A black eye for Vision Eye

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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