Ann: Chairman's Address to Shareholders, page-27

Your comments on the fertility specialists' remuneration structure may well be right - you definitely know a lot more about the industry than i do! I was being guided by the disclosures per MVF's and VRT's prospectuses, which i flicked through about 3 years ago when i was thinking about VRT. The relevant disclosure on specialist remuneration that i was relying on for MVF is on p50 of the prospectus ("remuneration: set management fee per IVF cycle, fixed fee per scheduled theatre session for egg collection...), and for VRT it's on p39 ("fertility specialists are paid a set management fee of an IVF cycle and other ARS....).

It's funny that you say medical professionals typically aren't entrepreneurial or financially driven - i have a friend who manages a medical practice and that's almost verbatim what he said (he was, in fact, even more scathing). It's strange to me because they're obviously intelligent people on the whole, and being 'financial savvy' doesn't take much effort or mental capacity in my mind ("finance/economics, the dismal science").

An increasing number of fertility specialists and ability to fill seats is a (and perhaps the) critical factor, agree with you on that - that's where the majority of the operating leverage is for the owner of any form of medical office. It's a concentrated market - there were only 83 fertility clinics in Australia in 2014 according to NPESU - which implies centers tend to be larger, expensive to establish, and highly profitable once mature. Being a concentrated market means that a small tilt in supply/demand dynamics could heavily impact profitability (i.e. just a few new fertility clinics opening without a concomitant increase in demand could disproportionately impact industry-wide profitability), or if you lose one 'rainmaker' fertility specialist to a competitor that's sufficient to punch a material hole in profitability (as MVF disclosed with Burmeister's departure). 2014 is an interesting baseline year as Primary entered the market in 2014/15. I went to the Fertility Society's webpage where they list all licensed fertility centers in Aus - https://www.fertilitysociety.com.au/rtac/accredited-units/ - and i counted there's now 90 clinics in Australia. The opening of these 7 new centers (3 of which belong to Primary, with another in Perth coming soon) over the last ~3 years has, apparently, been enough to cap profits for both VRT & MVF's Aus clinics - that's the supply-side issue i mentioned as being most unsure of going forward, and i just don't really know how that'll evolve over time. If someone held a gun to my head and forced me to guess whether Aus EBITDA margins for MVF & VRT will be higher or lower in 3 years' time than they are today, i'd say "lower".

In terms of modeling prospective total returns, the shorthand heuristic for estimating long-term total returns is simply (dividend yield + profit growth). This heuristic obviously ignores entry/exit multiple spread - the shorter your investment horizon, the more impact any change in this spread will have on your estimated total returns. So, for a 5-year investment horizon, if you assume you can buy MVF today on a ~12x P/E and sell on, say, a 15x P/E, that's going to provide a big uplift to your total return. You could run a 5-line very basic Excel sheet with these variables to get a rough idea what you need for a 15% total return: entry multiple, dividends as % of EPS, EPS growth, exit multiple - and sensitise prospective total returns on that basis. As with all models, the GIGO principle applies - the outputs are only as valuable as the assumptions driving them.