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HomeminewsVision Group: A New Future

Vision Group: A New Future

On Wednesday 4 August Vision Group announced a significant new strategic direction for the company that aims to promote growth of both practices and group revenue over the coming years, but not everyone is excited about the proposed changes.

Mivision has received complaints from major private Vision Group shareholders claiming the proposed business plan favours doctor partners at the expense of private shareholders. Mivision received one particular email from a shareholder citing figures which they claim would leave “minimal profits for shareholders”.

Vision Group Holdings Ltd announced in its Strategic Update:

  • A substantial change to the doctor remuneration structure to facilitate longevity of doctor engagement and growth
  • A credit approved term sheet, amending the existing debt facility, has been agreed with the Company’s banks
  • A re-capitalisation and debt reduction process, involving the whole or part of the Company, or the Company’s day surgeries, is to be pursued by the Company with the assistance of Credit Suisse (Australia) Limited
  • Unaudited preliminary results for the year ending 30 June 2010, including prospective goodwill adjustments

Full details of the above points are outlined in the presentation Vision Group Holdings Limited Strategic Update, 4 August 2010. Click here to view the full pdf.

To fund the process, which is expected to increase short term costs and reduce near term earnings, Vision Group has re-negotiated finance arrangements with its existing banking syndicate.

The company, which has secured approximately 10 per cent revenue of the ophthalmology market in Australia, has a network of 40 doctor partners with 450 staff operating from nine clinics along the eastern seaboard. All clinics have a Day Surgery situated at the same premises or within very close proximity.

The main thrust of Vision Group’s strategic plan is a new remuneration package for doctors that the company believes will be more competitive with comparable medical roll-ups.

Vision Group believes the new remuneration model, coupled with strengthened leadership and management initiatives, will incentivise doctors to improve business performance and manage costs. It will also make the group significantly more attractive to doctors considering joining the company and to those renewing their existing contracts. In the past few months three clinics have closed in Central Queensland following doctor departures.

The revised remuneration model is based on 65 per cent of a doctor’s personal exertion Earnings Before Interest and Tax (i.e. EBIT from consulting and surgical procedures, but excluding EBIT from day surgery.) This new level of remuneration will be paid to Doctors following completion of their original acquisition related contractual commitments and therefore will be staged over a number of years. Doctors who have already completed their acquisition contracts and previously re-contracted with the company will also be entitled to the new level of remuneration.

The company will enter a six to nine month period of restructuring during which time it aims to reduce costs, form speciality groups to focus on marketing, research and performance, and introduce best practice sharing between regions. The company then expects to move into a growth phase that will see the acquisition of new doctor practices, doctor recruitment and expansion of current treatments and specialities.

To fund the process, which is expected to increase short term costs and reduce near term earnings, Vision Group has re-negotiated finance arrangements with its existing banking syndicate.

In addition, the company has announced a plan to recapitalise and engaged Credit Suisse to commence a formal process to seek expressions of interest in relation to a potential transaction involving the whole or part of the company or the company’s day surgeries. Day surgeries currently account for 30 per cent of Vision Group’s annual revenue.

Vision Group insists the company’s operations will not be interrupted during the process and that clinics will continue to deliver the highest quality ophthalmic care from its consulting facilities, day surgeries and refractive and eye surgery centres.

Vision Group Answers Pertinent Questions

In response to Vision Group Holdings Ltd Strategic Update released Wednesday 4 August 2010, mivision put a number of poignant questions to Vision Group CEO, Mr. Geoff Thompson. Below are the questions and Mr. Thompsons in-depth answers.

Vision Group is asking doctors to re-sign, but if a partial or full sale is expected, what security do they have over their future?
The Board has taken the decision to explore potential avenues to pay down our debt with the best interests of the Doctors and Staff in mind. The value of Vision Group lies in our outstanding Doctors and Staff. I share the Board’s resolve to make decisions that protect and nurture this great asset (our people).

How will a partial or full sale of Vision Group effect existing doctors?

Should a change in ownership of Vision Group occur it is highly unlikely that this would impact the day-to-day operations of our Doctor Partners and Staff, other than in a positive way. Whether Vision Group is publically listed on the ASX or privately owned is unlikely to impact the way individual practices are run and work that our Doctor Partners and Staff perform.

How will the sale of the day surgeries impact current doctor practices?
If this were to occur, it is unlikely that this would impact the day-to-day operations of our Doctor Partners and Staff given the significant value that lies in linkages between our day surgeries and other parts of the business.

If day surgery accounts for 30 per cent of Vision Group’s revenue, how will the sale of Day Surgeries impact the overall future of Vision Group?
It is premature to comment on the implications of this possibility other than to note the point made above. The Board is fully aware of the need to ensure that any decisions are beneficial to Vision Group.

Do you agree that Vision Group’s latest statement is an admission that you have been operating a completely flawed business model?
The fundamentals of the Vision business are very sound. Many of Vision’s doctors have been with the company for over five years, and our recent announcement reflects the transition of our doctors from their original acquisition related contract to a contract that is better suited to the next stage of their career at Vision Group.

Do you agree that Vision Group has lost ophthalmologists and have been unable to attract specialists due to lack of remuneration?
As in all companies a small number of employees, for a variety of reasons, will choose not to be a part of the business moving forward – and this is based on a whole range of factors of which remuneration is only one. While the departures are disappointing, the strength of Vision Group comes from the fact that the vast majority of doctors remain committed. That commitment and strength will allow the company to move forward in a positive manner.

Can you explain in lay terms what the new remuneration package is (65 per cent of doctors’ personal exertion EBIT) and how does this improve the remuneration package?
In the simplest terms, the remuneration package reflects a partnership between the company and the doctors. When profits are generated, they are shared between the doctor and the company. The harder a doctor works the better for them and the company. This is a package built on sharing profits and a mutually beneficial partnership.

How many more doctors would you ideally like to attract and do you think there are enough out there who would be willing to accept the new terms?
Vision Group has a well designed recruitment process and our structure allows our doctors to engage constructively in identifying and recruiting potential new doctors. Vision is well positioned to engage with potential new doctors and is viewed in the ophthalmic community as an attractive employment option. We certainly have opportunities within the network for new doctors to join.

You say you want specialists who are able to generate high revenue. Please explain?
Vision Group is committed to attracting high calibre Doctors. The revenues generated by our Doctors are wide ranging and are a reflection of many factors including among other things, geographic location, specialisation, profile and skill. Vision Group certainly has opportunities for Doctors of a high calibre.

How has the debt level increased to such a point and how confident are you that you can bring it down to a reasonable level?
We have actually reduced our debt by nearly 10 per cent over the last 12 months and have now embarked on a recapitalisation process with the objective of further substantially reducing the Company’s debt.

How long do you think it will be before you announce a full complement of partner doctors and what sort of income do you expect Vision Group to be able to generate in the medium to long term?

As matters evolve and developments occur the company will make announcements as appropriate.

When will the share price of the company reflect the increased confidence in the restructured company?
Vision Group has completed a Strategic Review focused on realising the full potential of the Company for all key stakeholders. We are clearly focused on building shareholder value.

What will Vision Group do to make its brand better known and in the process increase its patient turnover?
Vision is committed to its overall brand development and its ongoing marketing and referrer communications programs. Vision Group will continue to explore ways in which it can work closely and in unison with the optometry community. Vision Group values and respects its strong relationship with the Australian optometry community.

Lastly, when will we be expecting some major news on doctor resignings?
Doctors will be re-contracted as their existing contracts come due. New signings will be announced as and when they occur and with the agreement of the Doctor Partner.