%
47%
FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY20161
Section two
Business overview
and update
Pacific Smiles Group – Interim Results Presentation 8
Business overview
Successful dentist &
patient engagement
Strong financial
performance
Highly consistent dentist engagement model, not based on long term contracts or “lock ins”
Strong post visit survey results (Net Promoter Score of >65)
Focus on organic
growth
Focus on organic roll out of centres, rather than acquisitions
Facilitates consistency of branding, operations, dentist engagement and dental centre design
Seven year EBITDA compound annual growth of 22% per annum
Return on Invested Capital ~ 50%
Large market
opportunity
$8.9bn Australian dental market which is highly fragmented
More than 200 identified potential trade areas compared to current network of 54 dental centres
Accomplished
leadership team
Core leadership team together for more than 7 years
Founders continue to be highly engaged with the business in management and clinical governance
capacities
Pacific Smiles Group - Interim Results Presentation 9
Key elements of the business model
Procurement
• Inventory management
• Negotiations with suppliers, logistics, accounts payable
Training and Development
• In-house Registered Training Organisation
• Mentoring and professional development
Private Health Insurer Relationships
• Co-ordinate and administer Preferred Provider Agreements
• Arrange special marketing collaborations with insurers
Compliance and Administration
• Systematic monitoring of regulatory environment
• Policies and procedures for compliance
Staffing
• Over 700 staff including nurses, receptionists, centre managers, administration
and senior management
Clinical Oversight
• Clinical governance structures
• Incident reporting, monitoring, benchmarking, feedback
Pacific Smiles
Dentists
Patients
~ 280 dentists
• No term contracts or upfront payments
• Dentist pays Pacific Smiles a service fee
• Dentist retains clinical decision making
• Range of dentist age profiles, experience and backgrounds
• Patient satisfaction evaluated through post visit surveys
(Net Promoter Score)
Services &
Facilities
Marketing and Retention
• Local and regional brand marketing
• Targeted marketing campaigns
> 500,000 patient visits per annum
• 80% general dentistry, 20% “high value”
• Demographic is “middle Australia”
• 75% of patients privately insured
• Industry data shows ~50% typically funded out of pocket
for those insured
Service Fee
Quality
assurance
Serv
ice
Fe
es
Private Health
Insurers
Facilities
• Fit-out and operate modern, high quality dental centres
• Ongoing facility maintenance
IT and Systems
• Practice management software and reporting
• IT systems and support
Pacific Smiles Group - Interim Results Presentation 10
Founding principle
Traditional model
Dentist performs clinical AND operational AND ownership roles
Pacific Smiles model
Dentist performs clinical role
Pacific Smiles Group - Interim Results Presentation 11
Dental centre network
Note 1 - Derived from Geotech Information Services, Trade Area Network Planning Report (2013)
54 dental centres in total, of which 7 are branded “nib
Dental Care Centre”
Expansion into regional and metropolitan locations
from the Hunter Valley region
Focus on geographic “clusters” to leverage brand and
operational synergies
Opened 5 new Pacific Smiles Dental centres in 1H16:
Queanbeyan, NSW
Cranbourne Park, VIC
Morayfield, QLD
Browns Plains, QLD
Burleigh Heads, QLD
Pacific Smiles centres open for more than 3 years
have an average market share of 14% in their trade
area, with a number of centres achieving 30%+
market share1
Pacific Smiles Group - Interim Results Presentation 12
New centre openings
Queanbeyan
(NSW)
September 2015
Cranbourne Park
(VIC)
September 2015
Burleigh Heads
(QLD)
December 2015
Morayfield
(QLD)
November 2015
Located within the Stockland Shopping Centre,
Burleigh Heads
Represents expansion from our growing Brisbane
cluster down to the Gold Coast
Located within the newly redeveloped and expanded
Cranbourne Park Shopping Centre in the outer
south-eastern suburbs of Melbourne
Located in the Morayfield Shopping Centre in the
Caboolture region of Queensland
Joins other Pacific Smiles Dental Centres operating
successfully in the area between Brisbane and the
Sunshine Coast
Located in Riverside Plaza Shopping Centre in
Queanbeyan
Complements the cluster of Pacific Smiles Dental
Centres throughout the ACT
Browns Plains
(QLD)
December 2015
Located within the Grand Plaza Shopping Centre in
Browns Plains
The first Pacific Smiles Dental Centre in the
southern suburbs of Brisbane
Section three
Results detail
Pacific Smiles Group - Interim Results Presentation 14
Summary income statement
Revenue up 10.8% to $41.6 million, and EBITDA (pro
forma basis for 1H15) up 2.3% to $9.4 million
Patient fees up 9.3% to $67.0 million
Same centre Patient Fee growth +4.9% (1H15: 6.0%)
Excluding Haymarket and Parramatta (centres acquired
from Medibank in 2014):
- Patient Fees up 12.6%
- Same Centre Patient Fees up 7.6%
EBITDA to Patient Fees margin down 96bps year-on-year
largely driven by:
- Higher start-up losses from new centres (quantity
and timing of new centre openings)
- Additional investments in brand marketing initiatives
and senior hires to drive long term future growth
EBITDA margins on a same centre basis expanded in
1H16
Statutory Pro Forma Change
$ millions 1H 16 1H 15
Revenue 41.6 37.6 10.8%
Gross profit 39.1 35.6 9.8%
EBITDA 9.4 9.2 2.3%
Depreciation & amortisation (2.4) (2.1) 15.5%
EBIT 7.0 7.2 (1.5%)
Net interest expense 0.0 0.0 nm
Profit before tax 7.1 7.2 (1.3%)
Tax (2.2) (2.2) 0.0%
Net profit after tax 4.9 5.0 (1.9%)
Operating metrics
Number of Dental Centres 54 45 20.0%
Commissioned Dental Chairs 236 215 9.8%
Patient Fees ($m) 67.0 61.3 9.3%
Same Centre Patient Fees growth 4.9% 6.0%
Financial metrics
Earnings per share (cents) 3.2 3.6
EBITDA margin 22.6% 24.5%
EBITDA to Patient Fees margin 14.1% 15.0%
EBIT margin 16.9% 19.0%
Pacific Smiles Group - Interim Results Presentation 15
Drivers of 1H 2016 Margin
EBITDA to Patient Fees margin decreased to 14.1% in
1H16 (15.0% in 1H15)
The key drivers of the reduction are summarised in the
adjacent table:
1) Start up losses from new centres – in 1H16, 13 of
Pacific Smiles’ centres were less than 18 months old
(1H 2015: 8 centres)
2) Relocation of Parramatta – this includes direct costs in
connection with the relocation
3) Launch of brand marketing – significant spend on
television campaign which can be leveraged in future
periods
4) Corporate overheads – including addition of key hires
to drive growth
Pacific Smiles remains committed to building a platform for
long term sustainable growth
Composition of EBITDA Change$ million
% 1H 16
Patient Fees
Same Centres 1.5 2.2%
Start-up losses from new centres (0.7) (1.0%)
Relocation of Parramatta (acquired) centre (0.1) (0.1%)
Launch of brand marketing campaign (0.3) (0.4%)
Corporate overheads (0.2) (0.3%)
Total Change 0.2 0.3%
1H 15 EBITDA 9.2
1H 16 EBITDA 9.4
Total Change 0.2 0.3%
Pacific Smiles Group – Interim Results Presentation 16
Balance sheet
Net cash of $9.1 million at 31 December 2015, down
from net cash of $15.2 million at 30 June 2015, as a
result of new centre openings, the payment of dividends
and the cash cost associated with the relocation of the
Parramatta centre
Increases in property, plant and equipment reflect the
investment in new centres as well as the relocation of
the Parramatta centre
ROIC (EBIT) has increased steadily over a number of
years and is now approximately 50%, demonstrating the
highly accretive nature of new centre openings
Statutory Statutory
$ millions 31-Dec-15 30-Jun-15
Current assets
Cash and cash equivalents 9.4 15.6
Receivables 1.6 1.1
Inventories 2.4 2.2
Other 0.3 0.1
Total current assets 13.7 19.0
Non-current assets
Property, plant and equipment 29.7 24.6
Intangible assets 11.5 11.5
Deferred tax assets 4.1 4.0
Total non-current assets 45.3 40.2
Total assets 59.0 59.2
Current liabilities
Payables (9.0) (9.7)
Borrowings (0.3) (0.2)
Current tax liabilities (1.0) (0.9)
Provisions (3.1) (2.9)
Total current liabilities (13.4) (13.8)
Non-current liabilities
Borrowings (0.0) (0.2)
Deferred tax liabilities (0.3) (0.3)
Provisions (4.5) (4.0)
Total non-current liabilities (4.7) (4.4)
Total liabilities (18.1) (18.2)
Net assets 40.9 41.0
Equity
Contributed equity 35.1 35.1
Reserves 0.1 0.1
Retained profits 5.7 5.9
Total equity 40.9 41.0
Pacific Smiles Group – Interim Results Presentation 17
Summary cash flow
Statutory operating cashflow of $6.2 million (1H15:
$7.0 million)
EBITDA cash conversion1 of 89%
Prior period operating cashflow included $1.3 million
inflow resulting from: 1) a lease surrender payment
received and 2) excess working capital released
following acquisition of the Medibank dental centres
Total capital expenditure of $7.2 million, including:
- $3.8 million for the opening of 5 new centres
- $1.9 million for the relocation of the Parramatta
centre
1H16 final dividend of 2.0 cps declared, payable in
April 2016
Notes: 1. Cash conversion calculated as operating free cash flow (which excludes tax and net finance costs) as a ratio of EBITDA
Statutory Statutory
$ millions H1 16 H1 15
EBITDA (excluding IPO transaction costs) 9.4 9.4
Other non-cash items 0.1 0.0
Changes in working capital (excluding income tax) (1.1) 0.5
Net interest paid 0.0 (0.2)
Income tax paid (2.2) (2.8)
Net cash flow from operating activities 6.2 7.0
Capital expenditure (7.2) (3.0)
Other 0.0 0.2
Net cash flow from investing activities (7.2) (2.8)
Proceeds from shares, net of transaction costs 0.0 19.6
Borrowings (net) (0.1) (9.1)
Dividends (5.1) (5.6)
Net cash flow from financing activities (5.2) 4.9
Net cash flow (6.1) 9.2
Section four
Growth and outlook
Pacific Smiles Group - Interim Results Presentation 19
Summary of key earnings drivers
1 Growth of existing centres
>40% of centres less than 3 years old
Rollout of new centres
Targeting 8 – 10 new centres in 2016 and 10 new centres
per annum from FY17
200 potential future trade areas identified
3 Margin expansion
Increased scale, new centre ramp-up and operational
improvements
2
Pacific Smiles Group - Interim Results Presentation 20
10%
16%
7%
-3%
4% 5%
FY11 FY12 FY13 FY14 FY15 1H16
Same Centre Patient Fee Growth (%)
Growth from existing centres
As a result of rapid growth, PSG’s centre network includes a
significant proportion of “immature” centres
Over 40% of centres are less than 3 years old
Average same centre patient fees growth of 6.8% pa over the
five years to 30 June 2015
Network includes 71 additional chairs which can be
commissioned to meet future demand
Strategies to increase same centre patient fees growth include:
- Marketing initiatives to build brand awareness and new
patient attendances
- Collaboration with private health insurers
- Increase range of services (treatment mix, higher value
services)
- Improve patient engagement to promote regular dental
visits and increase patient loyalty
CDDS termination impact
History of strong “same centre” patient fees growth as centres mature...
Centre maturity profile
(years opened)
< 3 years43%
3 - 5 years13%
> 5 years44%
Pacific Smiles Group - Interim Results Presentation 21
Growth from new centre rollout
Pacific Smiles has grown strongly from 3 centres in 2003 to 54 currently
Acquisitions have been highly selective - strategy continues to be focused on organic rollout
Five new centres opened during 1H16
Targeting eight to ten new centres in FY16 and ten new centres per annum from FY17 onwards
A national network plan has been developed with the assistance of third party demographic experts
Approximately 200 potential future trade areas identified based on demographic, location and competition parameters
Significant organic rollout opportunity...
Target opening ~ 10 per annum
37 7
1417 19
2528
3134
41
49
57 - 59
FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16F
Number of dental centres
Pacific Smiles Group - Interim Results Presentation 22
Business priorities
Objective Progress
Network
expansion Open 8 to 10 new dental centres
5 centres opened during 1H16 with one additional centre
committed after period end. Cluster approach continuing
to prove effective
Patient
engagement
Launch brand marketing initiatives over various
channels to leverage scale
Improve patient experience via introduction online
appointment bookings
Launched first ever brand advertising campaign across
television, radio and cinema in the ACT, Hunter Valley
and Gippsland
Launched online patient appointment bookings
Velocity Partnership to launch in March 2016
Employee
capability
Launch and embed APPEx® (“A Perfect Patient
Experience”) on-line staff training
Appoint new executives to enhance scalable platform
for organic rollout
Online training successful launch in 1H 2016
Senior appointments in the areas of Business
Development, IT and People & Culture
Acquisition
optimisation
Relocate Parramatta centre
Relocate Haymarket centre
Transition acquired centres to Pacific Smiles operating
parameters
Parramatta centre relocated in September 2015
Haymarket relocation locked in, with target opening
before the end of FY2016
Transition of acquired centres to Pacific Smiles operating
parameters still work in progress
1
2
3
4
Pacific Smiles Group – Interim Results Presentation 23
Funding for Dental
Federal Government funding of the dental sector is low compared to other areas of primary care – only 7% of dental
expenditure comes from this source compared to 82% for general medical
Expenditure on dental services has historically been resilient, including throughout periods of change in the funding
environment, such as in 2012 when the Chronic Diseases Dental Scheme was removed
Private health insurance benefits represent 17% of total dental expenditure. There has been media speculation
around the potential for changes to premium rebates for private health insurance ancillary cover. The estimated share
of private health rebates attributable to dental is ~$600 million, or 6% of total dental expenditure
$5.1b$5.4b
$5.8b$6.1b
$6.8b$7.3b
$7.9b$8.3b
$8.7b $8.9b
$3b
$4b
$5b
$6b
$7b
$8b
$9b
$10b
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14
Dental - Total Expenditure
82%
7%
38%
General practitioners Dental services Total health sector
Federal Govt. Funding (direct) 2013 - 14 % total
1
Note 1: AIHW 2013-14 Health Expenditure
Pacific Smiles Group - Interim Results Presentation 24
Outlook
Consistent with the update provided at the AGM, EBITDA is expected to be at the lower end
of the previously issued guidance range ($20.3 million to $22.3 million)
Same centre patient fees growth > 5% for FY16 (year to date actual as at 17 February 2016
of 4.6%)
New centre openings in the range of 8 to 10 in FY2016
Targeting approximately 10 per annum beyond FY2016. At the time of the IPO we had
indicated a rate of 6-10 per annum
Over 200 potential future trade areas identified based on demographic, location and
competition parameters and current pipeline of new centre opportunities is at a record high
Committed to relocate the Haymarket centre, expected to occur prior to 30 June 2016.
Depending on timing, expected one off relocation costs of $0.4 million which are not factored
into earnings guidance
Strong balance sheet, with an expectation that future growth can be funded while maintaining
a net cash position and dividend pay-out ratio in the range of 80-90% of NPAT
Appendix A
Statutory – Pro Forma
Results Reconciliation
Pacific Smiles Group – Interim Results Presentation 26
Statutory – Pro Forma Reconciliation
Pro forma adjustments to 1H 15 Income Statement
presented on a consistent basis with the Prospectus
pro forma adjustments:
A Listed Public Company Costs - estimate of
the incremental half year costs Pacific Smiles
would have incurred if it had operated as a
listed company for the full comparative period.
B IPO Transaction Costs – IPO costs charged
as expenses in the comparative period
excluded from pro forma results.
C Net Interest – adjustment for half year impact
on comparative period interest income and
interest expense as if the major IPO cash flows
had taken effect at 1 July 2014.
Statutory StatutoryPro forma
adjustmentsPro forma
$ millions H1 16 H1 15 H1 15 H1 15
Revenue 41.6 37.6 37.6
Direct expenses (2.5) (2.0) (2.0)
Gross profit 39.1 35.6 35.6
Other income 0.8 0.7 0.7
Expenses
Employee expenses (17.4) (16.1) (0.2) A (16.3)
Consumable supplies expenses (3.7) (3.1) (3.1)
Occupancy expenses (4.5) (3.7) (3.7)
Marketing expenses (1.0) (0.6) (0.6)
Administration and other expenses (3.9) (3.5) (0.0) A (3.5)
Underlying EBITDA 9.4 9.4 (0.2) 9.2
IPO transaction costs expensed 0.0 (2.0) 2.0 B 0.0
EBITDA 9.4 7.4 1.8 9.2
Depreciation and amortisation (2.4) (2.1) (2.1)
EBIT 7.0 5.4 1.8 7.2
Net finance costs 0.0 (0.2) 0.2 C 0.0
Profit before tax 7.1 5.2 1.9 7.2
Income tax expense (2.2) (1.6) (0.6) (2.2)
Net profit after tax 4.9 3.6 1.4 5.0
Thank you