Pacific Smiles founder Alex Abrahams calls for board spill

Alex Abrahams, the founder of ASX-listed dental group Pacific Smiles, says the company’s board has focused too much on expansion at the expense of profitability.

Pacific Smiles co-founder, Alex Abrahams, says the company’s current board has no clear plan to profitability. Picture: Justin Lloyd

The founder of Pacific Smiles has called for a spill of the ASX-listed dental group’s board, alleging it has focused too much on expansion at the expense of profitability, with its market value almost halving in the past year.

Alex Abrahams – who founded the company 19 years ago with Alison Hughes before the pair reaped almost $100m when it floated in 2014 – has nominated his directors, including former A2 Milk marketing boss Susan Massasso.

Pacific Smiles shares surging 11.5 per cent to $1.65 – a three month high – giving it a market value of $236.2m. Shares traded at $2.98 a year ago.

Ms Massasso left A2 last May, embarking on her own advisory business. Dr Abrahams has also proposed himself to become Pacific Smiles’s next chair and Marley Spoon director Robin Low and dentist Navroop Singh as fellow board members.

In a letter to shareholders, Dr Abrahams noted that Pacific Smiles’s share price had halved in the past year, with the company reporting a loss of $4.5m. He accused the board of focusing too much on expanding its network of clinics with “no clear plan to re-establish profitability.”

“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 per cent from FY19 to FY22 and now totals 127 centres,” Dr Abrahams said.

“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.”

Dr Abrahams has created his own website to support his bid, releasing a transformation plan, which includes reviewing the network and closing underperforming clinics within 12 months.

Pacific Smiles chair Zita Peach said the board “vigorously oppose the proposed changes” and tried to engage with Dr Abrahams, who owns more than 8 per cent of the company. She said it was disappointing he had called for a spill ahead of an annual meeting on November 22.

“It means considerable cost and disruption just at the time the board and management are focused on capturing the benefits of improved trading conditions post-Covid,” Ms Peach said.

“We believe the current group strategy offers significant potential for shareholder value uplift and that the current Board have the right skill-sets to work with management on delivering this value creation. We will vigorously oppose the proposed changes to the board at the extraordinary general meeting, if it proceeds to that.”

“The board of Pacific Smiles continues to encourage Dr Abrahams to withdraw his 249D notice and remain open to engaging with him and any shareholder with perspectives that could benefit Pacific Smiles.”

It comes after Perth-headquartered health insurer HBF acquired a 10 per cent stake of Pacific Smiles for $41.9m last December as it expands into dental and other health services.

Former HBF chief executive – now Crown Perth chair – John Van Der Wielen said at the time that Pacific Smiles had a “track record in establishing and operating high quality dental clinics that deliver excellent customer service and clinical outcomes”.

“Our members are seeing this at the five HBF Dental centres we’ve opened in WA this year and at Pacific Smiles’ extensive network of clinics elsewhere,” Mr Van Der Wielen said at the time.