Ann: Media release, page-24

"There is a difference between merely converting the capital investment into profit and investing the capital securely for a return. With the former the invested capital is not preserved it was taken as profits."

I pride myself as being a very healthy cynic when it comes to investing. That, combined with my love of money, means that I am more than willing to listen to anyone who can point out to me where I am making a mistake if it means I might avoid a loss.

But, with respect, you are not making yourself very clear.

Could you, with some hard numbers - as opposed to a confusing narrative - illustrate how "the capital investment is merely being converted to profit" and "not preserved (but) taken as profits", as opposed to being "invested for a return"


Then, on the subject of goodwill:

"Its smoke and mirrors accounting which gets by because the value of the goodwill is so open to debate as long as somehow the management can find a way to report a profit."

Are you saying the reported profit figures are somehow fabricated?

Goodwill being open to debate is universally applicable to all companies. But when a company makes an acquisition and the consideration for that acquisition exceeds the tangible asset value of the entity being acquired, the accounting standards require the acquirer to reflect the difference as goodwill.

(Because if this wasn't the way it was done , the acquiring company's balance sheet wouldn't balance.)

What alternative accounting approach would you propose?


Yes the figures have returned to pre-CDDS but the company has invested so far at least $10M in a single practice to do this.

Again, let's use facts as the basis for healthy and engaging debate.

Here they are:

- In the 12 months to Dec 2012 (which is the period before the CDDS legislation hit), ONT generated EBITDA of $12.1m

- In the subsequent 12 months (which represents the first full 12 month period after CDDS), EBITDA fell to $9.0m.

- In the most recent 12 month financial period, EBITDA was back at $12.1m.

So, by my maths - and you don't need to been a sophisticated share investor to work this out - that's a $3.1m increase in EBITDA since CDDS first hit, and today.

This increase in EBITDA can only have been brought about - absent any accounting fraud - from organic growth or from the earnings contribution from the $10.0m [*] in acquisitions to which you refer.

Let's start with the scenario of all the growth being derived just from acquisitions (which, I think, is the assertion you are making).

We know that at the time that ONT acquired it, BOH Dental was generating $1.2m pa of EBITDA.

So if your point - which I think it is - is that all the growth has come from acquisitions alone, and that the core business has done nothing in terms of growing, then it suggests BOH Dental has effectively increased EBITDA by something like 2.5 times ($1.2m at the time ONT acquired it, to around $3.0m actual increase in reported EBITDA) in the first 12 months being in ONT's hands.

If that is the case, then the next logical step would be to say, well, what implied valuation multiple did ONT maangement pay for the acquisitions it has made following the end of CDDS?

[*] Actually, to be precise, total cash consideration for acquisitions since CDDS cessation has come to $10.6m in cash, the bulk of which is the Brisbane practice ($7.75m in cash plus $2m financed by the vendor in the form of deferred payments over 5 years, of which the first installment is included in the $10.6m figure quoted above).

So, to be perfectly accurate, acquisitions with a total value of $12.2m have been made ($10.6m has already been disbursed in cash and a further $1.6m is due for payment over the next 4 years)

Hence, the acquisition multiple maths is quite simple to do:

Simply divided the total acquisition consideration (including deferred elements for the sake of comprehensiveness) divided by the incremental EBITDA uplift

i.e, $12.2m divided by $3.1m, which equals 3.9x EV/EBITDA

Do you feel that sort of acquisition multiple represents and egregious transfer of wealth from ONT shareholders to the vendors of the business(es) ONT is acquiring? Personally, as a shareholder I would be simply delighted if this was the case.

Alternatively, that is not the case, and our company is, in fact, not picking up the business(es) it acquired that cheaply.

But then this has to mean the core business is demonstrating organic growth. But your contention is that this is not the case and that it is all acquisition-driven.

So you can see why I am a bit confused.

Either the core business is growing organically, or they are buying businesses at extremely attractive prices.

But based on the numeric facts, it is not possible for it to be neither, which sounds like what you are arguing.