Business Case Study February

Business Growth Case StudyFebruary 2015

Pacific Smiles Group – Investor PresentationCOMMERCIAL IN CONFIDENCE 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 (February 2015). 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.

All dollar values are in Australian dollars (A$) unless otherwise stated.


Agenda

1

2

3

Introduction to Pacific Smiles Group

The Journey

Focus on Growth

Section one

Introduction to Pacific Smiles Group


Overview

� Founded in 2003, Pacific Smiles is a leading Australian branded dental group, operating 45 dental centres containing more than 200 active dental chairs

� Strives for industry leading consistency across operations, facility design and dental centre positioning and branding

� Pacific Smiles provides dentists with fully serviced and equipped facilities, including support staff, materials, marketing and administrative services – enabling dentists to maximise time treating patients

� Dentists offer a range of general, family and cosmetic dental treatments and a range of specialist services including orthodontics and dental implants

� 250 dentists and over 700 staff provide services to patients, with approximately 400,000 patient appointments facilitated in FY 2014.

� The Group has experienced rapid growth and in FY2014 achieved $96 million in Patient Fees and $15 million EBITDA

� The Group successfully listed on the Australian Stock Exchange in November 2014


Timeline

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

� Founded in 2003 by Dr. Alex

Abrahams and Dr. Alison

Hughes, who are both still

actively involved in the

business today and are

major shareholders.

� United three dental

practices under one brand in

the Newcastle, Hunter and

Lake Macquarie region of

New South Wales.

� Full Board of Directors

elected in September 2003

for good governance.

� Executive team

expanded and

corporate divisions

established.

� Greenhills group head

office completed and

occupied.

� Governance structure

further developed, with

John Gibbs appointed

Managing Director.

� Entered Queensland

and ACT markets.

� Sold Eye Care business,

as focus centred on

dental services.

� TDM Asset Management

acquires a 20% interest in

PSG, providing long term

PSG shareholders with

access to liquidity.

� Federal Government

CDDS scheme removed.

� Child Dental Benefits

Schedule effective 1

January 2014.

� Completed the

acquisition of Medibank’s

Dental & Eyecare Practice

in June 2014, and entered

new relationship

agreement with

Medibank/ahm.

� IPO

� John Gibbs commences as

General Manager.

� PSG commences relationship

with nib by entering an

operations agreement with

nib for its Newcastle and

Sydney Dental Care Centres.

� PSG enters Victorian market.

� Significant expansion via new

developments and some

acquisitions.

� Relocated Sydney nib Dental Care Centre

from George Street to Hunter Street (18

chair centre).

� Extended the nib relationship by signing a

further 15 year Australia wide branding

and licencing agreement.

� PSG wins “Business of the Year”

award (Business Excellence >20

employees) at Hunter Business

Awards, the largest regional

chamber awards in Australia.

3 centres 7 centres 14 centres 21 centres 29 centres 34 centres 42 centres

COMMERCIAL IN CONFIDENCE 7

$2.6m

$5.2m$5.9m

$7.1m

$8.9m

$11.5m

$13.4m

FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014

Operating Cashflow

History of YoY Growth

$4.2m$5.0m

$6.8m$8.0m

$10.2m

$13.3m

$15.1m

FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014

EBITDA

Notes: Charts based on statutory figures; 1. Excludes impairment of non-current assets

$40.0m

$48.9m

$59.7m

$69.8m

$85.6m

$94.8m

$95.9m

1719

2528

3134

41

0

20

40

60

80

100

120

0

5

10

15

20

25

30

35

40

45

FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014

Patient Fees and Number of Centres

1

14% 14%

22%25%

33%

48%

52%

FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014

Return on Invested Capital (EBIT)1


Founding principle

Traditional model

Dentist performs clinical AND operational AND ownership roles

Pacific Smiles model

Dentist performs clinical role

�

�


Business Model


0%

2%

4%

6%

8%

10%

12%

14%

NSW & ACT - exSyd

Sydney Victoria - exMelb

Melbourne

Current Network

� 45 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

� 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 share

Market Share by Geography

A multi-state network with success in regional and metropolitan markets...


Senior leadership team

Dr Alex Abrahams

Founder & Executive Director

Strategy and Business Development

BDS (Syd Uni), AIMM

• Founded the business in 2003 and has been instrumental in its growth.

• Continues to actively practice as a dentist in the business and remains heavily involved in business strategy.

Jane Coleman

CFO & Company Secretary

B Comm, MBA, CA, GAICD

• Joined Pacific Smiles in 2006.

• Previous senior accounting roles for nib Health Funds and Credit Suisse (London) , following Chartered accounting career as a manager at PricewaterhouseCoopers.

Dr Alison Hughes

Founder & Head of Practitioner Services

BDS (Syd Uni)

• Founder of Pacific Smiles Group.

• Background in clinical dentistry.

• Alison’s role is critical in managing relationships with dentists and ensuring that high clinical standards are maintained throughout the group.

John Gibbs

Managing Director & Chief Executive Officer

B.Bus, M. Bus. (Int. Mkg.) AFAIM, GAICD

• Joined Pacific Smiles as General Manager in 2004 and became Managing Director in 2008.

• Prior roles were with Mayne Health – Private Hospital CEO for new developments in Asia-Pacific, and Zimmer Orthopaedics.

Paul Robertson

Chief Operating Officer

B Comm

• Joined Pacific Smiles in 2008

• Previous senior operational management roles as well as a financial background in private health care facilities, including management of small and large private hospitals

• Expertise in transition and operation of new facilities

Jennifer Duggan

Human Resource Manager

B Comm

• Joined Pacific Smiles in 2011

• Broad general HR management experience with specialised focus on industrial and employee relations, remuneration, talent management and cultural development

• Experience in customer service centric industries, including retail, hospitality and financial services


Non-executive directors

Robert Cameron AO – ChairmanBE Min (Hons) MBA Grad. Dip. Geoscience, FAICD, FAIM, FAusIMM

• Former CEO, Founder and current Chairman of Centennial Coal Company Limited (previously listed on the ASX and acquired for $2.4bn).

• Chairman of County Coal (ASX listed) and Chairman of Hunter Valley Training Company.

• Director of University of NSW Foundation Board and Powerhouse Museum.

• Past roles as Chairman of the Australian Coal Association Ltd, ACA Low Emissions Technology Ltd, the NSW Minerals Council, Maitland Private Hospital Board and Hunter Valley Grammar School, and roles with Mining Education Australia and the NSW Clean Coal Council.

Simon Rutherford – Non Executive DirectorB. Comm., CA, FAICD

• Chartered Accountant and Partner with Lawler Partners.

• Director of Lawler Corporate Finance Pty Limited, and specialises in strategy, structuring, business sales, mergers and acquisitions.

• Holds a number of non-executive director and client advisory board roles.

• Chairman of Audit and Risk Management Committee.

Ben Gisz – Non Executive DirectorB.Comm, CA, FFin, CFA

• Partner at TDM Asset Management, a Sydney based private investment firm.

• TDM acquired a 19.9% interest in Pacific Smiles Group in July 2012.

• Extensive experience in investment banking and private and public company investing.

• Chairman of Nomination and Remuneration Committee.

Grant Bourke – Non Executive DirectorBSc (Hons), MBA, MAICD

• Current Non-Executive Director of Domino’s Pizza Enterprises Ltd.

• Various roles at Dominos including Director – Store Operations and Managing Director, Europe.

• Prior to joining Domino’s, Grant worked at Masterfoods (MARS) Inc. from 1987 to 1993 in various Technical, Sales, and Marketing roles, working in Australia, New Zealand and Japan.

Section two

Focus on Growth


Growth from existing centres

� Maturing of young Dental Centres (1/3 of centres are less than 3 years old)

� Commissioning of additional surgeries in existing centres (network includes over 200 active chairs, and over 50 inactive dental chairs which can be commissioned to meet future demand)

� Average same centre patient fees growth of 9.7% pa over the six years to 30 June 2014

History of strong “same centre” patient fees growth as centres mature...

� High exposure locations� Extended trading hours� Comfortable and comforting fit-outs� Credentialed, skilled, culturally aligned dentists� Trained and culturally aligned staff� Collaboration with private health insurers

� 3A Consistent Positioning� Accessibility� Availability� Affordability

� Delivery of APPEx® (A Perfect Patient Experience)

� Marketing for new patients

� Increase range of services (treatment mix, higher value services)

� Improve patient engagement to promote regular dental visits and increase patient loyalty


Growth from new centre rollout

3 36 7

1417 19

2528

3134

4147

FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15F FY20

� Pacific Smiles has grown strongly from 3 centres in 2003 to 45 currently

� Acquisitions have been highly selective - strategy continues to be focused on organic rollout

� Target of six to ten new centre openings each year

� A national network plan has been developed with the assistance of third party demographic experts

� Over 200 potential future trade areas identified based on demographic, location and competition parameters

Significant organic rollout opportunity...

Number of dental centres


Growth from strategic acquisitions

� Acquired two Dental Centres from nib in 2004 and entered into a strategic relationship with nib

� Acquired three dental centres from Medibank Private in 2014 and entered into a strategic relationship with Medibank Private and its subsidiary brand ahm.

� In both cases, they were large format Dental Centres with significant room for operational and financial performance.

� In both cases, the health fund members / customers gained preferential arrangements across the whole Pacific Smiles network.

Section three

The Journey


Imagine - Share – Plan – Believe

The dental services market was large, fragmented and characterised by partnerships. The founders of

Pacific Smiles had a vision of a better care and service model, oriented to changing consumer needs

and a new generation of dentists. The vision was workshopped with a trusted group within and outside

the industry and documented in a business plan. It was radical at that time and did not sway the

doubters

Key Learnings

� The vision must be about providing better SERVICE & VALUE to customers

� The vision must be tested and challenged

� Founders need courage of their convictions

� The vision must be operationalised through a documented business plan


Introduce Value-Add Expertise

2

The entrepreneur-founders established a Board of non-executive directors from the start, then

appointed a General Manager from first anniversary and other Executives and Senior Managers over

first few years. Future opportunities for share ownership was discussed from start

Key Learnings

� Entrepreneurial founders have an important ongoing role and it probably isn’t in compliance or

day-to-day management – they are far more important in the establishment and ongoing

maintenance of vision and culture.

� An entrepreneur who is genuinely willing to share power AND ownership can build a very

committed team.

� A balance of long term incentives and short term incentives can help to underpin a growth

oriented organisation through shared ownership.


Collaboration with external stakeholders

Private health insurance positively influences regular dental attendance patterns, so we sought

relationships and strategic arrangements with major health funds. Strategic arrangements with nib

(from 09/04) and Medibank (from 06/14) and relationships with all other major insurers have been

integral to the growth of our organisation.

Key supplier negotiations and rationalisation has lead to preferential purchasing arrangements.

The introduction of a strategic professional investor (TDM Asset Management) in 2012 was

fundamental to our progression to an IPO.

Key Learnings

� Identify the influencing stakeholders and build long-term strategic relationships with them

� Use collaboration as a point-of-difference

� Be open and bold about the vision – don’t be ashamed to punch above your weight

� Be prepared for industry backlash


Identification of our ‘x’ factors

As we became more differentiated from the dental services industry generally, we frequently

reassessed and clarified the factors of differentiation that were meaningful to the customer, seeking

ways to leverage even more effectively from them. Our model permitted more patient friendly opening

hours and locations, more extensive marketing, enhanced arrangements with some private health

insurers and cost efficiencies, particularly in purchasing

We called these our ‘x’ factors and we reviewed each new opportunity in light of them

Key Learnings

� Understand the industry competitors and what makes you different/better – from customer

perspective

� Focus on those that are meaningful to the customer

� Build these into your business investment and review processes

� Share them openly with the whole team, especially the front line


Building the Systems

With both acquired and newly established Dental Centres and with nib Dental Care Centres and

Pacific Smiles Dental Centres, we did not have a consistent operating platform nor had we truly

leveraged the benefits of the corporate structure and a branded network. We initiated a major project

to drive consistent operations and installed a consistent patient management software system across

all Dental Centres. We introduced monthly calendars of meetings and deadlines and a 90 Day

Planning Meeting to keep close to the growing number of businesses.

Key Learnings

� One of the hardest aspects of a fast growing company

� For scalability, you must systemise / automate the recurring

� Be uncompromising in commitment to annual planning, budgeting and performance reporting

� Allocate resource to policy and procedure development and to compliance systems and risk

management

� Prioritise systems investment on positive customer impact and/or cost reduction benefit

� Stall growth if necessary, to get this right


Investment in People & Culture

We typically invested in people and management structures earlier than absolutely required and

regularly adjusted the management and reporting structure. We sought cultural fit and trained for skills.

We established a Registered Training Organisation and internal training programs. We introduced

numerous reward and recognition schemes and encouraged employees to invest

We created The Smiles Guide as our values statement and APPEx® (A Perfect Patient Experience) as

an internal operating philosophy. We communicated our market positioning consistency as the 3A’s –

Accessibility, Availability and Affordability

Key Learnings

� In a service industry, people (particularly front-line) are the organisation

� Our capital structure positively influenced our ability to invest early in positions and people

� Cultural alignment starts with recruitment but requires ongoing training and communication

� Culture consistency is more difficult, the further away from head office

� Use marketing techniques to communicate key messages internally

� Refresh reward and recognition systems regularly


Be Curious and Try Things!

We acquired dental businesses, we undertook new fitouts, we bought an eye-care business, a dental

implant Centre, started a Registered Training Organisation and developed a patchwork of Dental

Centres across NSW and Victoria. We considered other health sectors, we spoke to government, we

submitted tenders…

Key Learnings

� Inconsistency of single practice acquisition to a consistent, branded model

� Simplicity aids scalability

� You need a high-energy team to grow a company

� Don’t accept every opportunity presented – understand the motives of the other side

� Do accept mistakes, but adjust future planning accordingly

� Focus resources on areas of success

� Respect geography


Our Public Listing

Pacific Smiles Group Limited (ASX: PSQ) listed in November 2014. We are about to deliver our first

half-yearly report to the markets and our new investors

Key Learnings

� Ensure that you have a well functioning Board of Directors with diverse skill set and preferably

experience

� Ensure that you have sufficient quality, skill and experience in the key roles of Chief Financial

Officer and Company Secretary

� Choose the IPO team carefully – be prepared to invest the time to meet with numerous

brokers, legal and accounting firms to find the right fit. Be prepared to shop around and push

back

� Prepare for a vastly increased workload in the lead-up to the IPO

� Polish up your presentation skills

� Prepare for life after listing, ensuring that the management structure is robust enough for the

CEO and CFO to allocate time to investor relations


If I Knew Then What I Know Now…

� Earlier focus on new centre roll-

out and no single centre

acquisitions

� Be more respectful of geography

� More effectively blend analytics

with ‘gut instinct’

� Increased delegation so as to

spend more time at the front-line

� Invested in data management

systems earlier

Thank you

Documents

Business Case Study February