The Vision Group (VGH), Australia’s largest private ophthalmic practice, has released its financial report for the half year ended 31 December 2010.
The report reflects a decline in revenue levels of 3.9 per cent and earnings before interest, taxation and amortisation (EBITA) of 23.7 per cent over the prior corresponding period.
According to the Group, the decline in operating revenues during the period resulted from the closure of practices at Rockhampton, Hervey Bay and Bundaberg during or since the corresponding prior period. Excluding the impact of these closures, operating revenues increased by 2 per cent. Discretionary revenues declined by 5 per cent due to continued softness in the refractive market.
EBITDA was AUD$10.6m, 24 per cent lower than EBITDA of AUD$13.9m in the prior corresponding period. The Group said that the decline in EBITDA arose from a combination of the revenue decline and increased direct labour costs (AUD$1.7m) compared to the corresponding period. Increased costs associated with doctors beginning to transition to the new EBIT based Doctor Partner remuneration equivalent model were largely offset by reduced medical supplies costs (AUD$0.5m) and indirect costs (AUD$1.1m).
Given that new recruits were forecast in VGH’s 4 August 2010 Strategic Review, if achieved, these appointments could go some way towards rebuilding confidence in the Group’s leadership team
On a normalised basis, the Vision Group said the EBITDA was AUD$14.3m, which was 14 per cent lower than normalised EBITDA of AUD$16.6m in the prior corresponding period. Normalised costs primarily relate to share based payments, non-recurring advisory fees and litigation legal fees.
Normalised profit before tax was AUD$6.1m; down 38 per cent from AUD$9.8m in the prior corresponding period.
Decline Expected
A decline in results was anticipated by the Group. In a strategic review released to the market on August 2010, VGH announced, that it would undergo major changes to turn around its dwindling fortunes. These changes included an amended debt facility, a re-capitalisation and debt reduction program of part of the whole company and a new remuneration model for its doctors.
The new remuneration for doctors was aimed at maintaining existing doctors and attracting new talent to the organization.
In August 2010, VGH said 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.” However, in the half year report, VHG said these costs “were largely offset by reduced medical supplies costs (AUD$0.5m) and indirect costs (AUD$1.1m).”
Future Uncertain
In the VGH half year report, the Group stated: “Without the ongoing support of the lending syndicate or an alternate funding provider there will be significant uncertainty as to the ability of the Group to continue as a going concern and therefore whether it will be able to realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report.
“Notwithstanding the above, as previously reported the Group has taken actions and continues to implement initiatives to strengthen and grow future Group performance including:
- The implementation of the new EBIT based doctor partner remuneration equivalent model, which is expected to improve the Group’s ability to retain, motivate and attract quality doctors;
- The strengthening of doctor leadership and operational management; and
- The continued roll out of an expense reduction program.
“Taking all of the above factors into consideration, the Directors have satisfied themselves that the continued application of the going concern basis is appropriate.”
Shareholder Dissatisfaction
One non-doctor shareholder of The Vision Group has expressed his dissatisfaction to mivision. The shareholder, who wished to have his name withheld said, “absolutely critical to Vision group is the recruitment of new doctors. Without it, investor confidence is unlikely to ever return to this business.”
In addition, he said, the company’s leadership continues to give the impression to the market that it “remains captive to the narrow personal interest of doctor shareholders, albeit that they hold a monitory ownership stake in the company.”
Doctor partners and directors have a combined shareholding of 28 per cent.
In his announcement to the Australian Stock Exchange on 20 December, VGH’s Chairman, Shane Tanner raised new expectations of new doctors appointments being a possibility: “Discussions are being held with a number of new doctors and several new recruits are expected within the next twelve months.”
Given that new recruits were forecast in VGH’s 4 August 2010 Strategic Review, if achieved, these appointments could go some way towards rebuilding confidence in the Group’s leadership team.
Disappointment in VGH’s progress is reflected in its stock price, which is around 90 per cent off its original 2004 IPO price.
