The 1300 Smiles Limited (ASX: ONT) share price is 2.7% down to $7.50 following the release of its half-year results earlier today. The following are the key takeaways of the Queensland-based dental chain's report.
- Statutory revenue down 5.2% to $18 million
- Normalised revenue down 3.4% to $18 million
- Net profit after tax (NPAT) down 2.4% to $3.8 million
- Normalised NPAT up 4.5% to $3.8 million
- Interim dividend up 2.3% to 11.25 cents
- Cash up 14% to $8.6 million and no debt
- Statutory and normalised earnings-per-share (EPS) movements mirror NPAT as there was no change in shares on issue
I tend to view "normalised" results with a degree of cynicism because they can be used by companies to make unjustified excuses for poor performance. However, in this case I think that the normalised figures are a truer reflection of the period for the performance of 1300 Smiles.
The normalised numbers exclude profit on disposal of a dental practice in the first half of 2016 and in my opinion this is a genuine exceptional item. Were it not for this sale then group profits would have risen over the prior period.
Or would they?
You see I had another look at 1300 Smiles report from last year and the figures are different to what was presented in the accounts released today. Tucked away in the notes in today's report is the following which may explain this discrepancy:
"There was a restatement of comparatives relating to operations expense and other payables by the amount of $182,000 for the half year ended 31 December 2015. This restatement was due to a prior period miscalculation."
Conveniently this mistake weakens the comparative period effectively painting the current period in a more positive light. Whilst the amount is not material, the same could be argued for the profit on disposal of $365,000 which management was keen to highlight in its explanation of the results.
Also, in last year's report I can't seem to find where it was highlighted that the gain on disposal inflated revenues and profits and should be excluded to understand underlying business performance. It seems that the company forgot to mention this last year when it had a positive impact on comparables.
Another gripe I had with the presentation of today's release was the commentary surrounding the impact of external factors on revenue growth or lack thereof. These include: "elections, governments in chaos, the mining sector in free fall, the big gulf in economic performance between the big cities and the rest of the country."
It seems pretty much every adverse economic news story in Australia impacts people visiting the dentist in Queensland.
On the other hand, it was reassuring to hear that the cost of acquiring dental practices is moderating following a period of unusually high corporate activity which pushed up prices. This may reflect industry wide growth issues in keeping with management's story about adverse economic conditions.
Also, second half growth seems to be a given as recent acquisitions begin to contribute to group profitability. 1300 Smiles has proven to be a careful allocator of capital over the years and if lower dental practice prices persist then the company could be approaching a purple patch.
