A black eye for Vision Eye

Company could be gearing up for a transformation of its business

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published August 27, 2013 2:59 pm AEST

Vision Eye Institute (ASX:VEI) has seen its shares slammed, at one stage down 23%, after the company reported a $16.9 million loss for the 2013 financial year.

Excluding goodwill impairment, Vision Eye reported a profit after tax of $9.4 million, up 5.6% compared to the previous year. The company took a $26.3 million impairment on goodwill, arising from a reduction to forecast earnings from New South Wales.

Revenues were down 3.7% to $107.1 million, thanks to changes to health fund rebates, exit from the Mackay day surgery business in January 2012, and most worryingly, continued decline in discretionary refractive revenues. As retailers David Jones (ASX:DJS) and Myer Holdings (ASX:MYR) are experiencing, consumers are keeping their hands in their pockets when it comes to discretionary purchases. That includes spending money on eye surgery to reduce the reliance on glasses and contact lenses.

Pleasingly, finance costs dropped 24.4%, as gross bank debt fell from $85 million in 2012 to $47.5 million, and the group benefitted from lower interest rates. Debt has been dropping consistently since 2008, and at the end of July 2013, Vision Eye reports that it had just $37 million in net bank debt.

Day surgery growth continues, with theatre revenues now accounting for 34% of total group revenue, after rising 6%, reflecting increasing demand for non-discretionary surgical procedures. Surgical revenues rose 5%, consistent with the trend in theatre revenue.

Moving to the outlook for the next financial year, Vision Eye says its priority is driving greater utilisation of its day surgeries, and can now consider expanding its footprint – we assume through acquisitions.

Foolish takeaway

Despite today's fall, Vision Eye has outperformed the S&P /ASX Index (Index:^AXJO) (ASX:XJO) over the past year, rising close to 30%, compared to the index return of 20%. Investors might want to keep an eye on Vision Eye – it may be about to metamorphosize away from eye surgery into a day surgery business.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.

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