SILK Laser Australia Limited - Strategic Acquisition Executed for Dominance

Business model

SILK Laser’s model is to operate corporate stores, joint ventures, and the traditional franchisee model. The corporate structure, which accounts for 25 of its stores, provides SILK with total control of the clinics, enabling penetration into new markets whilst drawing synergies. The hybrid model of joint ventures allows for flexible financing options by both stakeholders where holdings can be split either 50% or 75% SILK and 50% or 25% franchisee. Currently, 29 of its clinics operate under this model, helping mitigate risks to all parties. Most of the stores (65 by number) operate under the traditional franchisee model, with many of these stores in regional areas due to the smaller growth potential. Owners and employees are provided both in-person and online training opportunities to upskill with the latest technology which they can then deliver to their customers.

Growth trajectory continuing into H2 FY22

SILK is a major player within the non-surgical aesthetics industry, targeting a high-quality offering at affordable prices. The company reported H1 FY22 revenue of $40.5m, up 32% on the previous corresponding period (pcp), and a 70% jump in network cash sales to $76.4m. Pro-forma EBITDA for the half increased 20% to $12.7m and pro-forma NPAT was $5.7m, up 2% on the pcp. Reported NPAT was $4.1m, a decline of 13% on pcp. The company noted that with Q1 FY22 impacted by lost trading days due to COVID-19 lockdowns, the group experienced a six-to-eight week bounce back post re-opening in Q2 and that trading conditions had now returned to normal, consistent levels. SLA commented that the growth trajectory had continued into H2 FY22 with total network cash sales from 1 January to 24 February up 7% to $23.1m. The company plans to open two further clinics in Australia and two in New Zealand in the next six months, in line with its guidance for an additional six-10 new clinic openings in FY22.

Peers included API’s Clear Skin and Vita Group

SILK Laser is growing at a rapid rate; since acquiring ASC, it has moved from the third- to second-largest market player. Australian Pharmaceutical Industries (ASX:API) owns Clear Skin and this is a major competitor offering consumers a comparable range of services and products at a similar price point. Vita group (ASX:VTG), following the sale of its retail information and communications technology (ICT) business to Telstra, is now focused on expanding its Artisan Aesthetic Clinics business, having retained $35m from the ICT sale for this purpose.