For Immediate Release

29 February 2024

 

CVS Group plc
("CVS", the "Company" or the "Group")

Interim results for the six months ended 31 December 2023

Continued delivery on growth strategy, trading in line with full year expectations

CVS, the UK listed veterinary group and one of the leading providers of veterinary services, is pleased to announce its unaudited interim results for the six-month period ended 31 December 2023 ("H1 2024") and provide an update on year-to-date trading. Comparative data is provided for the six months ended 31 December 2022 ("H1 2023"), unless otherwise stated.

 

Financial Highlights

£m except where stated	H1 2024 (unaudited)	H1 2023 (unaudited)	Change %6	FY 2023 (audited)
Revenue	329.9	296.3	11.4%	608.3
Group Like-for-like ("LFL") sales growth (%)1	6.0%	7.5%	(1.5ppts)	7.3%
Adjusted EBITDA2  Adjusted EBITDA2 margin (%)	63.0	57.8	8.9%	121.4
Adjusted EBITDA2 margin (%)	19.1%	19.5%	(0.4ppts)	20.0%
Adjusted profit before tax3	42.7	41.1	3.9%	85.4
Adjusted earnings per share4 ("EPS") (p)	44.5	45.6	(2.4%)	96.0
Operating profit	28.6	31.5	(9.2%)	62.3
Profit before tax	23.4	28.0	(16.4%)	53.9
Basic earnings per share (p)	20.4	29.6	(31.1%)	58.8
Net bank borrowings5	129.2	57.6	124.3%	74.0

 

Notes

1       Like-for-like sales shows revenue generated from like-for-like operations compared to the prior year, adjusted for the number of working days. For example, for a practice acquired in September 2022, revenue is included from September 2023 in the like-for-like calculations.

2       Adjusted EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) is profit before tax adjusted for interest (net finance expense), depreciation, amortisation, costs relating to business combinations, and exceptional items. Adjusted EBITDA provides information on the Group's underlying performance and this measure is aligned to our strategy and KPIs. Alternative performance measures are described in note 2.

 3      Adjusted profit before tax is calculated as profit before amortisation, taxation, costs relating to business combinations, and exceptional items. Alternative performance measures are described in note 2.

 4     Adjusted earnings per share is calculated as adjusted profit before tax less applicable taxation, divided by the weighted average number of Ordinary shares in issue in the period. Alternative performance measures are described in note 2.

 5     Net bank borrowings is drawn bank debt less cash and cash equivalents.

 6     Percentage increases and decreases are calculated based on the underlying values throughout this document.

 7     Leverage on a bank test basis is drawn bank debt less cash and cash equivalents, divided by adjusted EBITDA annualised for the effect of acquisitions, including acquisition fees and excluding share option costs, prior to the adoption of IFRS 16.

8    Operating cash conversion is cash generated from operations excluding acquisition fees and contingent consideration payments but      including repayment of right-of-use liabilities and maintenance capital expenditure divided by adjusted EBITDA.

 

 

Financial Highlights

 

·    Revenue increased 11.4% to £329.9m with like-for-like sales¹ growth of 6.0%, within the Group's organic revenue growth ambition of between 4% and 8%

·    Increase in Adjusted EBITDA² of 8.9% to £63.0m with Adjusted EBITDA² margin at 19.1%, in line with our stated ambition of full year margins between 19% and 23%

·    Membership of our preventative healthcare scheme, The Healthy Pet Club (HPC), has increased to 500,000, up 4.0% vs. 31 December 2022 (+2.2% vs. 30 June 2023) reflecting continued underlying demand for companion pet veterinary care services in the UK

·    Leverage⁷ was 1.15x as at 31 December 2023 (31 December 2022: 0.60x; 30 June 2023: 0.73x) reflecting the Group's continued focus on driving growth through our M&A and capital investment strategy partly offset by strong EBITDA growth and operating cash conversion

·    Bank facilities renewed in January 2024 to extend the term by one further year to 21 February 2028 on the same terms and £100m hedged in an interest rate swap over the same period

 

Operational & Strategic Highlights

 

·    Focus on growth through execution of M&A strategy

Australia

o  Entry into Australian veterinary services market with thirteen small animal acquisitions consisting of fifteen practice sites completed in H1 2024 for aggregate initial consideration of A$103.8m / £54.4m

o  Strong pipeline of further acquisition opportunities with a continued focus on major cities such as  Sydney, Melbourne, Brisbane, and Perth

o  Local senior management team in place with senior Operations Director seconded from the UK, with appropriate governance through UK support functions

 

UK

o  Completed a further four small animal practice acquisitions in H1 2024, all following successful submission of briefing papers to the Competition and Markets Authority (CMA)

 

·    Focus on capital expenditure to deliver high quality infrastructure

o  Continued disciplined approach to investment in our facilities and equipment, with total capital expenditure of £17.2m (H1 2023: £19.9m, FY 2023: £45.7m)

o  A further four projects completed in H1 2024, with one further Greenfield small animal practice opened in Derby in January 2024

o  Bristol Vet Specialists (BVS), a state-of-the art flagship multi-disciplinary referral hospital, opened in October 2023 providing a range of services including cardiology, dermatology, diagnostic imaging, internal medicine, neurology/neurosurgery, oncology, orthopaedics, soft tissue surgery and anaesthesia & analgesia

 

·    Improved standards of veterinary care

o  New Clinical Governance Framework launched by CVS, driving increased standards of care in the profession: first dedicated veterinary clinical governance framework for those involved in animal healthcare in the UK

o  8.4% more vets employed on average in calendar year 2023 vs 2022 as we continue to position CVS as the employer of choice

 

Current trading and outlook: confident of continued growth and delivery of our strategic goals

·      We are mindful of the wider macroeconomic backdrop and the potential impact on demand as well as ongoing inflationary pressures on margins over the near term.  However, the Board remains confident that full year results will be in line with market expectations and the strategy remains appropriate to deliver longer term sustainable growth in value

·      The board is pleased with the Group's entry into Australia with the practices acquired performing in line with business cases.  We have a strong pipeline of opportunities and are building a meaningful platform

·      Investment in our people, technology and clinical facilities remains a key focus in order to support further organic growth

·      Our focus on profitable expansion through acquisition in the UK and Australia will continue, with at least ten further acquisitions in Australia expected in H2 2024. We look forward to welcoming new colleagues to CVS through small animal practice acquisitions in H2 2024

·      Positive momentum towards our stated five-year plan to double Adjusted EBITDA

·      We continue to support the Competition and Markets Authority (CMA) with their market review into the provision of veterinary services for household pets in the UK.  The Group looks forward to an update from the CMA in due course.

 

Richard Fairman, Chief Executive Officer, commented:             

"Our interim results reflect the continued resilience of our business despite the challenging macroeconomic backdrop affecting household incomes and inflationary pressures seen across UK and Europe.

We continue to execute on the growth strategy outlined at our Capital Markets Day in November 2022 and during the period entered the Australian veterinary market with thirteen practices acquired alongside a further four acquisitions in the UK. We extended our bank facilities in January 2024 so that, alongside our cash generative business model, we have committed funds in place for the next four years to help fund our investment plans.

Our purpose is to give the best possible care to animals and our highly skilled team of colleagues are essential to the delivery of this care.  I would like to take this opportunity to thank all CVS colleagues for their continued professionalism and dedication in providing high-quality care to our clients and their animals.

With the continued commitment of our colleagues and our focused investment in their welfare and their working conditions, we look forward to reporting further growth in the future."

Results webcast

An audio webcast and presentation of these results will be available on  https://stream.brrmedia.co.uk/broadcast/65c62a8da4115474d64b3987 from 07.00am on 29 February 2024. Management will host a Q&A conference call for analysts and investors at 09.00am GMT this morning. To join the call in listen-only mode, please click on the following link https://stream.brrmedia.co.uk/broadcast/65b8e5fc6371e5b884f62627. Those wishing to participate in the Q&A session should email CVSG@camarco.co.uk for call details.

Contacts:

 

CVS Group plc                                                                                                                       via Camarco

Richard Fairman, CEO

Ben Jacklin, Deputy CEO

Robin Alfonso, CFO

 

Peel Hunt LLP (Nominated Adviser & Broker)                                                              +44 (0)20 7418 8900

Adrian Trimmings / Michael Burke / Andrew Clarke / Lalit Bose

 

Berenberg (Joint Broker)                                                                                                   +44 (0)20 3207 7800

Toby Flaux / Ben Wright / James Thompson / Milo Bonser

 

Camarco (Financial PR)                                                                                                       

Ginny Pulbrook                                                                                                                    +44 (0)7961 315 138

Geoffrey Pelham-Lane                                                                                                        +44 (0)7733 124 226

 

About CVS Group plc (www.cvsukltd.co.uk)

CVS Group is an AIM-listed provider of veterinary services with operations in the UK, Australia, the Netherlands and the Republic of Ireland.  CVS is focused on providing high-quality clinical services to its clients and their animals, with outstanding and dedicated clinical teams and support colleagues at the core of its strategy.

 

The Group operates c.500 veterinary practices across its four territories, including nine specialist referral hospitals and 39 dedicated out-of-hours sites. Alongside the core Veterinary Practices division, CVS operates Laboratories (providing diagnostic services to CVS and third-parties), Crematoria (providing pet cremation and clinical waste disposal for CVS and third-party practices) and the Group's online retail business ("Animed Direct").

 

The Group employs c.9,100 personnel, including c.2,400 veterinary surgeons and c.3,400 nurses.

 

Introduction

The Board is pleased to report that the Group has delivered further growth in both revenue and adjusted EBITDA, as it continues to focus on providing high-quality care to its patients. This focus has delivered like-for-like sales¹ growth in H1 2024 of 6.0%, and Adjusted EBITDA margin of 19.1% which, whilst impacted by ongoing inflationary pressures on costs, remains within our stated ambition to maintain margins between 19% and 23%.

 

We are pleased with our continued growth, with our H1 2024 results demonstrating positive momentum towards our stated five-year plan to double Adjusted EBITDA by focusing on:

·      Organic revenue growth of 4% - 8% per annum;

·      Adjusted EBITDA margin between 19% to 23%;

·      Investment in practice facilities and technology to deliver additional organic growth;

·      Investment in selective acquisitions subject to disciplined criteria for returns and earnings accretion;

·      Operating cash conversion greater than 70%; and

·      Maintaining leverage (net debt to EBITDA ratio) below 2.0x.

CMA

We continue to support the Competition and Markets Authority (CMA) with their market review into the provision of veterinary services for household pets in the UK.  The Group looks forward to an update from the CMA in due course.

 

M&A: delivering against our plan, with entry into Australia and building a sustainable platform

Australian Market Entry

In July 2023 CVS entered the Australian veterinary services market in accordance with its growth objectives, as outlined in the five-year plan, to execute on scalable international consolidation opportunities subject to maintaining its disciplined acquisition criteria.

 

CVS completed a total of thirteen small animal first opinion acquisitions in Australia (comprising 15 practice sites) in H1 2024 for aggregate initial consideration, inclusive of cash acquired, of A$103.8m / £54.4m with representation in the major cities of Sydney, Melbourne, Brisbane, and Perth. The combined historical multiples paid are lower than those in the UK and the internal rate of return within the relevant acquisition business cases is comfortably above our hurdle rate of 10%. The acquisitions made to date are performing well and in line with expectations.  These acquisitions, together with our strong pipeline, provide a meaningful platform for our operations in Australia.

 

Our focus is on acquiring high-quality small animal practices with good facilities and strong practice management teams.  Our local senior management team work closely with the practice management teams in supporting the growth of their practices and in generating value from our Australia presence.  We have appropriate governance through our support functions in the UK.  Whilst acquisition multiples in Australia are lower than in the UK, practice margins are similar.  However, the internal rate of return is expected to be similar to the UK as synergies have not been included initially, and the rate of corporation tax is higher at 30% in Australia.  The Group expects to benefit increasingly over time from additional advantages of scale as it further expands in Australia, including improved drug purchasing terms, revenue growth and margin enhancement with a focus on high-quality clinical care and developing a market leading employee experience.

 

Australia market trends

The Australian veterinary services market has relatively low levels of consolidation with two major established competitors, VetPartners and Greencross, collectively owning c.11% of the market. With c.3,500 practices  across Australia, there is a significant potential opportunity for CVS. The Australian market has similar characteristics to the UK with an increasing pet population post the COVID-19 pandemic, humanisation of pets and consumers willing to invest in veterinary care for their animals. There is a history of UK and Australian vets spending time working in the two markets and the approach to clinical care is similar. CVS's purpose, to give the best possible care to animals, and its vision, to be the veterinary company people most want to work for, fit well with the Australian market and we are excited by the opportunity. Our expansion into Australia will also provide career progression opportunities for UK vets and nurses who may wish to gain experience in Australia and a formal exchange programme is soon to be launched, to attract and retain colleagues within the wider CVS Group.

 

Continued UK pipeline of acquisitions

CVS continues to augment its UK operations with targeted acquisitions with a further four acquisitions completed in the first half comprising four practice sites, for aggregate initial consideration, inclusive of cash acquired, of £10.1m. The acquisitions were completed following the submission of briefing papers to the CMA.  These acquisitions are performing in line with expectations.

 

The Group anticipates to complete a number of additional first-opinion practice acquisitions in H2 2024 subject to appropriate appraisal and due diligence. Our leverage remains significantly below 2.0x, and there continues to be considerable headroom in our undrawn loan facility.

 

Driving clinical standards in the profession and delivering great clinical care

Clinical Governance Framework

In November 2023, CVS launched a new Clinical Governance Framework, a system through which CVS will hold itself accountable for improving the quality of its services and cultivating a culture in which clinical care will continue to improve.  Unlike previous veterinary approaches to clinical governance this framework focuses on creating the environment in which high standards of care can thrive.

 

It represents the first dedicated veterinary Clinical Governance Framework for those involved in animal healthcare in the UK. Similar frameworks have been adopted by the NHS and others in human healthcare, but a different approach has been required for the veterinary profession.

 

The components of the CVS Clinical Governance Framework are:

·      A definition of what is meant by the term "Quality of Care" within animal healthcare in a way that can be individualised to every situation;

·      A description of the six pillars that represent the organisation's clinical priorities namely:

1.     Clinical Effectiveness;

2.     Research and Development;

3.     Ethical Integrity and Sustainability;

4.     Information Sharing and Collaboration;

5.     Education and Training; and

6.     Quality Improvement and Patient Safety.

·      Five values central to a culture of clinical improvement that CVS colleagues will aspire to namely: a just culture, accountability; inclusive leadership; teamwork; and systems thinking.

Paul Higgs, Chief Veterinary Officer at CVS, said: "We hope that this framework is useful for everybody in our profession. Understanding the real benefits of a fantastic Clinical Governance Framework and the psychological safety culture that must underpin it can have a hugely positive impact on the wellbeing of our profession, our clients and our patients. It provides a safe way for us to understand our current working practices and identify change where needed.

 

Defining 'Quality of Care' is essential for us to understand what we are trying to achieve with that change. To cultivate the right environment we must also commit to behaviours that engage inclusively, challenge fairly and encourage sustainable accountability."

 

The Clinical Governance Framework will act as a guiding light to our clinicians as they give the best possible care to animals. Within three months of launching our framework, we have trained 164 Clinical Improvement advocates across small animal, farm and equine.

 

Investing in great facilities and equipment

As part of the Group's commitment to provide great clinical care, CVS continually reviews its facilities and equipment to ensure they meet the high standards our care requires. In H1 2024 we invested £17.2m in capital projects, completing four refurbishments and relocations. Where appropriate these refurbishments and relocations include advanced imaging equipment, enhancing the clinical offering and therefore patient care.

 

Alongside investment in improving and developing our existing practices, we opened a further greenfield site in Derby in January 2024. Greenfield practices support clinicians looking to establish new veterinary practices and hospitals in state-of-the-art facilities.

 

Our flagship multi-disciplinary referral centre, Bristol Vet Specialists, opened in October 2023 in Avonmouth. The new hospital, which covers over 30,000 square feet, was custom built with uniquely designed facilities for our clinical colleagues to accommodate the very best workflow and patient care. The facilities include:

·      fourteen consultation rooms, set up to facilitate engagement with the patient and their owners;

·      designated accident and emergency;

·      five operating theatres including a dedicated interventional theatre;

·      advanced imaging; and

·      a linear accelerator capable of performing stereotactic treatments advancing cancer treatment available to pets.

 

Delphine Holopherne-Doran, Clinical Director at BVS, said: "we are proud to open our new veterinary hospital in Bristol. Our advanced facilities and eminent colleagues will mean we can provide the best animal care to pets in the Southwest and further afield, and we have invested in cutting edge technology to bring cancer treatment in pets to the next level. This site will become a centre of excellence in the veterinary world."

 

People: Our vision is to be the veterinary company people most want to work for

Our people remain at the core of our business, and we are pleased to see continued high levels of employee satisfaction, measured through our employee net promoter score stabilising at 11.9 at 31 December 2023. A simple but effective way we engage with our colleagues is through regular check ins, of which 87% of our colleagues report they have these regularly with their line managers; and interactive team meetings, of which 86% of our colleagues have regular interactive team meetings. We fundamentally believe these regular team touch points contribute to colleague satisfaction by creating an opportunity for feedback, development and also an opportunity to talk about wellbeing.

 

We continue to recruit more clinicians, and we now employ more vets and nurses than ever before. We have seen an increase in the average number of vets we employed in calendar year 2023 vs calendar year 2022 of 8.4% and nurses of 8.5%. Our well-understood, people focused strategy is delivering positive momentum in CVS becoming the veterinary company people most want to work for.

 

New Graduate Programme

Our industry leading New Graduate Programme continues to attract an increased share of the available new graduates to CVS each year with just over 200 graduates employed from the summer 2023 graduate pool.  A strategic focus over the last year has been on new graduate induction, adopting a collaborative approach with practices and key stakeholders to deliver a structured and supported onboarding experience for our new graduates to help ease their transition into the profession. Graduates work closely with a dedicated mentor in practice who has undergone additional in-house training, and they are encouraged to develop their peer support networks via the introduction of regional tutor groups. By constantly monitoring and improving the experience of new graduates within CVS, we are better able to retain this talent within the business and deliver on our commitment to provide a great place to work and have a career.

 

Rob Kelly, Head of Veterinary Clinical Education at CVS, said "With 80% plus of UK veterinary professionals working in general practice, the aim of the programme is to develop new members of our profession to benefit their career, colleagues, and animals under their care. Our new graduate programme is designed to enable individuals to continually reflect on their own competencies in a supported learning environment to develop as capable clinicians."

 

New veterinary nursing career pathway

We launched a new nursing career pathway in H1 to offer clear career progression for nurses across small animal first opinion, referral and equine practices. At each level of the pathway there is a tailored learning curriculum from newly qualified advancing into three clinical activity levels reflecting the direction of the nurse's careers and areas of interest. Beyond that, we have also introduced 3 new job titles clinical lead where you would be responsible for managing a clinical area of the practice, team lead where you are responsible for managing a subset of the nursing team, and nurse manager where you would be responsible for leading a large multi-tiered or multi practice team.

 

Tara Ryan, Chief Veterinary Nursing Officer at CVS, said: "There are so many good reasons to provide structure and clarity around nursing careers. The nursing career pathway will enhance the role of the Veterinary Nurse in our practices and ensure we are utilising the skills of our nurses. The pathway will give confidence to vets when delegating to nurses and it will enable nurses to do more for our clients and patients, whether that be through advanced clinical care, surgery or consulting procedures.

 

Most importantly it will support nurses in taking the direction in their career that they want to take. There are multiple different options for nurses to progress within CVS - whether it be in practice, procurement, client services or learning, education and development. It means nurses truly can have a life-long career within CVS."

 

Apprentice Scheme

In line with our strategy of building careers for the future, we also continue to grow our apprentice programme, supporting nearly 500 active apprentices across the business.  Such is the strength of this programme we were winners of the Apprenticeship Employer of the Year Award in the East of England, for the macro employer category (over 5,000 employees).  As such, we reached the national finals being the only veterinary and animal care employer represented.

 

Care at our Heart: embedding our Environmental, Social and Governance (ESG) strategy

We published our second annual sustainability report in September 2023 highlighting the progress we have made as well as setting our first public targets, included in the report, within our six workstreams: Energy and Carbon, Waste, One Health, Wellbeing, People Development, and Equity, Diversity and Inclusion (EDI).

 

We are targeting clear metrics which are ambitious and show our intent to become a more sustainable company.

 

We continue to support wellbeing across our business areas, and the continued work of our wellbeing working group supports over 60% of colleagues reporting we are providing relevant and helpful wellbeing resources, training, activities and support.

 

We continued to invest in a range of interventions to conserve energy, increase energy efficiency and reduce our carbon footprint and these have so far led to a 12% reduction in energy use and an 11% reduction in our carbon footprint since we started to target these improvements.

 

We have strengthened our Environmental Champion programme, and provided additional resources to practices to help improve waste segregation, thereby reducing our impact on the environment. This has contributed to a further reduction in medical waste in excess of 10% in H1 2024 vs H1 2023.

 

We use a data driven approach to balance the use of treatments that may have an impact on the environment and public health whilst maintaining our primary responsibility for animal welfare. This has led to elimination of the use of Nitrous Oxide.

 

In November 2023, we acquired Brimbank Vet Clinic, the first carbon neutral veterinary practice in Australia. We are looking forward to working with the team at Brimbank to learn from their sustainable initiatives and to consider how these can be applied elsewhere across the group.

 

Jeremy Watson, former owner and Clinical Director at Brimbank Vet clinic said "We achieved our carbon neutral status in 2021,  where we became Australia's first certified carbon neutral veterinary practice on the Australian Government Climate Active Register. I know some people get overwhelmed by where to start, but it is about understanding why it is important to be addressing climate change because of its escalating impact on animal health, and as veterinary teams, animal health is our responsibility. Management needs to engage your whole team in a culture of sustainability so it makes this  a normal part of practice. We designed and built  a practice that minimised its impact on the environment, creating a place that the team want to work in and clients want to visit. A sustainability program that includes net zero strategy has delivered increased team engagement, improved profitability and better client value."

 

Financial review: investing to deliver future growth

CVS delivered a positive performance in H1 2024, making progress towards its five-year plan to double adjusted EBITDA (to FY 2028). CVS continues to focus on delivering the very best care to animals and is pleased with the continued growth.

 

In November 2022, CVS announced its intention of building a sustainable and meaningful business overseas, and in July 2023 entered the Australia veterinary market. In H1 2024 we acquired thirteen first-opinion small animal practices (15 practice sites), with a healthy pipeline of opportunities.

 

Revenue

Group revenue was £329.9m in the period, an increase of 11.4% over the prior period (H1 2023: £296.3m), with group like-for-like sales¹, growth of 6.0% (H1 2023: 7.5%) reflected growth across each of our four divisions notwithstanding a challenging economic climate and cost of living crisis.

 

Gross profit/gross profit margin

Gross profit of £141.1m increased by 11.4% (H1 2023: £126.7m) benefitting from revenue growth. During the period there was an improvement in gross margin before clinical staff costs to 78.1% (H1 2023: 77.5%); offset by an increase in employment costs where we continue to invest in clinicians and support roles.  As a result, gross profit margin was flat overall vs H1 2023.

 

Adjusted EBITDA and adjusted EPS

Adjusted EBITDA for the half-year increased 8.9% to £63.0m (H1 2023: £57.8m) primarily due to growth in revenue and gross profit.  Included is recognition of £6.0m Research and Development Tax Credits (H1 2023: £5.0m).

 

Adjusted EBITDA margin was 19.1% (H1 2023: 19.5%) impacted by conscious investment in support functions; inflationary pressures particularly in wages and establishment costs; the opening of BVS and a new greenfield site; and poorer performance across the Netherlands and the Republic of Ireland.  BVS will continue to impact margin during the early months post opening as it establishes itself and builds a full caseload.

 

Adjusted earnings per share decreased 2.4% to 44.5p (H1 2023: 45.6p) following the increase in the rate of corporation tax in the UK to 25.0% from April 2023.

 

Operating profit, profit before tax and basic earnings per share

Operating profit decreased 9.2% to £28.6m (H1 2023: £31.5m). The increase in adjusted EBITDA was offset by an increase in depreciation as a result of increased capex spend and an increase in costs relating to business combinations.

 

Profit before tax decreased 16.4% to £23.4m (H1 2023: £28.0m). Finance expenses increased to £5.2m (H1 2023: £3.5m) following an increase in SONIA rates and increased bank borrowings to support investment.

 

Additionally, tax expense increased to £8.7m from £6.9m following the increase in UK corporation tax rate. Consequently, basic earnings per share for the period decreased to 20.4p (H1 2023: 29.6p).

 

A reconciliation between statutory operating profit and adjusted EBITDA is shown below:

 

	H1 2024 £m	H1 2023 £m
Operating profit	28.6	31.5
Adjustments for:
Amortisation, depreciation, impairment and profit on disposal	26.8	24.5
Costs relating to business combinations	7.5	1.8
Exceptional items	0.1	-
Adjusted EBITDA	63.0	57.8

 

Cash generated from operations/net bank borrowings

Cash generated from operating activities was £39.4m (H1 2023: £35.0m) with the increase driven mainly from increased EBITDA. Operating cash conversion⁸ of 63.7% (H1 2023: 62.1%) is in line with management expectations and the full year is expected to be in excess of 70%, with the first half structurally impacted by prior year bonus payments.

 

Net bank borrowings increased to £129.2m (H1 2023: £57.6m, 30 June 2023: £74.0m) after funding £63.1m of acquisitions (net of cash acquired), along with £17.2m of capital expenditure. This continued investment reflects the implementation of our capital allocation programme for future growth. 

 

Operating segment performance

Veterinary Practices division

Our Veterinary Practices division comprises c.500 veterinary practices across four markets, including nine specialist referral hospitals and 39 dedicated out-of-hours sites, as well as our buying groups, Vet Direct and MiPet insurance. The Veterinary Practice division generated revenues of £294.8m in H1 2024, an increase of 11.9% on the £263.4m achieved in the prior period. Like-for-like sales growth, adjusted for the number of working days in the period, was 5.9% (H1 2023: 7.3%), demonstrating our continued ability to generate organic growth.

 

Gross margin before clinical staff costs in the Veterinary Practices Division improved to 80.5% (H1 2023: 80.3%).

 

Adjusted EBITDA for the Veterinary Practices division increased to £59.7m (H1 2023: £55.4m). Adjusted EBITDA margin was down slightly at 20.3% (H1 2023: 21.0%), reflecting increased investment in our people and inflationary costs increases.

 

Laboratories division

Our Laboratories division provides diagnostic services and in-practice laboratory analysers to CVS practices and third-party owned veterinary practices. Diagnostic services are offered via post and courier allowing complete coverage of the UK. Revenue of £16.3m was generated in the period, reflecting strong growth of 14.4% from the £14.2m generated in H1 2023 due to increased case volume and increased volume of analysers in practice.

 

Adjusted EBITDA increased to £5.3m (H1 2023: £4.4m) primarily due to the increased revenue.

 

Crematoria division

Our Crematoria division provides pet cremation and clinical waste disposal for CVS and third-party practices.  Revenue was £6.0m in the period (H1 2023: £5.3m) reflecting the success of the Direct Pet Cremation project, offering a more compassionate aftercare service and increased options for pet owners. Adjusted EBITDA was £2.1m (H1 2023: £1.6m) primarily due to the increase in top line revenue.

 

Online retail business

We have continued to improve our Online retail business, Animed Direct, with revenue increasing to £25.0m (H1 2023: £24.5m), benefitting from increased basket spend. Adjusted EBITDA was flat at £1.7m (H1 2023: £1.7m).

 

Central administration

Central administration costs were £5.8m (H1 2023: £5.3m). Expressed as a percentage of Group revenue, excluding RDEC and associated costs, these costs remained broadly consistent at 3.6% (H1 2023: 3.5%).

 

Cash flow and funding position

CVS had borrowings of £161.5m at 31 December 2023 with cash and cash equivalents of £32.3m, resulting in net bank borrowings of £129.2m (H1 2023: £57.6m). The Group had leverage (net debt / bank test EBITDA) of 1.15x as of 31 December 2023 (30 June 2023: 0.73x).

 

The Group has total facilities of £350.0m committed through to 21 February 2028 and provided by a syndicate of eight banks: AIB, Barclays, Danske, HSBC, JP Morgan, Lloyds, NatWest and Virgin Money. The facilities comprise the following elements:

·      a fixed term loan of £87.5m, repayable on 21 February 2028 via a single bullet repayment; and

·      a four-year Revolving Credit Facility of £262.5m, available to 21 February 2028; and

·      a £5.0m overdraft facility, renewable annually.

 

The Group is subject to two financial covenants associated with these facilities which are based on the ratios of net debt to EBITDA (no more than 3.25x) and EBITDA to interest (no lower than 4.5x). EBITDA for this purpose is based on adjusted EBITDA annualised for the effect of acquisitions, including acquisition fees and excluding share option costs, prior to the adoption of IFRS 16.  Interest cover was 25.7 at 31 December 2023  (30 June 2023: 34.3).

 

Dividends

A dividend of 7.5p (December 2022: 7.0p) per share was paid in December 2023 in respect of the financial year ended 30 June 2023. The Board will continue to review its dividend policy and anticipates the payment of a final dividend in respect of the current financial year, which will be payable in December 2024. In line with our customary practice, the amount of this dividend will be dependent on the outcome of the full year results and the growth capital needs of the business.

 

Current trading & Outlook

We remain confident of delivering sustainable long-term growth and delivery of our strategic goals.

 

We continue to execute on the strategy outlined at our Capital Markets Day in November 2022 and we extended our bank facilities in January 2024 so that we have committed bank facilities through to February 2028.

 

We continue to be mindful of the wider macroeconomic backdrop and the potential impact on demand as well as continued inflationary pressures on margins over the near term.  However, the Board remains confident that full year results will be in line with market expectations and the strategy remains appropriate to deliver longer term sustainable growth in value. 

 

We will continue our investment in our people, technology and our clinical facilities in order to support further organic growth. This will be augmented by investment in our exciting pipeline of selective acquisitions and development of exceptional Greenfield sites. In H2 2024 to date, we have completed a further small animal practice acquisition in the UK for initial consideration of £5.2m.

 

The Board would like to acknowledge and thank all members of the CVS team for their efforts to provide the very best care for animals, and with their support, we look forward to sharing continued success in the future.

 

Deborah Kemp

Interim Chair

29 February 2024

               

Condensed consolidated income statement for the six-month period ended 31 December 2023 (unaudited)

	Note	Six months ended 31 December 2023 (Unaudited) £m	Six months ended 31 December 2022 (Unaudited) £m	Year ended 30 June 2023 (Audited) £m
Revenue		329.9	296.3	608.3
Cost of sales		(188.8)	(169.6)	(346.0)
Gross profit		141.1	126.7	262.3
Administrative expenses		(112.5)	(95.2)	(200.0)
Operating profit		28.6	31.5	62.3
Finance expense	5	(5.2)	(3.5)	(8.4)
Profit before tax		23.4	28.0	53.9
Tax expense	8	(8.7)	(6.9)	(12.0)
Profit for the period		14.7	21.1	41.9
Profit for the period attributable to:
Owners of the parent		14.6	21.1	41.9
Non-controlling interests		0.1	-	-
Profit for the period		14.7	21.1	41.9
Earnings per Ordinary share (EPS)
Basic	6	20.4p	29.6p	58.8p
Diluted	6	20.4p	29.4p	58.5p

 

All activities derive from continuing operations.

 

 

 

Reconciliation of alternative performance measures

The Directors believe that adjusted measures, being adjusted EBITDA, adjusted PBT and adjusted EPS provide additional useful information for shareholders. These measures are used by the Board and management for planning, internal reporting and setting Director and management remuneration. In addition, they are used by the investor analyst community and are aligned to our strategy and KPIs. These measures are not defined by IFRS and therefore may not be directly comparable with other companies' adjusted measures.

 

Adjusted EBITDA is calculated by reference to profit before tax, adjusted for interest (net finance expense), depreciation, amortisation, costs relating to business combinations and exceptional items. The following table provides the calculation of adjusted EBITDA.

 

Alternative performance measure: adjusted EBITDA	Note	Six months ended 31 December 2023 (Unaudited) £m	Six months ended 31 December 2022 (Unaudited) £m	Year ended 30 June 2023 (Audited) £m
Profit before tax		23.4	28.0	53.9
Adjustments for:
Finance expense	5	5.2	3.5	8.4
Amortisation of intangible assets	9	11.7	11.3	22.6
Depreciation of property, plant and equipment	9	7.7	6.1	12.6
Depreciation of right-of-use assets	10	7.5	7.1	15.2
Profit on disposal of property, plant and equipment and right-of-use assets		(0.1)	-	(0.2)
Costs relating to business combinations1		7.5	1.8	6.6
Exceptional items2		0.1	-	2.3
Adjusted EBITDA		63.0	57.8	121.4
Adjusted earnings per share (EPS):
Adjusted EPS	6	44.5p	45.6p	96.0p
Diluted adjusted EPS	6	44.4p	45.2p	95.5p

¹ Includes amounts paid in respect of acquisitions in prior years expensed to the income statement.

² Exceptional items in the current and prior year relate to impairment in respect of the Gilabbey Veterinary.

 

Condensed consolidated statement of comprehensive income for the six-month period ended 31 December 2023 (unaudited)

	Six months ended 31 December 2023 (Unaudited) £m	Six months ended 31 December 2022 (Unaudited)£m	Year ended 30 June 2023 (Audited) £m
Profit for the period	14.7	21.1	41.9
Other comprehensive income - items that will or may be reclassified to profit or loss in future periods
Cash flow hedges:
Net movement on cash flow hedge	(1.8)	0.5	(0.2)
Cost of hedging reserve	-	-	-
Deferred tax on cash flow hedge and available-for-sale financial assets	0.5	(0.1)	-
Exchange differences on translation of foreign operations	1.6	-	(0.2)
Other comprehensive income / (expense) for the period, net of tax	0.3	0.4	(0.4)
Total comprehensive income for the period	15.0	21.5	41.5
Total comprehensive income for the period attributable to:
Owners of the parent	14.9	21.5	41.5
Non-controlling interests	0.1	-	-
Total comprehensive income for the period	15.0	21.5	41.5

Condensed consolidated statement of financial position as at 31 December 2023 (unaudited)

	Note	31 December  2023 (Unaudited)   £m	31 December  2022 (Unaudited)   £m	30 June 2023 (Audited) £m
Non-current assets
Intangible assets	9	321.7	234.4	256.1
Property, plant and equipment	9	111.3	82.7	101.5
Right-of-use assets	10	105.7	99.4	102.9
Investments		-	0.1	-
Derivative financial instruments		-	2.8	-
		538.7	419.4	460.5
Current assets
Inventories		28.5	28.7	28.4
Trade and other receivables		58.2	49.4	58.1
Derivative financial instruments		0.3	-	2.1
Current tax receivable	8	2.8	2.8	1.7
Cash and cash equivalents		32.3	27.4	21.5
		122.1	108.3	111.8
Total assets		660.8	527.7	572.3
Current liabilities
Trade and other payables	12	(91.2)	(83.3)	(91.1)
Provisions	13	(0.8)	(0.9)	(0.7)
Lease liabilities	14	(14.0)	(9.5)	(13.3)
		(106.0)	(93.7)	(105.1)
Non-current liabilities
Borrowings	16	(158.6)	(84.5)	(92.2)
Lease liabilities	14	(95.7)	(93.4)	(93.6)
Deferred tax liabilities		(34.2)	(22.2)	(24.8)
		(288.5)	(200.1)	(210.6)
Total liabilities		(394.5)	(293.8)	(315.7)
Net assets		266.3	233.9	256.6

 

Condensed consolidated statement of financial position as at 31 December 2023 (unaudited)

31 December 2023 (Unaudited) £m

31 December 2022  (Unaudited) £m

30 June 2023 (Audited) £m

Shareholders' equity
Share capital		0.1	0.1	0.1
Share premium		107.1	105.7	107.0
Capital redemption reserve		0.6	0.6	0.6
Treasury reserve		(0.9)	(1.2)	-
Cash flow hedge reserve		0.1	2.0	1.4
Merger reserve		(61.4)	(61.4)	(61.4)
Foreign exchange translation reserve		1.4	-	(0.2)
Retained earnings		219.2	188.1	209.1
		266.2	233.9	256.6
Non-controlling interest		0.1	-	-
Total equity		266.3	233.9	256.6

 

The interim financial information above is reproduced from that on pages 11 to 32 of the Group's Interim Report which was approved by the Board of Directors on 29 February 2024.