Dear fellow shareholders,
I founded Pacific Smiles Group (PSQ) in 2003 and brought the company to IPO in November 2014. I served as Managing Director until September 2007 and continued as a director until July 2020. I hold 8.04% of PSQ’s shares. I requested this meeting to ask you to consider and to vote in favour of my proposed resolutions to replace the Board. Dr. Alex Abrahams |
With your support we can deliver profitable growth and restore the value of our investment in PSQ
1. The current Board has presided over the erosion of value and must be replaced
Our investment in PSQ has materially underperformed, as evidenced by the 50% decline in the share price in the last 12 months and no dividend issuance in FY2022
Our investment in PSQ has materially underperformed, as evidenced by the 50% decline in the share price in the last 12 months and no dividend issuance in FY2022
2. The Board’s rapid network growth strategy has turned a profitable business into a loss-making operation
In FY2022, PSQ added 19 new dental centres. It delivered a statutory net loss after tax of $(4.5)m and a negative return on invested capital of (1.1)%. In contrast, in the first year post IPO, PSQ delivered a statutory net profit after tax of $8.4m and a positive return on invested capital of 22.5%.2 PSQ was well managed for the four years post IPO, with steady profitable growth and consistent dividends.
PSQ’s key financial metrics in FY2022 compared with FY2015 (the time of its IPO) are set out below.
In FY2022, PSQ added 19 new dental centres. It delivered a statutory net loss after tax of $(4.5)m and a negative return on invested capital of (1.1)%. In contrast, in the first year post IPO, PSQ delivered a statutory net profit after tax of $8.4m and a positive return on invested capital of 22.5%.2 PSQ was well managed for the four years post IPO, with steady profitable growth and consistent dividends.
PSQ’s key financial metrics in FY2022 compared with FY2015 (the time of its IPO) are set out below.
While many companies exercised prudence during the period of Covid-19 uncertainty, the current Board embarked on unchecked, accelerated network expansion. PSQ’s network increased over 40% from FY19 to FY22 and now totals 127 centres.
Additionally, during FY2021, PSQ’s underlying results were masked by Job-Keeper and temporary rent reductions.
In my opinion, the current Board failed to appropriately monitor the impact of its strategy and in the process, eroded significant shareholder value. Consequently, PSQ significantly underperformed its peers in the healthcare sector.
Additionally, during FY2021, PSQ’s underlying results were masked by Job-Keeper and temporary rent reductions.
In my opinion, the current Board failed to appropriately monitor the impact of its strategy and in the process, eroded significant shareholder value. Consequently, PSQ significantly underperformed its peers in the healthcare sector.
As a result, PSQ has significantly underperformed its peers in the healthcare sector.
3. There is no end in sight while the current Board remains
The current Board has failed to articulate a convincing plan to turn performance around.
The current CEO recently stated that operational leverage (margin) will not return until the company reaches 250 centres: “at some point when the growth does stop perhaps over that 250, a [relief] of margin as the business stabilizes and we get past the so-called immaturity stage. Right now, we're not there” (PSQ earnings conference call 17-Aug-2022).
At PSQ’s current pace of centre expansion, reaching 250 centres will take seven years. This presents a grim prospect for profitability in the foreseeable future.
Many PSQ shareholders have no confidence in a Board that has presided over such a significant erosion of value and loss of dividends and has no clear plan to re-establish profitability.
The current Board has failed to articulate a convincing plan to turn performance around.
The current CEO recently stated that operational leverage (margin) will not return until the company reaches 250 centres: “at some point when the growth does stop perhaps over that 250, a [relief] of margin as the business stabilizes and we get past the so-called immaturity stage. Right now, we're not there” (PSQ earnings conference call 17-Aug-2022).
At PSQ’s current pace of centre expansion, reaching 250 centres will take seven years. This presents a grim prospect for profitability in the foreseeable future.
Many PSQ shareholders have no confidence in a Board that has presided over such a significant erosion of value and loss of dividends and has no clear plan to re-establish profitability.
This presents a grim prospect for profitability for many years to come
4. Your proposed new Board has a track record of success
Your proposed Board is:
Your proposed Board comprises
1. Dr Alex Abrahams BDS (University of Sydney) GAICD – PSQ founder, Dentist, proposed Chair. Current Directorships (ASX: MAM)
2. Robin Low BCom, (University of NSW), FCA, GAICD – Audit, Risk, Professional Services, Financial Services, Technology. Current Directorships (ASX: APX, AUB, IPH, MMM)
3. Susan Massasso B.Comm (University of Sydney) GAICD – Customer, Professional, Community building, Scale-up growth and Transformation. Executive experience (ASX: A2M)
4. Dr Navroop (Nav) Singh BDS (Bada Farid University) Australian Dental Council (ADC) 2008 – 12 years practising from Pacific Smiles Dental Penrith & Greenhills. Member PSQ Dental Advisory Committee
Your proposed new Board members are highly regarded professional directors, proven high impact executives or advanced clinical dentists and have the requisite skills to drive transformation and shareholder value at PSQ.
Your proposed Board is:
Your proposed Board comprises
1. Dr Alex Abrahams BDS (University of Sydney) GAICD – PSQ founder, Dentist, proposed Chair. Current Directorships (ASX: MAM)
2. Robin Low BCom, (University of NSW), FCA, GAICD – Audit, Risk, Professional Services, Financial Services, Technology. Current Directorships (ASX: APX, AUB, IPH, MMM)
3. Susan Massasso B.Comm (University of Sydney) GAICD – Customer, Professional, Community building, Scale-up growth and Transformation. Executive experience (ASX: A2M)
4. Dr Navroop (Nav) Singh BDS (Bada Farid University) Australian Dental Council (ADC) 2008 – 12 years practising from Pacific Smiles Dental Penrith & Greenhills. Member PSQ Dental Advisory Committee
Your proposed new Board members are highly regarded professional directors, proven high impact executives or advanced clinical dentists and have the requisite skills to drive transformation and shareholder value at PSQ.
5. Your new Board has a plan to transform PSQ’s performance
If elected, your proposed new Board will immediately oversee the implementation of a transformation plan for PSQ. This will include a focus on people and culture.
The plan comprises two phases:
Core elements of Phase 1: Margin recovery – first 12 months
Core elements of Phase 2: Sustainable network growth – 12-24 months
If elected, your proposed new Board will immediately oversee the implementation of a transformation plan for PSQ. This will include a focus on people and culture.
The plan comprises two phases:
- Margin recovery; and
- A platform for sustainable network growth.
Core elements of Phase 1: Margin recovery – first 12 months
- Pause network expansion and focus on existing chair utilisation and returns
- Streamline management structure
- Disciplined cost management
- Overhaul culture for dentist and staff welfare and retention
- Review fee levels and Preferred Provider arrangements
- Implement front line and patient care technology
- Rebuild brand and reputation in industry and amongst all dentists
Core elements of Phase 2: Sustainable network growth – 12-24 months
- Develop pathway for dentist equity participation
- Drive discipline in capital expenditure and investment
- Profitably expand the network and refine and enhance the operating model
6. We need your support to turn PSQ around
Immediate change is essential to restoring the value of your investment.
Immediate change is essential to restoring the value of your investment.
I urge you to vote in favour of all resolutions to remove the current Board and appoint the
proposed new directors with myself as Chair
proposed new directors with myself as Chair
Dr Alex Abrahams