Vision Group, Australia’s largest private ophthalmic practice, has announced it is to undergo major changes to turn around its ever dwindling fortunes.
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 and two specialists in Melbourne have resigned.
It leaves investors questioning whether there will be much left over
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.
Vision Group’s misfortunes attracted attention in the business pages of Fairfax Media. In an analysis by finance journalist David Symons on 5 August, the article stated: “Vision Group has responded to early signs of a doctor exodus by using the only lever at its disposal – a pay rise of up to 100 per cent for the company’s stable of 40 opthalmologists. The new deal will pay doctors 65 per cent of their ”personal exertions EBIT” when they re-sign after current service agreements expire.
“The revised structure is linked to the recent company statement that changes in the ‘doctor remuneration model are likely to result in a material decline in the company’s profitability in the short to medium term’. It leaves investors questioning whether there will be much left over once the doctors are paid and the company’s AUD$107 million debt is serviced”.
Mivision has received complaints from major private shareholders of Vision Group 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”.
A Substantial Update
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.
Vision Group ‘For Sale’
Mivision asked CEO Mr. Geoff Thompson numerous questions including whether the company’s latest statement was an admission that the operation had been a completely flawed business model?
He replied: “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”.
We also asked if Vision Group was asking doctors to re-sign, with the expectation of a partial or full sale, what security 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),” said Mr. Thompson.
According to Fairfax’s David Symons: “Apply the 2013 expected pay rates to revenue of 2009, and the company’s earnings before interest and tax plummets from its AUD$32 million result to just AUD$20 million.
“The best hope for shareholders is that paying doctors based on profitability will drive them to work harder, as well as supporting management efforts to reduce costs.
Still, the Vision board recognises that with profits set to slide, the debt balance is uncomfortably large. As a result, the chief executive, Geoff Thompson, has put up the ‘For Sale’ sign, seeking expressions of interest either for the whole company or for the group’s day surgery business”.
A Silver Lining?
However, there could be a silver lining to the hovering dark clouds with the fact that the higher pay structure for its doctors, which should consolidate their commitment to the company, may make Vision Group more attractive to potential buyers and investors.
As David Symons points out: “While any transaction is unlikely to attract the double digit EBIT multiples that were commonplace for healthcare deals before the financial crisis, even a seven-times multiple on AUD$20 million of EBIT would mean that shareholders buying in at current depressed prices would double their money”.
Mivision put a number of other probing questions to Vision Group CEO, Mr. Geoff Thompson. The questions and his responses can be found on the mivision website at mivisionclean2.flywheelsites.com/vision-group-a-new-future.