Ann: Vita Group Market Update, page-17

Sorry, I am out of VTG after having held for many years and being a big fan. The ICT channel was and is the backbone of this business and with it going, so goes the company, but it will deflate like a slowly leaking balloon.

I have no faith in the Artisan business. They have the wrong business model and are hopelessly behind in the location roll out, not to mention lower individual store turnover when compared to the Gorilla in the industry - Laser Clinics Australia.

Starting in 2008, Laser Clinics Australia had grown its business to 80 locations with a turnover of $140m (average turnover of $1.75m). This was sufficient incentive for KKV to successfully offer $650m to acquire the business in late 2017 – the deal reportedly done on earnings multiple of between 13 & 15 times.

A quick review (Feb 2021) of the Laser Clinics Australia website shows they now have 150 clinics in Australia and New Zealand with an approximate turnover of between $250m and $300m

That substantial growth is no doubt due to its business model – franchising where the franchisee and LCA are 50/50 partners.

At the time of the 2017 sale, the previous owner of LCA stated that the critical factor in determining success or not in the non-invasive-medical-aesthetic (NIMA) industry was reaching “scale”; determined by the number of locations & turnover with an effective system to contain costs and take advantage of synergies.

He was very forthright in stating the franchising model was the reason for their extremely high growth and reaching ‘scale’. He believed the franchising model ensured greater commitment at each location, far greater than that which might be expected of a company owned store.

The growth after the KKR acquisition is likely due to its continuation of the franchise model.

In October 2017, VTG announced its goal of being a ‘premium leader in the NIMA industry with 45 to 60 clinics within five years’ (October 2022).

VTG are using the company owned model and, whilst experienced in operating under this business model, are well behind their stated aspirations, both in terms of locations established and turnover.

As of the date of the FY20 AGM (19th October 2020) they had 19 locations, with an annual turnover of approximately $20m (the approximate turnover for the FY20 year). A quick check of the Artisan website infers they now have 21 locations.

This would suggest that in just under two years, they need to add an additional 24 locations (minimum) as well as beefing up turnover at each location by a minimum of $500k to $750k per location.

This is an absolutely impossible target, given their preference for greenfield sites as opposed to acquisitions.

Will they have achieved scale by 2025, which one would assume is around60 to 80, based upon the LCA sale in 2017? Maybe, but it will come at aterrific capital cost as each location is costly to fit out and equip.

Just impossible!