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REG - CVS Group plc - Final Results for the year ended 30 June 2022

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RNS Number : 2262A  CVS Group plc  22 September 2022

For Immediate
Release
                                 22 September
2022

CVS GROUP plc

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

Final results for the year ended 30 June 2022

 

Continued strong growth in a resilient veterinary market

 

CVS, the AIM-quoted veterinary group and one of the UK's leading providers of
integrated veterinary services, is pleased to announce its final results for
the year ended 30 June 2022 ("2022").

 

Financial Highlights

 £m except where stated                           2022   2021   Change %

 Revenue                                          554.2  510.1  8.6%
 Group like-for-like ("LFL") sales growth (%)(1)  8.0%   17.4%  -9.4 ppts

 Adjusted EBITDA(2)                               107.4  97.5   10.2%
 Adjusted EBITDA(2) margin (%)                    19.4%  19.1%  +0.3 ppts
 Adjusted profit before tax(3)                    75.5   66.2   14.0%

 Adjusted earnings per share(4) (p)               85.8   75.1   14.2%

 Operating profit                                 42.8   40.1   6.7%
 Profit before tax                                36.0   33.1   8.8%
 Basic earnings per share (p)                     36.2   27.3   32.6%

 Net bank borrowings(5)                           36.0   51.3   -29.8%
 Final dividend (p)                               7.0    6.5    7.7%

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 2020, revenue is included from
September 2021 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.

3 Adjusted profit before tax is calculated as profit before amortisation,
taxation, costs relating to business combinations, and exceptional items.

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 year.

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

6 Leverage on a bank test basis is net bank borrowings, divided by adjusted
EBITDA annualised for the effect of acquisitions, including costs relating to
business combinations and excluding share option costs, prior to the adoption
of IFRS 16.

 

Financial Highlights

·      Revenue increased by 8.6%, to £554.2m (2021: £510.1m), with
strong Group like-for-like(1) sales growth of 8.0% benefitting from favourable
market dynamics and the continued focus on delivering against our strategy

·      Adjusted EBITDA(2) growth of 10.2%, to £107.4m (2021: £97.5m),
through strong revenue performance and operational efficiencies

·      Profit before tax increased by 8.8%, to £36.0m (2021: £33.1m)
benefitting from the increase in adjusted EBITDA, a reduction in costs
relating to business combinations partially offset by an impairment of
investment relating to the acquisition of the Quality Pet Care Ltd

·      Leverage(6) fell to 0.40x (2021: 0.68x) as a result of strong
EBITDA growth,  continued good operating cash generation and reduction in net
debt

·      Cash generated from operations increased by 15.9% to £93.1m
(2021: £80.3m), primarily as a result of the increase in adjusted EBITDA

Operational Highlights

·      Increasing demand for our services as the pet population
continues to grow, with our colleagues showing commitment and dedication to
providing exceptional care to animals

·      6.0% increase in the average number of vets employed in the year

·      Introduction of industry-first CVS Clinical Research Awards,
providing grants for research projects

·      Increased investment in capital projects by £7.9m to £24.5m in
2022 vs 2021, to improve quality of facilities and equipment, including 23
refurbishments and relocations during the financial year (2021: 13)

·      Published our first standalone Sustainability Report, describing
the goals and activities of our ESG working groups and reporting
sustainability data under the Sustainability Accounting Standards Board (SASB)
metrics

·      Three acquisitions of four practice sites made during the second
half of the financial year

Current trading & Outlook

·      Strong sales and like-for-like(1) growth in the first ten weeks
versus the same period in the previous financial year

·      We are pleased with the momentum in the business and trade in
line with market expectations

·      Continued growth in our Healthy Pet Club to 475,000 members
(+4.4% compared to 31 August 2021)

·      Record number of new graduate vets recruited

·      Two new acquisitions made since the year end for consideration of
£7.8m, with a healthy pipeline of potential deals

·      Further growth opportunity with our strategic partner, Dobbies,
to co-locate our practices in their garden centres, with a successful first
site opened in August 2022, and more to follow

·      Plans to open three further greenfield sites during FY23 in
addition to a new state-of-the-art veterinary hospital in Bristol

·      Whilst we are mindful of the wider macroeconomic backdrop and
inflationary pressures, the Group remains well positioned to continue
delivering attractive growth and shareholder value

·      We look forward to sharing further insight into these growth
opportunities and our capital allocation priorities at our forthcoming Capital
Markets Day on 8 November 2022

 

Richard Fairman, Chief Executive Officer, commented:

 

"I'm pleased that we have delivered a strong set of results, with good growth
against all of our key financial metrics despite a challenging macro-economic
backdrop. Our continued focus on providing the best possible clinical
standards, led by our fantastic colleagues who are committed to high quality
veterinary care, has contributed to the strength of our performance.

 

"The veterinary market remains resilient, with an increasing pet population
providing favourable dynamics and a strong platform for sustainable growth
across our integrated services. Continued investment in our facilities,
clinical equipment and our people support this growth; significant
enhancements to our pay and benefits ensure we remain an attractive employer,
and we are recruiting more graduates than ever before. We now employ c.5,000
vets and nurses across the Group.

 

"Our pipeline for acquisitions also continues to build, supplementing the
organic growth opportunities in the business. With a positive start to the new
financial year, we remain confident in our ability to deliver value for all
our stakeholders."

 

Results webcast

Management will host a live webcast and Q&A for analysts and investors at
9am GMT this morning. Those wishing to join should email CVSGroup@mhpc.com for
the registration details. For those unable to join, there will be a playback
facility available on the CVS website later today.

 

Contacts

CVS Group
plc
   via MHP Communications

Richard Fairman, CEO

Ben Jacklin, COO

Robin Alfonso, CFO

 

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

Adrian Trimmings / Michael Burke / Andrew Clark / Lalit Bose

 

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

Toby Flaux / Ben Wright / Ciaran Walsh / Milo Bonser

 

MHP Communications (Financial PR)
 
+44 (0)20 3128 8549

Andrew Jaques / Simon Hockridge / Rachel Farrington / Charles Hirst

 

About CVS Group plc (www.cvsukltd.co.uk (http://www.cvsukltd.co.uk/) )

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

 

The Group has c.500 veterinary practices across its three markets, including
eight specialist referral hospitals and 35 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), Buying Groups and the Group's online retail business ("Animed
Direct").

 

The Group currently employs c.8,100 personnel, including c.2,100 veterinary
surgeons and c.3,000 nurses.

 

Chair's statement

 

Leveraging favourable market trends to deliver improved financial performance

 

Introduction

We are committed at CVS to providing the best possible care to our clients and
their animals. Key to the delivery of this care is our people and I would like
to take this opportunity to thank all our colleagues for their continued
dedication and professionalism.

We continue to develop CVS through investment in our people, in the technology
we use, in our practice facilities and in new clinical equipment. This is
important to both the delivery of first-class clinical care and the
recruitment and retention of clinical resource. We have increased capital
investment in the past financial year and this has delivered favourable
returns. Further increases in capital investment are planned in the current
year and we are confident that this will position the Group well for continued
growth in the years ahead.

Positive financial performance

I am delighted to share another strong set of financial results with growth in
both revenue and earnings, with continued strong operating cash conversion and
improved balance sheet strength.

The Group generated revenue growth of 8.6% in the financial year, with
like-for-like sales increasing by 8.0%, reflecting our continued focus on
delivering organic growth. We completed three acquisitions (comprising four
practice sites) in the second half of the financial year (2021: nine
acquisitions across the year).

In light of the Competition and Markets Authority's (CMA) phase one
investigation into our August 2021 acquisition of Quality Pet Care Ltd, and
the CMA's view that the merger may be expected to result in a substantial
lessening of competition within a market or markets, we decided to sell this
business, and the disposal was completed in June 2022. We recognised an
investment impairment ahead of sale and further information is available in
note 6. Whilst the CMA's conclusion was disappointing, we now have a clear
guideline as to how the CMA assesses local competition in veterinary care
which will be useful in informing our approach to future acquisitions in the
UK. There are considerable parts of the UK where we do not currently own any
practices, and hence where there cannot be competition issues; we are
confident that we can acquire further practices in areas of the UK where we
already operate, provided that our share of vet full-time equivalent resource
in the vicinity is less than 30%.

Adjusted EBITDA increased by 10.2% to £107.4m (2021: £97.5m), through strong
revenue growth. Profit before tax correspondingly increased by 8.8% to £36.0m
(2021: £33.1m) with adjusted EPS increasing by 14.2% to 85.8p (2021: 75.1p)
and basic EPS increasing by 32.6% to 36.2p (2021: 27.3p).

The Group remains highly cash-generative, with the increase in adjusted EBITDA
flowing through to cash generated from operations, which increased by 15.9% to
£93.1m (2021: £80.3m). Net debt correspondingly decreased by £14.9m to
£35.3m (2021: £50.2m) with leverage reducing to 0.40x bank-test EBITDA at 30
June 2022 (2021: 0.68x).

Strategic progress

Our purpose at CVS is to give the best possible care to animals and our vision
is to be the veterinary company people most want to work for. This purpose and
vision are underpinned by our four strategic pillars: to recommend and provide
the best clinical care every time; to be a great place to work and have a
career; to provide great facilities and equipment; and to take our
responsibilities seriously.

We are committed to the highest standards of clinical care and all of our
practices participate in the Royal College of Veterinary Surgeons' voluntary
Practice Standards Scheme. We have recently published our annual Quality
Improvement Report which outlines our approach to further enhancing clinical
standards underpinned by evidence-based medicine.

In addition to our ongoing focus on providing learning, education and
development support to our colleagues, we continue to enhance our package of
reward and benefits. In the past financial year, we increased the holiday
entitlement for all colleagues through an additional day's annual leave for
each completed year of service, up to a maximum of five days once colleagues
have completed five years' service. In May 2022, we implemented an additional
salary review, with a salary increase of 3.0% for all colleagues (save for the
Executive Directors, whose salary review will take place under the normal
cycle) in advance of our full annual salary review in July 2022. We also
announced our commitment to pay a minimum of 3.0% above National Minimum
Wage/National Living Wage for all current and future colleagues.

Our continued focus on recruitment, alongside improvements in retention, has
resulted in a 6.0% increase in the average number of vets employed during the
financial year to 2,079 vets (2021: 1,962 vets). Furthermore, the average
number of nurses we employed in the financial year increased to 2,839 nurses
(2021: 2,548). We also launched a new Equity, Diversity and Inclusion (EDI)
working group to help attract and support colleagues from all backgrounds.

We continue to improve our practice facilities and clinical equipment, with
£24.5m invested in capital expenditure during the year (2021: £16.6m). This
investment enables us to both enhance the client and colleague experience in
our practices and, importantly, to further improve the standards of clinical
care which we can provide.

We outlined our overall approach to sustainability and ESG in our 2021 Annual
Report and, in August 2022, we published our first Sustainability Report,
which sets out the foundations of our approach to ESG. As part of our
commitment in this area, we have introduced five new non-financial targets for
our Executive Directors as a key element of their annual bonus for the
financial year ending 30 June 2023. Our ESG approach has been informed and
influenced by globally recognised frameworks and sets of principles, including
the Global Reporting Initiative Standards, the United Nations Sustainable
Development Goals and the recommendations of the Task Force on Climate-Related
Financial Disclosures (TCFD). We have also disclosed data against standards
developed by the Sustainability Accounting Standards Board. Furthermore, in
this Annual Report we have early-adopted the TCFD recommendations for
disclosure of climate-related risks and opportunities.

We remain well-placed to deliver further organic growth through the provision
of high-quality joined-up care throughout our patients' lives, from our
first-opinion veterinary practices, specialist-led multidisciplinary referral
hospitals, diagnostic laboratories, dedicated out-of-hours clinics and online
retail business, Animed Direct. Our crematoria provide a compassionate
cremation service at the end of an animal's life and clinical waste disposal
services. We will augment this growth through further acquisitions and the
creation of greenfield practices.

Governance and the Board

We are committed to the highest levels of corporate governance and, as an
AIM-quoted group, we voluntarily adopt the UK Corporate Governance Code 2018.

We continue to review the composition of the Board, in order to ensure that we
have the right balance of skills and experience. Mike McCollum, former Senior
Independent Director and Chair of the Audit Committee, resigned from the Board
in September 2021 to pursue a full-time opportunity outside the Group. In
light of his resignation, Deborah Kemp was appointed as our Senior Independent
Director and the Nomination Committee oversaw the appointment of David Wilton
as the new Chair of the Audit Committee with effect from 24 September 2021.

Dividends

In light of the further improvement in financial performance and the Group's
strong cash generation, the Board is recommending a continuation of our
progressive dividend policy, with the payment of a final dividend of 7.0p per
Ordinary share (2021: 6.5p).

Shareholder engagement

The Board continues its active engagement with existing and potential new
shareholders, with the Executive Directors attending a number of investor
conferences and holding individual investor meetings throughout the year. In
April 2022, we conducted a US roadshow in light of the increased number of
US-based institutions on our share register.

The Executive Directors have held live webcasts for our preliminary and
interim results presentations over the past year, including question and
answer sessions with analysts, with a replay facility available on our
investor website.

We are holding a capital markets day on 8 November 2022 in which we will
outline our capital allocation priorities and the opportunities we have to
deliver further sustainable growth in shareholder value.

Outlook

The veterinary sector is seeing favourable market and consumer trends with an
increased pet population, enhanced life expectancy and the continued
humanisation of pets, with owners willing to spend more on their care. Our
approach in providing the best possible care through our fully-integrated
veterinary services model positions CVS well to benefit from these favourable
trends. Whilst we are mindful of the pressures on household incomes through
rising inflation, we are confident in the resilience of our business model
with our expectation that clients will continue to seek access to high-quality
care for their animals.

I look forward to reporting on further successful growth for CVS in the
future.

Richard Connell

Chair

22 September 2022

 

Chief Executive Officer's review

 

Small actions add up to a big impact

 

Introduction

I am delighted that CVS has delivered another successful financial year in
which we delivered further improvements in financial performance.

Our purpose at CVS is to provide the best possible care to animals and key to
the delivery of this care is our fantastic team of colleagues who are
passionate and committed to client service and patient care. I would like to
thank all CVS colleagues for their contribution over the past year and for
their continued support and dedication.

Increased investment to position CVS for further growth

We continue to invest in a number of areas to position CVS well for further
growth in the future. Our people are the heart of everything we do and we
continue to develop learning, education and development support for all
colleagues to help them develop their careers.

We recognise the opportunity to improve our practice facilities and install
new clinical equipment and this is important in both attracting and retaining
talent, and also in continuing to expand the range of services we can provide
to our clients and their animals. We are confident with the financial returns
from this investment and, in light of our strengthened balance sheet and
continued high level of operating cash conversion, we plan to increase this
investment in the new financial year. We have undertaken a number of practice
refurbishments and relocations in the past financial year and our new
state-of-the-art referral hospital in Bristol will open its doors in early
2023.

Investment in our people, facilities and clinical equipment will position CVS
to benefit from the continued favourable market and consumer trends. The
population of pets in the UK has increased in the past two years, with an
increasing number of puppies and kittens within UK households. Given our focus
on high-quality clinical care, we expect to see the benefit of this increase
in population steadily increase over the next ten years given that average
veterinary spend per pet increases with age. Coupled with this, there is
evidence of increased life expectancy in pets with HealthforAnimals1, the
global animal health association, recently reporting that life expectancy for
dogs has increased by 11.4% between 2002 and 2016.

1.
www.healthforanimals.org/reports/pet-care-report/global-trends-in-the-pet-population/

 

Preventative care is an important part of our offering and I am delighted that
we continue to see growth in our Healthy Pet Club and Healthy Horse Programme,
with 470,000 members at 30 June 2022, an increase of 4.4% in the year. This
scheme provides a helpful way for clients to spread the cost of preventative
veterinary care through monthly instalments and provides discounts on other
services which may be required. The routine health checks which are provided
under this scheme are important as they offer an early opportunity to identify
and treat potential issues, avoiding more complex and expensive interventions
later.

There are many reported benefits of animal ownership with pets in particular
proven to improve their owners' physical and mental health. The trend of
humanisation of pets continues and, notwithstanding inflationary pressures in
the wider economy, we are confident that our clients will continue to access
our services in order to ensure their animals receive the best possible care.

Our integrated model at CVS enables us to provide care to animals at all
stages of their life cycle, from puppy and kitten health checks and annual
vaccinations through to specialist interventions where required. Our network
of first-opinion practices, dedicated out-of-hours clinics, specialist-led
referral hospitals and diagnostic laboratories deliver continuity of
treatment, thereby ensuring our clients and their animals receive a
first-class service. Our crematoria provide compassionate cremation services
at the end of an animal's life, as well as a clinical waste disposal services
to enable CVS, and third-party practices, to operate to the highest standards.
This is a key part of our service offering given that most clients who lose a
beloved pet subsequently purchase another and continue to enjoy access to our
services.

Animed Direct, our online retail business, attracts a broader range of clients
and gives access to a substantial range of pet food, pharmaceutical products
and accessories. We continue to see strong growth in pet food sales as
customers enjoy the convenience of being able to order bulky and heavy pet
food and have it delivered directly to their door.

Robust financial performance

We have delivered continued growth in financial performance, with revenue for
the financial year of £554.2m (2021: £510.1m) representing growth of 8.6%
over the prior year, and an increase in like-for-like sales of 8.0%. Adjusted
EBITDA increased to £107.4m (2021: £97.5m), a £9.9m (10.2%) increase over
the prior year.

This strong financial performance, alongside a reduction in net debt, led to a
decrease in leverage to 0.40x at 30 June 2022 (30 June 2021: 0.68x).

Strategy

Our purpose to provide the best possible care to animals, and our vision to be
the veterinary company people most want to work for, are underpinned by four
clear strategic pillars: to recommend and provide the best clinical care every
time; to be a great place to work and have a career; to provide great
facilities and equipment; and to take our responsibilities seriously.

In order to provide the best possible clinical care, we continue to focus on
helping to drive increased standards in the profession and we recently
published our latest annual Quality Improvement (QI) report. This sets out our
approach to learning from clinical issues and using evidence-based medicine to
inform the care we provide. We also launched our CVS Clinical Research Awards
programme in the financial year, which provides funds for CVS colleagues and
university academics in collaboration with CVS to facilitate the growth of
veterinary clinical research.

We are committed to making CVS a great place to work and have a career and we
continue to develop our reward and benefits to ensure we remain well
positioned in a competitive marketplace. We announced an interim
cost-of-living pay review in May 2022, in addition to our annual pay review in
July 2021, and we have expanded our reward and benefits package, including the
introduction of enhanced holiday entitlement based on length of service. In
May 2022, we committed an ongoing pledge to paying a minimum of 3.0% more than
the current National Minimum Wage/National Living Wage.

Our focus on improving our practice facilities and clinical equipment is
important in both helping us attract and retain clinicians, and enabling them
to deliver the best possible clinical care. We completed 23 refurbishments and
relocations in the financial year (2021: 13). We have a pipeline of exciting
capital expenditure projects to develop our existing facilities and open new
greenfield sites, as well as continuing to acquire quality practices where
they are aligned with our strategic goals.

We have responsibilities to all our stakeholders, including our patients, our
colleagues and our regulatory bodies, and we take all of these
responsibilities seriously. We continue to engage with the Royal College of
Veterinary Surgeons (RCVS) and aim to ensure all our practices meet the
rigorous standards of the RCVS' Practice Standards Scheme.

We remain well-placed to make further practice acquisitions in the UK and in
new European markets and we have a strong pipeline of opportunities. I am
pleased that we completed three acquisitions in the financial year, adding
four practice sites to the Group.

Recruitment and retention of clinicians

To support the Group's continued growth, we employed an average of 117 (6.0%)
more vets and an average of 291 (11.4%) more nurses in the financial year to
30 June 2022 in comparison to the previous financial year. The RCVS, in its
Workforce Summit report in November 2021, stated that the population of
practising vets in the UK had increased by c.1% and hence we are pleased with
our overall increase.

There remains a shortage of vets in the UK and we are keen to recruit more
vets to enable us to capitalise on the growth opportunity in the market. We
are confident that the supply of vets and nurses will increase over the medium
term given that there are now eleven vet schools in the UK. Our leading
graduate induction programme was enhanced in the year through our summer and
winter camp programme which help graduate vets make the transition from
university to work in practice. We have continued to expand our investment in
Continued Professional Development and enhanced career opportunities within
CVS.

We continue to implement initiatives to enhance the wellbeing and job
satisfaction for all our colleagues and promoted a wellbeing financial
calendar in July 2021, which is now in its second year.

Sustainability and ESG

We published our first annual Sustainability Report in August 2022, which sets
out our commitment to reducing our environmental impact and to improving our
ESG standards.

We are committed to taking action to ensure our business is as sustainable as
it can be, and we will continue to work collaboratively and creatively to
ensure we are doing the right thing for all stakeholders.

We have appointed an ESG lead to co-ordinate our efforts across CVS, with our
seven dedicated ESG working groups driving progress in the following areas:

•    Energy and Carbon;

•    Waste;

•    One Health (including antimicrobial resistance);

•    Wellbeing;

•    People Development;

•    Equity, Diversity and Inclusion; and

•    Community.

Demonstrating our commitment to holding ourselves accountable for our
sustainability goals, in our 2022 Sustainability Report we disclosed financial
and non-financial data relating to a range of sustainability factors using the
Sustainability Accounting Standards Board (SASB) framework. Further, in this
Annual Report we have early-adopted the recommendations of the Task Force on
Climate Related Financial Disclosures (TCFD). Applying these reporting
frameworks has aided us in understanding the impact of our operations on our
stakeholders and our environment, and developing targets to improve our
sustainability.

I look forward to sharing further progress in due course.

Outlook

We are confident in our ability to deliver further growth. With the improved
financial performance in the past financial year, continued operating cash
conversion and strengthened balance sheet, we are well-positioned to continue
our programme of investment to enable CVS to benefit from the favourable
market and consumer trends.

We will continue our focus on organic growth through high quality of care,
augmented by investment in further strategically-aligned acquisitions and
greenfield practice sites, as well as investment in technology, including
launching a new modern intuitive practice management system, Provet Cloud,
during 2023.

Our colleagues are key to our success and with their continued
professionalism, I look forward to a successful future.

Richard Fairman

Chief Executive Officer

22 September 2022

 

Operational review

 

Outstanding people, delivering outstanding care to our patients and clients

 

The year delivered much to be proud of in CVS, despite the lingering
challenges of a global pandemic. COVID-19 infection rates have been an ongoing
challenge for both our colleagues and our clients, but our teams continue to
demonstrate their unending passion and dedication to achieving our purpose of
giving the best possible care to animals. I would like to take this
opportunity to thank them once again for everything they do for our patients
and each other.

We continue our relentless pursuit of our purpose through our clear vision to
be the veterinary company people most want to work for. Beneath our purpose
and vision are our four strategic pillars:

•    we recommend and provide the best clinical care every time;

•    we are a great place to work and have a career;

•    we provide great facilities and equipment; and

•    we take our responsibilities seriously.

As we have done for a number of years, we have placed significant focus on
attracting great clinical talent and providing them with great places to work
and have a career. Much of our success has come from the culture we have
fostered, putting clinical care at the forefront of what we do. This has meant
alignment of all our operational practices to this goal, from KPIs and
incentive schemes, to the investments we continue to make in the very best
clinical equipment. Our national network of hub clinical leads, who are
experienced and inspirational vets, are core to this. They support our
companion animal practices across the business by teaching advanced
diagnostics and techniques, and by mentoring vets who are developing interests
in specific disciplines. This makes best use of expertise by spreading that
knowledge across our practices, improving the quality of care we can offer,
then supporting teams to deliver this care to their patients. Furthermore, we
have added pastoral support roles for recently graduated veterinary clinicians
across our practices. This provides new vets with experienced colleagues to
support and guide them through their first years in practice and ensure they
have a great experience.

One KPI we introduced in 2021 was employee Net Promoter Score, and I am
delighted we have seen yet further improvements in this measure during the
year. By having live monthly feedback from colleagues, we are able to ensure
we are making the right decisions for them, and creating a workplace that is
the envy of the veterinary profession. We also reduced attrition rates of
clinical colleagues during the year, further to the significant improvements
we made in this measure when we facilitated changes to the culture of our
Group.

Our quality improvement team is equally important to this culture, providing
data-driven feedback to all our clinicians on where we can make improvements
and reduce errors. By leading national and international projects, the quality
improvement team makes a big difference to the patients they serve and
ultimately the profession as a whole.

Our Advanced Clinical Services Network (ACSN) has continued to grow,
supporting our colleagues in primary care practices. Our ACSN clinicians hold
advanced qualifications in specific disciplines and, by being available across
a region of our practices, they make advanced treatments available to clients
and patients that would otherwise necessitate referral elsewhere. The goal of
our ACSN is to be an accessible service to all CVS colleagues in the UK,
offering a unique clinical career pathway for vets and nurses and being
advocates of excellent patient care, whilst contributing to the development of
general practice, laboratory and specialist services. The number of ACSN
clinicians grew to ten during the year, and revenues grew by 22.9%.

We have further developed our vet-to-vet telemedicine service, Vet Oracle™,
and we now have five specialisms within this business, offering specialist
interpretation of results and practical virtual assistance. This not only has
the benefit of creating new direct revenue streams but, more importantly,
spreads our expertise across a much wider network, improving the care offered
and given to our patients. This includes installations of advanced imaging
equipment, such as CT scanning, in practices which would otherwise not have
the expertise to interpret the results.

In 2022, Vet Oracle™ considered c.13,000 cases for CVS and non-CVS vets, a
growth of 54% year-on-year.

We are equally focused on all the other aspects of being a colleague at CVS
that can help us achieve our vision of being the veterinary company people
most want to work for. One significant step this year has been to increase the
rate of pay for all our colleagues on the National Living Wage/National
Minimum Wage, to 3.0% above the standard set by the government both now and in
the future. Many of those colleagues are critical to our success and often
lead the first and most regular interactions our clients have with their
veterinary practice. Ensuring we took the appropriate steps to support these
colleagues as costs of living rose was the right way to deliver on our vision.

Looking after the wellbeing of our colleagues is a crucial part of what we do
at CVS, and our 280 active Wellbeing Champions continue to do excellent work
across the business. These Champions ensure our colleagues are informed of the
various resources available to them, including our Employee Assistance
Programme and our Wellbeing Zone on the Knowledge Hub, onto which over 1,000
colleagues enrolled in its first year. During the year, COVID-19 isolations
impacted a significant number of our veterinary practices, as we made every
effort to ensure the safety and wellbeing of our colleagues across the Group.
We retained some social distancing, PPE and other restrictions as we continued
to follow government guidance and the guidance of our most senior clinicians.

Ensuring our nurses have great places to work and rewarding careers remains a
key aim, led by our Chief Veterinary Nursing Officer. We continue to improve
the number of procedures undertaken by nurses in our practices. We also
continue to see nurses leading our business in a variety of areas, including a
number of qualified veterinary nurses across our senior leadership group and
Executive Committee.

Despite the challenges that remain in the recruitment of both vets and nurses,
I am delighted that we increased the average number of vets employed in the
Group by 6.0% during the year, and the number of nurses by 11.4%. We continue
to drive forward recruitment across the UK, Europe and further afield, but
most encouraging has been the number of vets and nurses joining us on the back
of a referral from an existing colleague. We saw 362 colleagues join via a
referral from an existing colleague during the year, up 91.5% from the prior
year.

Another major area of focus is attracting the very best new graduate vets, and
following the hugely popular inaugural "CVS Summer Camp" in 2021 we have
repeated and enhanced the event this summer. This gives recent graduates the
very best start in their careers, allows us to share all the benefits of the
wider CVS from the start of their time with us, and gives us and them the best
chance of a long and rewarding career with CVS.

Despite being unable to make acquisitions during much of the financial year
due to the Competition and Markets Authority (CMA) investigation into our
acquisition of Quality Pet Care Ltd in August 2021, we completed three
acquisitions, comprising four practices sites, during Q4. We continue to see
significant opportunity for acquisitions in the UK, with the majority of
potential targets unaffected by the CMA's determination on Quality Pet Care
Limited. To that end, I am delighted we have acquired a further three practice
sites since the year end.

In our 2021 Annual Report we introduced our ESG strategy, "Care at our Heart",
which underpins our strategic pillars and gives meaning to all that we do, as
we aim not only to have a positive impact on our teams, our patients, our
customers and our other stakeholders, but also to make a bigger contribution
to wider society. Many of our initiatives across our operations in 2022 have
been driven by this intention.

 

Veterinary Practices division

Delivering clinical excellence in an expanding market

 

Our Veterinary Practices division comprises our companion animal, referrals,
farm animal and equine veterinary practices, as well as our buying groups,
veterinary wholesaler "Vet Direct", and MiPet Insurance. The division has
again performed well during the financial year, against a comparator which
included favourable tailwinds from a post-pandemic backlog of non-essential
procedures. Like-for-like sales growth in the division was 7.6%, contributing
to total revenue growth of 8.5%. This like-for-like growth was also hampered
during the final quarter of the financial year where we experienced a
significant increase in COVID-19 isolations of our colleagues, which impacted
revenues. We made three acquisitions during the financial year, adding four
practice sites to the Group. A further three practice sites have been acquired
since the year end, and we are pleased to welcome these colleagues to the
Group. As we continue our focus on delivering the best client service across
our business and being the veterinary company people most want to work for, we
continue to review our facilities and have closed a number of small branch
sites in the year to consolidate the work to our larger practice sites.

Companion Animal

Our Companion Animal division forms the majority of our Veterinary Practices
division. The focus of our Companion Animal division on delivering the very
best care continues to fare well in a market that has grown since the
pandemic, and where the humanisation of pets continues apace.

Our Patient Care Index (PCI) is a measure of the quality of care we give to
patients in our Companion Animal first-opinion practices. High PCI is
associated with high-quality clinical diagnostics and the targeted treatment
that follows, as opposed to more symptomatic treatments. We have seen
improvements in PCI across our practices as we work towards our purpose to
give the best possible care to animals. This focus has enabled us to deliver
revenue growth of 10.3% in our Companion Animal division.

Referrals

Our Referrals division has grown strongly in recent years. We have continued
to invest in our nursing and administration teams within this division, which
are essential to support such strong growth. We also continue to expand our
network of advanced peripatetic practitioners, who provide advanced clinical
services to our first-opinion practices entering new disciplines and
geographical locations.

The range of clinical disciplines we offer in our hospitals has expanded, and
we are developing opportunities to open new sites. There has been an increase
in investment in highest-quality medical equipment and facilities, such as MRI
scanners and our cutting-edge Bristol Referral Hospital which is planned to
open in 2023.

Equine

Our Equine division has 19 equine locations across the UK. The division has
performed well in the financial year; this has partly resulted from growth in
client numbers through our focus on attracting new clients, and the
introduction of a new greenfield practice in the South of England.

Farm Animal

Our Farm Animal division consists of 14 farm animal locations and a large
specialist poultry veterinary business, Slate Hall. During the year we have
increased fee revenue in particular, with drug revenue impacted by conscious
movement away from antibiotic usage wherever possible.

We have been able to secure our medication supply through one of our Group
companies, Pharmsure, which is a specialist wholesale and distribution company
supplying veterinary medicines for the pig and poultry industries. This has
helped our farm practices to achieve improved margins, secure prices, and be
more confident in medication supply.

International

Our International division comprises 27 practices in the Netherlands and four
practices in the Republic of Ireland. These include companion animal, equine
and farm practices.

Internationally, we have increased investment into our highly valued nurses,
to mitigate challenges in vet recruitment and help us to attract and retain
colleagues. This includes benchmarking of salaries and increased investment in
our colleagues' wellbeing.

Healthy Pet Club

As well as offering first class care to sick or injured animals, we continue
to offer preventative healthcare through our Healthy Pet Club scheme, which
offers routine flea and worming treatments and vaccinations, as well as twice
yearly health checks. These clients can spread the cost of accessing the best
preventative healthcare, allowing our clinicians to identify diseases and
recommend the best diagnostics and treatments. The scheme membership has grown
by 4.4% over the past year to around 470,000 members, representing roughly 40%
of our companion animal active client base.

MiPet products/purchasing

Our own-brand spend consistently made up c.34% of the UK practices'
pharmaceutical spending in 2022 and 2021. During the year, we have expanded
our efforts to increase purchases of our own-brand products rather than
third-party branded pharmaceuticals. This provides increased choice for our
clients and we hope this will translate to an increase in own-brand spend in
our practices.

We have continued to improve our warehouse management system, enhancing
efficiency and increasing our permanent staffing, which has enabled us to cope
with the increase in online retail order volumes as well as successfully
complying with social distancing requirements through effective use of space
and adjusted shift patterns within our warehouse.

Consumer insight survey

Our clients value the high quality of our services, and based on our August
2022 consumer insight survey(1), will preserve their spend even in the face of
economic pressures.

Based on these survey responses, we are further reassured pet spend on
veterinary care and food appears highly resilient with only 5.8% of clients
feeling they would try and reduce spend on veterinary care in the face of an
economic recession.  High quality pet healthcare continues to be of great
importance to our clients, with 52.1% of clients feeling spend on their pets
healthcare would increase over the next 2 years, whilst only 5.2% felt it
would decrease.

Spend on pet food is also considered a priority for our clients with 96.5% of
clients feeling spend on pet food would either stay the same or increase over
the next two years.

(1) In August 2022, we issued a consumer insight survey to 2,000 clients and
received a 23% response rate.

Outlook

We are optimistic that our Veterinary Practices division will continue to
deliver strong revenue growth. This optimism is driven primarily by our
continued focus on high-quality clinical care, and we are confident we can
continue to deliver significant improvements year on year. Whilst we are
mindful of inflationary pressures, we are reassured that based on the
responses to our consumer insight survey in August 2022, pet spend on
veterinary care and food appears highly resilient. Secondly, we are also in a
market of increasing humanisation of pets, with owners willing to spend more
and more on the health of their pets, with increasingly high expectations and
desire for their pets to have the same quality of care as every other member
of the family.

Our colleagues continue to be our biggest focus in our Veterinary Practices
division, as they are across the Group. In our 2022 Sustainability Report, we
introduced our target to further reduce attrition by 10% which will enable us
to bring down our vet and nurse vacancy rates, which have been relatively
steady over the past two years despite significant workforce shortages in the
industry. More broadly we expect significant improvements in supply of
veterinary surgeons into the market over the next ten years, as the number of
new graduates in the UK is set to roughly double by 2032.

 

Laboratories division

Reliable diagnostic testing supporting vets to deliver excellent clinical care

 

Our Laboratories division provides diagnostic services and in-practice desktop
analysers to both CVS and third-party practices, and employs a national
courier network to facilitate the collection and timely processing of samples
from practices across the UK. We continue to develop our capability to ensure
we can support the wider Group focus on growing diagnostic care.

Revenue has decreased 2.9% compared to the prior year which benefitted from
one-off COVID-19 testing for CVS and third parties. On an underlying basis,
adjusting for the COVID-19 PCR testing revenue in the prior year, revenue
increased 1.1% on the back of remarkable non-COVID-19 testing growth in the
prior year. Approximately 45% of our diagnostic laboratory tests are for CVS
practices, reflecting the importance of our integrated veterinary model.
Adjusting for the number of COVID-19 tests performed in 2021, the number of
diagnostic tests was broadly consistent between 2021 and 2022, with price
rises contributing to underlying revenue growth.

Outlook

The Laboratories division has remained resilient despite increasing
consolidation in the veterinary sector. By increasing the speed and range of
testing we offer in our laboratories, continuing to ensure field-leading
client service, and employing a highly skilled network of sales teams and
engineers, we are optimistic of growth in the years to come.

 

Crematoria

CVS provides compassionate service throughout a pet's life and beyond

 

Our Crematoria division provides both individual and communal cremation
services for companion animal and equine clients, as well as clinical waste
disposal services for both CVS and third-party veterinary practices.

The strong growth in the division was driven by the Direct Pet Cremation
service we introduced in the previous financial year. Putting customers
directly in contact with crematoria to make pet aftercare arrangements, and
giving them more time to consider their options, has resulted in significant
changes to customers' choices and generated improved customer care alongside
financial returns. As a result of the service, the number of individual
cremations increased by 5.5% in the year.

Outlook

We are investing in a modern new crematorium to relocate one of our existing
crematoria. The new facility will be the first pet crematorium in the UK to
incorporate temperature and oxygen control systems, which to date have only
been used in human cremators, to minimise our environmental impact by
delivering optimal combustion efficiency.

This new facility, due to complete in the 2023 financial year, alongside
continued expansion and development of the Direct Pet Cremation project, is
expected to continue to deliver revenue growth across the Crematoria division.

 

Online Retail Business

Shaking up the pet food and pharmacy sales market

 

Our online pet food and pharmacy retailer, "Animed Direct", focuses on
supplying pet food and prescription and non-prescription medication, directly
to customers. This is supported by the buying power of the Group as a whole,
which ensures the business is able to provide the best value for customers.

During the financial year, our Online Retail Business division delivered
revenue growth of 11.8% and adjusted EBITDA growth of 20.7%. We have focused
on shifting the marketing and delivery of Animed Direct from low cost to a
trusted quality retailer, which is in line with the Group's overall purpose
and strategy. This has supported in delivering revenue growth in the division
despite the reduction in unique customer numbers to 368,000 (2021: 404,000).

We have also successfully implemented a new logistics and fulfilment system to
align with our improved warehouse management processes and ensure increased
productivity and quality control.

Outlook

In the second half of the financial year, we began the design and
implementation of a new website to enhance the customer journey, expected to
launch in the 2023 financial year. Our improved website and warehouse systems
will enable us to increase capacity, delivering future growth in online sales,
generating revenue growth and improving customer satisfaction.

Head Office

Central administration costs include those of the central finance, IT, human
resources, purchasing, legal and property functions. Total costs were £16.6m
(2021: £15.7m), representing 3.0% of revenue (2021: 3.1%). The increased
spend primarily relates to salary costs for new roles to support the continued
growth of the Group and delivery of our strategy; for example, by investing in
our human resources team, we are able to implement more initiatives to help
reduce clinical role attrition.

As a percentage of revenue, the spend on support functions has remained
broadly flat. The Group continues to base support colleagues in regions where
possible, so they can easily provide the close support that the operations
teams require.

Ben Jacklin

Chief Operating Officer

22 September 2022

 

Financial review

 

Well positioned for continued growth despite the more uncertain macro-economic
environment

 

Financial highlights

The Group has continued to deliver against its strategy, with strong
performance in both revenue and adjusted EBITDA.

Key financial highlights are shown below:

                                    2022   2021   Change

                                                  %
 Revenue (£m)                       554.2  510.1  8.6%
 Adjusted EBITDA (£m)*              107.4  97.5   10.2%
 Adjusted profit before tax (£m)*   75.5   66.2   14.0%
 Adjusted earnings per share (p)*   85.8   75.1   14.2%
 Operating profit (£m)              42.8   40.1   6.7%
 Profit before tax (£m)             36.0   33.1   8.8%
 Basic earnings per share (p)       36.2   27.3   32.6%

*       Adjusted financial measures (adjusted EBITDA, adjusted profit
before tax and adjusted earnings per share) are defined in the financial
statements, and reconciled to the financial measures defined by International
Financial Reporting Standards (IFRS) on pages 114 and 132 of the Group's FY22
Annual Report. Management uses adjusted EBITDA and adjusted earnings per share
("adjusted EPS") as the basis for assessing the financial performance of the
Group. These figures exclude costs relating to business combinations and
exceptional items and hence assist in understanding the performance of the
Group. These terms are not defined by IFRS and therefore may not be directly
comparable with other companies' adjusted profit measures.

 

A reconciliation of the difference between the reported operating profit
figure and adjusted EBITDA is shown below:

                                                                 2022    2021

                                                                 £m      £m
 Operating profit                                                42.8    40.1
 Adjustments for:
 Amortisation, depreciation, impairment1 and profit on disposal  47.3    48.1
 Costs relating to business combinations                         4.9     9.3
 Exceptional items(2)                                             12.4   -
 Adjusted EBITDA                                                 107.4   97.5

1.      Impairment of non-current assets, except for impairment of the
investment in Quality Pet Care Ltd in 2022.

2.      Impairment of the investment in Quality Pet Care Ltd in 2022 is
included in exceptional items.

 

Financial performance

Revenue increased by 8.6% to £554.2m from £510.1m, with strong like-for-like
growth of 8.0%. The Group continues to benefit from favourable market trends
such as the sustained increase in pet population and the demand for and
ability to deliver quality clinical intervention. The focus of delivery
against our strategy has underpinned revenue growth and we have seen a 6.0%
increase in the average number of vets we employ and a 4.4% increase in our
Healthy Pet Club membership, to 470,000. This performance was particularly
pleasing given the ongoing operational challenges associated with COVID-19.

We continue to see an opportunity to grow like-for-like sales and have
increased our development capital expenditure to £13.7m from £8.4m to
support ongoing expansion opportunities including refurbishments and
relocations. We also see an opportunity to open Greenfield sites with three
planned over the next twelve months.

Adjusted EBITDA increased by 10.2%, to £107.4m from £97.5m. Adjusted EBITDA
margin increased to 19.4% from 19.1%, benefitting from operating leverage and
strong revenue growth. Adjusted EBITDA also included £2.0m from another year
of Research and Development Expenditure Tax Credits, which is the Group's
second claim under this scheme.

During the year an impairment of £12.4m was recognised as an exceptional
item, outside of adjusted EBITDA, following the Competition and Markets
Authority's (CMA) investigation into the acquisition of Quality Pet Care Ltd
and the subsequent divestment. This followed the CMA's conclusion that there
was a potential substantial lessening of competition in a number of the sites
acquired.

Since the conclusion of the investigation, three acquisitions have been
completed for an investment totalling £8.4m (net of cash acquired),
contributing during the period aggregate revenue of £0.5m and adjusted EBITDA
of £0.1m. The pipeline of acquisitions remains strong and we continue to see
opportunities for further investment in the future both in the UK, where there
is now a clear framework to follow, and also in other territories.

We continue to closely monitor macro-economic trends including the impact of
rising inflation. We believe that the Group is well placed to deliver
continued growth from our integrated model, strong balance sheet and available
investment opportunities.

Adjusted profit before tax increased by 14.0%, to £75.5m from £66.2m, in
line with the increase in adjusted EBITDA. Adjusted EPS correspondingly
increased by 14.2%, to 85.8p from 75.1p. Adjusted profit before tax and
adjusted EPS exclude the impact of amortisation of intangible assets, costs
relating to business combinations and exceptional items.

Profit before tax increased by 8.8%, to £36.0m from £33.1m, benefitting from
an increase in adjusted EBITDA, a reduction in costs relating to business
combinations, which includes business combinations costs in respect of prior
periods, partially offset by the impairment in relation to Quality Pet Care
Ltd (further information available in note 6). Basic EPS increased by 32.6%,
to 36.2p from 27.3p.

Taxation

The total tax expense has reduced by £3.5m to £10.3m from £13.8m, primarily
due to the prior year having included a one-off £4.3m expense in respect of
the re-measurement of deferred tax balances following the substantive
enactment of the increase in the UK corporation tax rate to 25.0% from April
2023. This was partially offset by a £2.3m capital loss, in relation to the
divestment of Quality Pet Care Ltd, which could not be utilised in the current
year. A deferred tax asset has not been recognised in respect of this loss as
presently it is not probable that the Group will utilise this loss in future
periods.

The Group's effective tax rate was 28.6% (2021: 41.7%). A reconciliation of
the expected tax charge, at the standard rate, to the actual charge is shown
below:

                                                                              £m     % *
 Profit before tax                                                            36.0
 Expected tax at UK standard rate of tax                                      6.8    19.0%
 Loss on disposal of non-qualifying assets                                    2.3    6.4%
 Expenses not deductible for tax purposes                                     1.2    3.3%
 Adjustments to previous year tax charge                                      (0.4)  (1.1%)
 Impact of unrecognised losses                                                0.2    0.5%
 Effect of difference between closing deferred tax rate and current tax rate  0.2     0.5%
 Actual charge/effective rate of tax                                          10.3   28.6%

 

*       Percentage of profit before tax.

 

All of the Group's revenues and the majority of its expenses are subject to
corporation tax. The main expenses that are not deductible for tax purposes
are costs relating to acquisitions, amortisation and depreciation of property,
plant and equipment that do not qualify for tax relief. Tax relief for some
expenditure, mainly property, plant and equipment, is received over a longer
period than that for which the costs are charged in the financial statements.

Financial position

                                2022     2021

                                £m       £m
 Intangible assets              216.5    228.4
 Property, plant and equipment  69.7     57.4
 Right-of-use assets            101.7    97.2
 Other non-current assets       2.4      0.1
 Current assets                 127.9    101.4
 Current liabilities            (101.4)  (98.5)
 Non-current liabilities        (199.4)  (194.9)
 Equity                         217.4    191.1

 

As at 30 June 2022, intangible assets amount to £216.5m (2021: £228.4m),
consisting of goodwill, patient data records and computer software. The net
reduction of £11.9m primarily relates to amortisation in the year of £22.2m
(2021: £23.8m), offset by additions through business combinations of £8.8m
(2021: £22.9m). The Group maintains significant headroom between the
value-in-use of the group's cash generating units (CGU's) and the carrying
amount of the associated assets, resulting in no impairment noted.

Property, plant and equipment of £69.7m (2021: £57.4m) includes freehold
land and buildings, leasehold improvements, fixtures fittings and equipment
and motor vehicles. The net increase of £12.3m primarily relates to additions
(including those arising via business combinations) of £23.7m (2021:
£16.7m), reflecting our continuing commitment to investing in our facilities,
offset by depreciation of £11.3m (2021: £10.3m).

Right-of-use assets of £101.7m (2021: £97.2m) consists of property leases
for our veterinary practices, specialist referral centres and support offices
and short term leases for vehicles and equipment. The net increase in the year
of £4.5m primarily relates to additions (including those via business
combinations) and re-measurement of lease terms of £19.6m (2021: £15.4m),
partially offset by depreciation and impairment charge in the year of £14.1m
(2021: £14.0m) and net disposals of £1.0m (2021: £1.7m).

Other non-current assets of £2.4m (2021: £0.1m) primarily relates to a cash
flow hedge of £2.3m (2021: liability of £0.4m).

Current assets of £127.9m (2021: £101.4m) comprises inventories of £26.2m
(2021: £19.5m), trade and other receivables of £52.7m (2021: £48.1m) and
cash and cash equivalents of £49.0m (2021: £33.7m). The net increase of
£26.5m mainly relates to increased inventories in line with growth in overall
revenues and increased cash and cash equivalents arising from strong operating
cash flows.

Current liabilities of £101.4m (2021: £98.5m) comprise trade and other
payables of £86.6m (2021: £86.0m), provisions of £2.1m (2021: £3.9m),
lease liabilities of £9.4m (2021: £8.6m), current tax liabilities of £3.3m
(2021: asset of £0.1m). The net increase of £2.9m mainly relates to the
increase in liability for corporation tax.

Non-current liabilities of £199.4m (2021: £194.9m) includes borrowings of
£84.3m (2021: £83.9m), lease liabilities of £95.1m (2021: £90.2m), and
deferred tax liabilities of £20.0m (2021: £20.4m). See below for further
details regarding the Group's borrowings.

Equity of £217.4m (2021: £191.1m) increased by £26.3m as a result of total
comprehensive income of £27.6m (2021: £19.0m), new shares issued and shares
disposed from the Employee Benefit Trust (EBT) of £2.3m (2021: £1.5m) to
settle obligations under the Group's Save As You Earn (SAYE) scheme, and
transactions in relation to share-based payments and associated deferred tax
of £1.0m (2021: £4.0m). A dividend payment of £4.6m was paid in 2022 (2021:
£nil).

Cash flow and movement in net debt

Net debt decreased by £14.9m to £35.3m from £50.2m. The movement in net
debt is explained as follows:

                                                              2022    2021

                                                              £m      £m
 Cash generated from operations                               93.1    80.3
 Capital expenditure - maintenance                            (10.8)  (8.2)
 Repayment of lease liability                                 (12.7)  (13.0)
 Taxation paid                                                (11.2)  (13.0)
 Interest paid                                                (6.4)   (7.1)
 Free cash flow                                               52.0    39.0
 Capital expenditure - development                            (13.7)  (8.4)
 Business combinations (net of cash acquired)                 (8.4)   (19.4)
 Loans and borrowings acquired through business combinations  (0.1)   (1.0)
 Exceptional items                                            (12.4)  -
 Dividends paid                                               (4.6)    -
 Sale of property, plant and equipment                        0.2     0.6
 Proceeds from Ordinary shares                                2.3     1.2
 Proceeds from Treasury shares                                -       0.3
 Amortisation of debt issuance costs                          (0.4)   (0.4)
 Decrease in net debt                                         14.9    11.9

 

The Group remains highly cash generative and de-levers quickly
post-investment. Cash generated from operations increased by 15.9% to £93.1m
from £80.3m benefitting from increased adjusted EBITDA and a reduction
contingent consideration payments in respect of acquisition from prior years,
partially offset by an increase in inventory. Working capital was also
adversely impacted in the year by the commutation of a portion of clinical
colleagues' bonus payments to salary in July 2021.

The analysis of capital expenditure between maintenance and development in the
table above reflects a broad split between expenditure which we believe will
primarily maintain profit, and that which we expect to increase profit.
Development capital expenditure includes new sites, relocations, significant
extensions and significant new equipment. All other capital expenditure is
included as maintenance; maintenance capital expenditure remains less than
2.0% of revenue.

Repayment of lease liabilities of £12.7m (2021: £13.0m) are in respect of
property leases for our veterinary practices, specialist referral centres and
support offices and short-term leases for vehicles and equipment.

No corporation tax relief is received on the majority of the amortisation and
transaction costs which are deducted in arriving at the unadjusted profit
before tax figure. Therefore, the tax liability moves broadly in line with the
adjusted profit before tax of the Group.

The decrease in tax paid in the year is predominantly as a result of an
increase in capital allowances and increase in the year-end corporation tax
liability.

Interest payments of £6.4m were lower than the prior year of £7.1m,
reflecting the Group's maintenance of low levels of net debt during the
financial year. During the year, the Group transitioned its interest benchmark
rate in relation to its loan facility from LIBOR to SONIA.

Cash available for discretionary expenditure ("free cash flow") increased to
£52.0m from £39.0m, primarily as a result of increased adjusted EBITDA.

Development capital expenditure increased in the year to £13.7m, from £8.4m,
to support ongoing expansion opportunities, including a number of relocations
and renovations. We continue to see opportunities to grow organic revenue and
therefore expect development capital expenditure to increase over the next few
years.

For business combinations (net of cash acquired) acquired during the financial
year, £8.0m (2021: £19.4m) was paid for three practices (four practice
sites), with an additional £0.4m liability on the balance sheet. A further
£0.4m (2021: £nil) was paid in relation to prior year acquisitions. In
addition, £0.1m (2021: £1.0m) was paid to settle loans transferred as part
of the business combinations.

On 19 August 2021, the Group acquired 100% of the share capital of Quality Pet
Care Ltd, an eight site companion animal practice spread across the UK, for
total consideration of £20.4m, including repayment of loans of £3.4m. On 22
September 2021, the CMA served an initial enforcement order in respect of this
acquisition and during the period a further £1.0m loan was provided for
working capital. On 30 June 2022, the entire shareholding was divested for
proceeds of £9.0m, resulting in an impairment of £12.4m, which has been
recognised as an exceptional item.

A dividend of £4.6m was paid in the year (2021: £nil) reflecting the final
dividend for the prior year of 6.5p per share.

Sale of property, plant and equipment of £0.2m (2021: £0.6m) primarily
related to the sale of motor vehicles.

Proceeds from the sale of Ordinary and Treasury shares of £2.3m (2021:
£1.5m) arose on the exercise of options under the Group's approved SAYE
scheme, which allows colleagues to save regular amounts each month over a
three-year period and benefit from increases in the Group's share price over
that time.

Amortisation of debt issuance costs of £0.4m (2021: £0.4m) were in line with
our policy.

Net debt and borrowing costs

The Group's net debt comprises the following:

                                                 2022    2021

                                                 £m      £m
 Borrowings repayable after more than one year:
      Loan facility                              85.0    85.0
      Unamortised borrowing costs                (0.7)   (1.1)
 Total borrowings                                84.3    83.9
 Cash and cash equivalents                       (49.0)  (33.7)
 Net debt                                        35.3    50.2

 

The Group has total facilities of £175.0m to 31 January 2024, provided by a
syndicate of four banks: NatWest, HSBC, BOI and AIB, and comprising the
following elements:

•    a fixed term loan of £85.0m, repayable on 31 January 2024 via a
single bullet repayment;

•    a four-year Revolving Credit Facility (RCF) of £85.0m, that runs to
31 January 2024;

•    an envisaged, but not committed, accordion facility of up to
£100.0m, that runs to 31 January 2024; and

•    a £5.0m overdraft facility, renewable annually.

The two financial covenants associated with these facilities, described below,
remain unchanged and will continue to be calculated based on the Group's
accounting policies applicable at 30 June 2019 for the duration of the
facilities, i.e. pre-IFRS 16.

At the year-end, the total borrowings principally consist of:

•    the £85.0m term loan (gross of unamortised issue costs) (2021:
£85.0m); and

•    £nil drawn down under the RCF (gross of unamortised issue costs)
(2021: £nil).

The two financial covenants associated with the Group's bank facilities are
based on the ratios of bank test EBITDA to interest and bank test net debt to
bank test EBITDA. Bank test EBITDA is based on adjusted EBITDA, annualised for
the effect of acquisitions, including costs relating to business combinations
and excluding share option costs, prior to the adoption of IFRS 16. The bank
test EBITDA to interest ratio must not be less than 4.5x. At 30 June 2022 it
was 41.00x (2021: 24.97x).

The covenants allow a maximum net debt to bank test EBITDA ratio ("gearing")
of 3.25x, although it is not the Group's intention to operate at this level.
The gearing ratio decreased during the year, to 0.40x at 30 June 2022 from
0.68x at 30 June 2021. This decrease in ratio reflects both the decrease in
net debt and increase in EBITDA.

The Group manages its banking arrangements centrally. Funds are swept daily
from its various bank accounts into central bank accounts to optimise the
Group's net interest payable position.

Interest rate risk is also managed centrally and derivative instruments are
used to mitigate this risk. On 28 February 2020, the Group entered into two
four-year fixed interest rate swap arrangements to hedge fluctuations in
interest rates on £70.0m of its term loan facility. During the year, the loan
facility and two hedge arrangements were transitioned from LIBOR to SONIA
benchmark rate, further information can be found in note 17 in the Group's
FY22 Annual Report.

Going concern and viability

At the year end, the Group had cash and cash equivalents of £49.0m, a drawn
term loan of £85.0m, an unutilised revolving credit facility of £85.0m and
an unutilised overdraft facility of £5.0m. The Group are fully compliant with
all covenants in respect of these facilities.

The Directors consider that the £5.0m overdraft and the £170.0m of debt
facilities will be sufficient to enable the Group to meet all liabilities when
they fall due. The Group are not reliant on any Government support. Since the
year end, the Group has continued to trade profitably and to generate cash.

After consideration of market conditions, the Group's financial position
(including the level of headroom available within the bank facilities),
financial forecasts for the next 12 months, its profile of cash generation and
the timing and amount of bank borrowings repayable, and principal risks, the
Directors have a reasonable expectation that both the Company and the Group
will be able to continue in operation and meet our liabilities as they fall
due over the period. For this reason, the going concern basis continues to be
adopted in preparing the financial statements.

More information on the Group's viability statement can be found on pages 95
and 96 of the Group's FY22 Annual Report.

Share price performance

At the year end the Company's market capitalisation was £1.2bn (1,656p per
share), compared to £1.7bn (2,415p per share) at the previous year end.

Forward-looking arrangements

Certain statements and arrangements described in the results release are
forward-looking. Although the Board is comfortable that the expectations
reflected in these forward-looking statements are reasonable, it can give no
assurance that these expectations will prove to be correct. Because these
statements involve risks and uncertainties, actual results may differ
materially from those expressed or implied by these forward-looking
statements.

Robin Alfonso

Chief Financial Officer

22 September 2022

 

The Group's principal risks and uncertainties are available on pages 60 to 68
of the Group's FY22 Annual Report and the Group's key performance indicators
are available on pages 28 to 31 of the Group's FY22 Annual Report.

 

Consolidated income statement

for the year ended 30 June 2022

 

                                    Note  2022     2021

                                          £m       £m
 Revenue                            2     554.2    510.1
 Cost of sales                            (315.1)  (288.2)
 Gross profit                             239.1    221.9
 Administrative expenses                  (196.3)  (181.8)
 Operating profit                         42.8     40.1
 Finance expense                          (6.8)    (7.0)
 Profit before tax                  2     36.0     33.1
 Tax expense                        3     (10.3)   (13.8)
 Profit for the year                      25.7     19.3
 Earnings per Ordinary share (EPS)
 Basic                              4     36.2p    27.3p
 Diluted                            4     35.9p    27.1p

 

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  2022   2021

                                                                                       £m     £m
 Profit before income tax                                                              36.0   33.1
 Adjustments for:
  Finance expense                                                                      6.8    7.0
  Amortisation of intangible assets                                                    22.2   23.8
  Depreciation of property, plant and equipment                                        11.3   10.3
  Profit on disposal of property, plant and equipment and right-of-use assets          (0.3)  -
  Depreciation and impairment of right-of-use assets                                   14.1   14.0
  Costs relating to business combinations1                                       2     4.9    9.3
  Exceptional items2                                                             6     12.4   -
 Adjusted EBITDA                                                                 2     107.4  97.5
 Adjusted earnings per share (EPS):
 Adjusted EPS                                                                    4     85.8p  75.1p
 Diluted adjusted EPS                                                            4     85.0p  74.6p

 

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

2.       Exceptional items relate to impairment in relation to Quality
Pet Care Ltd, refer to note 6.

 

Consolidated statement of comprehensive income

for the year ended 30 June 2022

 

                                                                                    2022   2021

                                                                                    £m     £m
 Profit for the year                                                                25.7   19.3
 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                                                   2.8    0.9
  Cost of hedging reserve                                                           (0.1)  (0.4)
 Deferred tax on cash flow hedge and available-for-sale financial assets            (0.7)  (0.1)
 Exchange differences on translation of foreign operations                          (0.1)  (0.7)
 Other comprehensive income/(expense) for the year, net of tax                      1.9    (0.3)
 Total comprehensive income for the year attributable to owners of the parent       27.6   19.0

 

Consolidated statement of financial position

as at 30 June 2022

 

                                     Note           2021

                                           2022     £m

                                           £m
 Non-current assets
 Intangible assets                         216.5    228.4
 Property, plant and equipment             69.7     57.4
 Right-of-use assets                       101.7    97.2
 Investments                               0.1      0.1
 Amounts owed by Group undertakings        -        -
 Derivative financial instruments          2.3      -
                                           390.3    383.1
 Current assets
 Inventories                               26.2     19.5
 Trade and other receivables               52.7     48.1
 Current tax receivable                    -        0.1
 Cash and cash equivalents                 49.0     33.7
                                           127.9    101.4
 Total assets                        2     518.2    484.5
 Current liabilities
 Trade and other payables                  (86.6)   (86.0)
 Provisions                                (2.1)    (3.9)
 Lease liabilities                         (9.4)    (8.6)
 Current tax liabilities                   (3.3)    -
                                           (101.4)  (98.5)
 Non-current liabilities
 Borrowings                          7     (84.3)   (83.9)
 Lease liabilities                         (95.1)   (90.2)
 Derivative financial instruments          -        (0.4)
 Deferred tax liabilities                  (20.0)   (20.4)
                                           (199.4)  (194.9)
 Total liabilities                   2     (300.8)  (293.4)
 Net assets                                217.4    191.1
 Shareholders' equity
 Share capital                             0.1      0.1
 Share premium                             105.4    103.1
 Capital redemption reserve                0.6      0.6
 Cash flow hedge reserve                   1.6      (0.5)
 Cost of hedging reserve                   -        0.1
 Merger reserve                            (61.4)   (61.4)
 Retained earnings                         171.1    149.1
 Total equity                              217.4    191.1

 

The financial information comprising the consolidated income statement, the
statement of consolidated comprehensive income, the consolidated balance
sheet, the consolidated statement of changes in shareholders' equity, the
consolidated cash flow statement and related notes, were authorised for issue
by the Board of Directors on 22 September 2022 and were signed on its behalf
by:

Richard Fairman                     Robin Alfonso

Director
Director

 

Consolidated statement of changes in equity

for the year ended 30 June 2022

 

                                                                              Share capital  Share premium  Capital redemption  Treasury  Cash flow   Cost of   Merger reserve  Retained earnings  Total

                                                                              £m             £m             reserve             reserve   hedge       hedging   £m              £m                 equity

                                                                                                            £m                  £m         reserve    reserve                                      £m

                                                                                                                                          £m          £m
 At 1 July 2021                                                               0.1            103.1          0.6                 -         (0.5)       0.1       (61.4)          149.1              191.1
 Profit for the year                                                          -              -              -                   -         -           -         -               25.7               25.7
 Other comprehensive income and losses
 Cash flow hedges:
  Fair value income/(loss)                                                    -              -              -                   -         2.8         (0.1)     -               -                  2.7
 Deferred tax on cash flow hedge and available-for-sale financial assets      -              -              -                   -         (0.7)       -         -               -                  (0.7)
 Exchange differences on translation of foreign operations                    -              -              -                   -         -           -         -               (0.1)              (0.1)
 Total other comprehensive income/(loss)                                      -              -              -                   -         2.1         (0.1)     -               (0.1)              1.9
 Total comprehensive income/(loss)                                            -              -              -                   -         2.1         (0.1)     -               25.6               27.6
 Transactions with owners
 Issue of Ordinary shares                                                     -              2.3            -                   -         -           -         -               -                  2.3
 Credit to reserves for share-based payments                                  -              -              -                   -         -           -         -               2.3                2.3
 Deferred tax relating to share-based payments                                -              -              -                   -         -           -         -               (1.3)              (1.3)
 Dividends to equity holders of the Company                                   -              -              -                   -         -           -         -               (4.6)              (4.6)
 Total transactions with owners                                               -              2.3            -                   -         -           -         -               (3.6)              (1.3)
 At 30 June 2022                                                              0.1            105.4          0.6                 -         1.6         -         (61.4)          171.1              217.4

 

                                                                              Share capital  Share premium  Capital redemption  Treasury  Cash flow   Cost of   Merger reserve  Retained earnings  Total

                                                                              £m             £m             reserve             reserve   hedge       hedging   £m              £m                 equity

                                                                                                            £m                  £m         reserve    reserve                                      £m

                                                                                                                                          £m          £m
 At 1 July 2020                                                               0.1            101.9          0.6                 (0.3)     (1.4)       0.5       (61.4)          126.6              166.6
 Profit for the year                                                          -              -              -                   -         -           -         -               19.3               19.3
 Other comprehensive income and losses
 Cash flow hedges:
  Fair value income/(loss)                                                    -              -              -                   -         0.9         (0.4)     -               -                  0.5
 Deferred tax on cash flow hedge and available-for-sale financial assets      -              -              -                   -         -           -         -               (0.1)              (0.1)
 Exchange differences on translation of foreign operations                    -              -              -                   -         -           -         -               (0.7)              (0.7)
 Total other comprehensive                                                    -              -              -                   -         0.9         (0.4)     -               (0.8)              (0.3)

(loss)/income
 Total comprehensive income/(loss)                                            -              -              -                   -         0.9         (0.4)     -               18.5               19.0
 Transactions with owners
 Issue of Ordinary shares                                                     -              1.2            -                   -         -           -         -               -                  1.2
 Disposal of treasury reserve                                                 -              -              -                   0.3       -           -         -               -                  0.3
 Credit to reserves for share-based payments                                  -              -              -                   -         -           -         -               2.2                2.2
 Deferred tax relating to share-based payments                                -              -              -                   -         -           -         -               1.8                1.8
 Total transactions with owners                                               -              1.2            -                   0.3       -           -         -               4.0                5.5
 At 30 June 2021                                                              0.1            103.1          0.6                 -         (0.5)       0.1       (61.4)          149.1              191.1

 

 

Consolidated statement of cash flow

for the year ended 30 June 2022

 

                                                         Note

                                                               2022    2021

                                                               £m      £m
 Cash flows from operating activities
 Cash generated from operations                          9     93.1    80.3
 Taxation paid                                                 (11.2)  (13.0)
 Interest paid                                                 (6.4)   (7.1)
 Net cash generated from operating activities                  75.5    60.2
 Cash flows from investing activities
 Business combinations (net of cash acquired)            5     (8.4)   (19.4)
 Purchase of property, plant and equipment                     (23.0)  (16.1)
 Proceeds from sale of property, plant and equipment           0.2     0.6
 Purchase of intangible assets                                 (1.5)   (0.5)
 Purchase of other investments                           6     (21.4)  -
 Proceeds from sale of other investments                 6     9.0     -
 Net cash used in investing activities                         (45.1)  (35.4)
 Cash flows from financing activities
 Dividends paid                                          8     (4.6)   -
 Proceeds from issue of Ordinary shares                        2.3     1.2
 Proceeds from sale of Treasury shares                         -       0.3
 Repayment of obligations under right-of-use assets            (12.7)  (13.0)
 Repayment of borrowings                                       (0.1)   (1.1)
 Net cash used in financing activities                         (15.1)  (12.6)
 Net increase in cash and cash equivalents                     15.3    12.2
 Cash and cash equivalents at the beginning of the year        33.7    21.5
 Cash and cash equivalents at the end of the year              49.0    33.7

 

Notes to the consolidated financial statements

for the year ended 30 June 2022

 

1. General information

The principal activity of CVS Group plc, together with its subsidiaries ("the
Group"), is to operate veterinary practices, complementary veterinary
diagnostic businesses, pet crematoria and an online pharmacy and retail
business. The principal activity of CVS Group plc ("the Company") is that of a
holding company.

CVS Group plc is a public limited company incorporated under the Companies Act
2006 and domiciled in England and Wales and its shares are quoted on AIM of
the London Stock Exchange ("CVSG"). Its company registration number is
06312831 and registered office is CVS House, Owen Road, Diss, IP22 4ER.

Statement under s498 - publication of non-statutory accounts

The financial information set out in this preliminary announcement does not
constitute statutory financial statements for the years ended 30 June 2022 or
2021, for the purpose of the Companies Act 2006, but is derived from those
financial statements. Statutory financial statements for 2022, on which the
Group's auditors have given an unqualified report which does not contain
statements under Section 498(2) or (3) of the Companies Act 2006, will be
filed with the Registrar of Companies subsequent to the Group's next annual
general meeting. Statutory financial statements for 2021 have been filed with
the Registrar of Companies. The Group's auditors have reported on those
accounts; their reports were unqualified and did not contain statements under
Section 498(2) or (3) of the Companies Act 2006.

Basis of preparation

The consolidated and Company financial statements of CVS Group plc have been
prepared in accordance international accounting standards and in conformity
with the requirements of the Companies Act 2006. The consolidated financial
statements have been prepared on a going concern basis and under the
historical cost convention, except for certain financial instruments and
share-based payments that have been measured at fair value.

After making enquiries, the Directors have a reasonable expectation that the
Group has adequate resources to continue in operational existence for the
foreseeable future. For this reason, they continue to adopt the going concern
basis in preparing the FY22 financial statements. Further details are provided
in the Directors' Report of the Group's FY22 Annual Report.

The accounting policies set out in the FY22 Annual Report have, unless
otherwise stated, been applied consistently to all years presented in the
financial statements.

Use of alternative performance measures

Adjusted EBITDA (Earnings Before Interest, Tax, Depreciation and
Amortisation), adjusted profit before tax (adjusted PBT) and adjusted earnings
per share (adjusted EPS)

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 International Financial Reporting
Standards (IFRS) and therefore may not be directly comparable with other
companies' adjusted measures. They are not intended to be a substitute for, or
superior to, IFRS measurements of profit or earnings per share.

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.

Adjusted PBT is calculated as profit before tax, amortisation, costs relating
to business combinations and exceptional items.

Adjusted EPS is calculated as adjusted profit before tax, less applicable tax,
divided by the weighted average number of Ordinary shares in issue in the
period.

The following table provides the calculation of adjusted EBITDA as defined
above:

 Alternative performance measure: adjusted EBITDA                                Note  2022   2021

                                                                                       £m     £m
 Profit before income tax                                                              36.0   33.1
 Adjustments for:
  Finance expense                                                                      6.8    7.0
  Amortisation of intangible assets                                                    22.2   23.8
  Depreciation of property, plant and equipment                                        11.3   10.3
  Profit on disposal of property, plant and equipment and right-of-use assets          (0.3)  -
  Depreciation and impairment of right-of-use assets                                   14.1   14.0
  Costs relating to business combinations1                                       2     4.9    9.3
  Exceptional items2                                                             6     12.4   -
 Adjusted EBITDA                                                                 2     107.4  97.5
 Adjusted earnings per share (EPS):
 Adjusted EPS (pence)                                                            4     85.8   75.1
 Diluted adjusted EPS (pence)                                                    4     85.0   74.6

 

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

2.      Exceptional items relate to impairment in relation to Quality Pet
Care Ltd, refer to note 6.

 

The reconciliations for adjusted PBT and adjusted EPS can be found in note 4.

Net debt

Net debt is calculated as bank borrowings less gross cash and cash equivalents
and unamortised borrowing costs.

                                                Note  2022    2021

                                                      £m      £m
 Borrowings repayable after more than one year
  Loan facility                                       85.0    85.0
  Unamortised borrowing costs                         (0.7)   (1.1)
 Total borrowings                               7     84.3    83.9
 Cash and cash equivalents                            (49.0)  (33.7)
 Net debt                                             35.3    50.2

 

Like-for-like sales

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 2020, revenue is included from
September 2021 in the like-for-like calculations.

2. Segment reporting

Segment information is presented in respect of the Group's business and
geographical segments. The primary format, operating segments, is based on the
Group's management and internal reporting structure and monitored by the
Group's CODM.

Segment results, assets and liabilities include items directly attributable to
a segment as well as those that can be allocated on a reasonable basis.
Unallocated items comprise mainly interest-bearing borrowings and associated
costs, tax-related assets and liabilities, costs relating to business
combinations, and Head Office salary and premises costs.

Revenue comprises £398.1m of fees and £156.1m of goods (2021: £359.3m and
£150.8m respectively).

Operating segments

The Group is split into four operating segments (Veterinary Practices,
Laboratories, Crematoria and Online Retail Business) and a centralised support
function (Head Office) for business segment analysis. In identifying these
operating segments, management generally follows the Group's service lines
representing its main products and services.

Each of these operating segments is managed separately as each segment
requires different specialisms, marketing approaches and resources.
Intra-group sales eliminations are included within the Head Office segment.
Head Office includes costs relating to the employees, property and other
overhead costs associated with the centralised support function together with
finance costs arising on the Group's borrowings.

 Year ended 30 June 2022                                                      Veterinary  Laboratories  Crematoria  Online Retail  Head Office  Group

                                                                              Practices   £m            £m          Business       £m           £m

                                                                              £m                                    £m
 Revenue                                                                      492.1       27.2          9.5         46.6           (21.2)       554.2
 Adjusted EBITDA                                                              108.8       8.3           3.4         3.5            (16.6)       107.4
 Profit/(loss) before tax                                                     64.8        7.6           2.9         3.4            (42.7)       36.0
 Total assets                                                                 426.0       38.6          20.1        27.9           5.6          518.2
 Total liabilities                                                            (170.6)     (5.1)         (2.2)       (18.6)         (104.3)      (300.8)
 Reconciliation of adjusted EBITDA
 Profit/(loss) before tax                                                     64.8        7.6           2.9         3.4            (42.7)       36.0
 Finance expense                                                              4.1         -             -           -              2.7          6.8
 Depreciation of property, plant and equipment                                9.9         0.6           0.5         -              0.3          11.3
 Depreciation of right-of-use assets                                          13.7        0.1           -           -              0.3          14.1
 Profit on disposal of property, plant and equipment and right-of-use assets  (0.3)       -             -           -              -            (0.3)
 Amortisation of intangible assets                                            14.6        -             -           0.1            7.5          22.2
 Costs relating to business combinations                                      2.0         -             -           -              2.9          4.9
 Exceptional items                                                            -           -             -           -              12.4         12.4
 Adjusted EBITDA                                                              108.8       8.3           3.4         3.5            (16.6)       107.4

 

 Year ended 30 June 2021                             Veterinary  Laboratories  Crematoria  Online Retail  Head Office  Group

                                                     Practices   £m            £m          Business       £m           £m

                                                     £m                                    £m
 Revenue                                             453.4       28.0          8.0         41.7           (21.0)       510.1
 Adjusted EBITDA                                     98.4        9.1           2.8         2.9            (15.7)       97.5
 Profit/(loss) before tax                            49.5        8.4           2.4         2.7            (29.9)       33.1
 Total assets                                        422.4       32.7          16.9        10.9           1.6          484.5
 Total liabilities                                   (179.8)     (4.0)         (1.4)       (3.4)          (104.8)      (293.4)
 Reconciliation of adjusted EBITDA
 Profit/(loss) before tax                            49.5        8.4           2.4         2.7            (29.9)       33.1
 Finance expense                                     4.1         -             -           -              2.9          7.0
 Depreciation of property, plant and equipment       9.0         0.6           0.4         -              0.3          10.3
 Depreciation and impairment of right-of-use assets  13.7        0.1           -           -              0.2          14.0
 Amortisation of intangible assets                   14.0        -             -           0.2            9.6          23.8
 Costs relating to business combinations             8.1         -             -           -              1.2          9.3
 Adjusted EBITDA                                     98.4        9.1           2.8         2.9            (15.7)       97.5

 

Geographical segments

The business operates predominantly in the UK. As at 30 June 2022, it has 27
veterinary practices in the Netherlands and four in the Republic of Ireland.
It performs a small amount of laboratory work and teleradiology work for
Europe-based clients and a small amount of teleradiology work for clients
based in the rest of the world. In accordance with IFRS 8, 'Operating
Segments', no segment results are presented for trade with clients in Europe
or the rest of the world as these are not reported separately for management
reporting purposes and are not considered material for separate disclosure.

3. Tax expense

a) Analysis of tax expense recognised in the income statement

                                                                2022   2021

                                                                £m     £m
 Current tax
 Current tax on profits for the year                            13.1   12.9
 Adjustments in respect of previous years                       -      1.3
 Total current tax charge                                       13.1   14.2
 Deferred tax
 Origination and reversal of temporary differences              (2.4)  (5.0)
 Adjustments in respect of previous years                       (0.4)  0.3
 Effect of tax rate change on opening deferred tax balance      -      4.3
 Total deferred tax credit                                      (2.8)  (0.4)
 Total tax expense                                              10.3   13.8

 

b) Reconciliation of effective tax charge

The total tax expense for the year differs from the theoretical amount that
would arise using the standard rate of UK corporation tax of 19.0% (2021:
19.0%) as follows:

                                                                                 2022   2021

                                                                                 £m     £m
 Profit before tax                                                               36.0   33.1
 Effective tax charge at 19.0% (2021: 19.0%)                                     6.8    6.3
 Effects of:
  Expenses not deductible for tax purposes                                       1.2    2.4
  Loss on disposal of non-qualifying assets                                      2.3    -
  Tax rate change on opening deferred tax balances                               -      4.3
  Adjustments to deferred tax charge in respect of previous years                (0.4)  0.3
  Adjustments to current tax charge in respect of previous years                 -      1.3
  Current year tax losses not recognised/(utilisation of brought forward         0.2    (0.1)
 losses previously unrecognised)
  Effect of difference between closing deferred tax rate and current tax rate    0.2    (0.7)
 Total tax expense                                                               10.3   13.8

 

Factors affecting the current tax charge

UK corporation tax is calculated at 19.0% (2021: 19.0%) of the estimated
assessable profit for the year. Tax for other jurisdictions is calculated at
the rates prevailing in the respective jurisdictions.

The effective tax rate on reported profits is 28.6% (2021: 41.7%) and has
decreased from the prior year mainly due to the remeasurement of deferred tax
in the prior year as a result of the substantive enactment of the increase in
the UK corporation tax rate to 25.0% from April 2023, which did not recur in
the current year. The effective tax rate for 2022 was adversely influenced by
the impairment and subsequent disposal of an investment, which resulted in tax
losses of £13.4m. A deferred tax asset has not been recognised on the tax
loss as it is not probable the Group will have sufficient future taxable
profits against which this loss could be utilised. It was further affected by
a decrease in expenses not deductible for tax purposes predominantly in
respect of business acquisitions.

Changes in tax rates

The UK corporation tax rate for the year was 19.0% (2021: 19.0%). In March
2021, the UK Government announced an increase in the UK corporation tax rate.
The Finance Bill 2021 was substantively enacted on 24 May 2021 increasing the
UK corporation rate to 25.0% from 1 April 2023. The impact of this change in
tax rate was recognised in 2021 in the income statement, except to the extent
that it related to items previously recognised outside of the income statement
in which case it was recognised in other comprehensive income and equity
accordingly.

Uncertain tax position

The Group recognises taxation based on estimates of whether taxes will be due.
No material uncertain tax positions existed at 30 June 2022 or 30 June 2021.

4. Earnings per Ordinary share

a) Basic

                                                      2022        2021
 Profit for the year (£m)                             25.7        19.3
 Weighted average number of Ordinary shares in issue  70,926,977  70,685,939
 Basic earnings per share (pence)                     36.2        27.3

 

b) Diluted

Diluted earnings per share is calculated by adjusting the weighted average
number of Ordinary shares outstanding to assume conversion of all dilutive
potential Ordinary shares. The Company has potentially dilutive Ordinary
shares, being the contingently issuable shares under the Group's LTIP schemes
and SAYE schemes. For share options, a calculation is undertaken to determine
the number of shares that could have been acquired at fair value (determined
as the average annual market share price of the Company's shares) based on the
monetary value of the subscription rights attached to outstanding share
options. The number of shares calculated as above is compared with the number
of shares that would have been issued assuming the exercise of the share
options.

                                                                            2022        2021
 Profit for the year (£m)                                                   25.7        19.3
 Weighted average number of Ordinary shares in issue                        70,926,977  70,685,939
 Adjustment for contingently issuable shares - LTIPs                        248,506     237,307
 Adjustment for contingently issuable shares - SAYE schemes                 377,056     246,533
 Weighted average number of Ordinary shares for diluted earnings per share  71,552,539  71,169,779
 Diluted earnings per share (pence)                                         35.9        27.1

 

Alternative performance measure: adjusted earnings per share

                                                                                2022        2021

                                                                                £m          £m
 Profit before tax                                                              36.0        33.1
 Adjustments for:
  Amortisation of intangible assets                                             22.2        23.8
  Costs relating to business combinations                                       4.9         9.3
  Exceptional items                                                             12.4        -
 Adjusted profit before tax                                                     75.5        66.2
 Tax expense amended for the above adjustments                                  (14.6)      (13.1)
 Adjusted profit after tax                                                      60.9        53.1
 Weighted average number of Ordinary shares in issue                            70,926,977  70,685,939
 Weighted average number of Ordinary shares for diluted earnings per share      71,552,539  71,169,779

 

                                                  Pence  Pence
 Adjusted earnings per share (pence)              85.8   75.1
 Diluted adjusted earnings per share (pence)      85.0   74.6

 

5. Business combinations

Details of business combinations in the year ended 30 June 2022 are set out
below. The reason for each acquisition was to expand the CVS Group business
through acquisitions aligned to our strategic goals. The acquisition and
subsequent disposal of Quality Pet Care Ltd is not included in the below, and
further information can be found in note 6.

 Name of business combination                       Date of acquisition
 Dierenkliniek Leloup Olst-Wijhe (trade and asset)  01 February 2022
 Anton Vets Ltd                                     05 May 2022
 OCVC Limited                                       10 June 2022

 

All businesses were acquired via 100% share purchase agreement unless
indicated otherwise in the table above.

Given the nature of the veterinary practices acquired and the records
maintained by such practices, it is not practicable to disclose the revenue or
profit or loss of the combined entity for the year as though the acquisition
date for all business combinations during the year had been at the beginning
of that year.

The table below summarises the total assets acquired through business
combinations in the year ended 30 June 2022:

                                                                  Book value of  Fair value    Fair value

                                                                  acquired       adjustments   £m

                                                                  assets         £m

                                                                  £m
 Property, plant and equipment                                    0.7            -              0.7
 Patient data records                                             -              2.1           2.1
 Right-of-use assets                                              1.0            -              1.0
 Inventories                                                      0.1            -              0.1
 Deferred tax liability                                           (0.1)          (0.3)          (0.4)
 Trade and other receivables                                      0.1            (0.1)          -
 Trade and other payables                                         (0.7)          -              (0.7)
 Loans                                                            (0.1)          -              (0.1)
 Lease liabilities                                                (1.0)          -              (1.0)
 Total identifiable assets                                        -              1.7           1.7
 Goodwill                                                                                      6.7
 Total consideration (net of cash acquired of £0.5m)                                           8.4
 Initial consideration paid (net of cash acquired of £0.5m)                                    8.0
 Deferred consideration payable                                                                0.4
 Total consideration (net of cash acquired of £0.5m)                                           8.4

 

The total consideration of £8.4m is prior to the agreement of the completion
accounts. The amounts recognised are subject to adjustment in line with IFRS 3
for up to 12 months from acquisition, with goodwill being adjusted
accordingly.

Goodwill recognised represents the excess of purchase consideration over the
fair value of the identifiable net assets. Goodwill reflects the synergies
arising from the combination of the businesses; this includes cost synergies
arising from shared support functions and buying power synergies. Goodwill
includes the recognition of an amount equal to the deferred tax that arises on
non-qualifying fixed assets acquired under a business combination.

Post-acquisition revenue and post-acquisition adjusted EBITDA were £0.5m and
£0.1m respectively. The post-acquisition period is from the date of
acquisition to 30 June 2022. Post-acquisition EBITDA represents the direct
operating result of practices from the date of acquisition to 30 June 2022
prior to the allocation of central overheads, on the basis that it is not
practicable to allocate these.

Goodwill and intangible assets recognised in the year relating to business
combinations are not expected to be deductible for tax purposes.

Acquisition costs of £4.9m (2021: £9.3m) are included within Administrative
expenses.

The Directors do not consider any individual in-year acquisition to be
material to the Group and therefore have not separately disclosed these.

Business combinations in previous years

Details of business combinations in the comparative year are presented in the
consolidated financial statements for the year ended 30 June 2021. £0.4m
(2021: £nil) was paid in the current year to settle deferred consideration
payable from the prior year.

Business combinations subsequent to the year end

Subsequent to the year end, the Group has made two acquisitions

On 27 July 2022, the Group completed the purchase of 100.0% of the share
capital of Werrington Vets Limited, a company registered in England and Wales,
for initial cash consideration of £4.3m. This is a business comprising one
companion animal veterinary practice site in the UK. Assets acquired comprised
principally goodwill and intangible patient data records with a provisional
fair value of £4.1m.

On 16 September 2022, the Group completed the purchase of 100.0% of the share
capital of Woodlands Veterinary Clinic Limited, a company registered in
England and Wales, for initial cash consideration of £3.5m. This is a
business comprising two companion animal veterinary practice sites in the UK.
Assets acquired comprised principally goodwill and intangible patient data
records with a provisional fair value of £3.3m.

6. Investments

On 19 August 2021, the Group acquired 100% of the share capital of Quality Pet
Care Ltd, a company registered in England and Wales, for total consideration
of £20.4m, including repayment of loans of £3.4m. On 22 September 2021, the
Competition & Markets Authority (CMA) served an initial enforcement order
(IEO) in respect of this acquisition and during the period a further £1.0m
loan was provided for working capital. During the investigation, the group did
not control Quality Pet Care Ltd due to conditions imposed by the IEO, and as
such it is recorded as an investment in a subsidiary held at fair value, and
its financial performance and position are not consolidated into those of the
Group. Prior to the year-end, an impairment of £12.4m was recorded to the
carrying amount of the investment in anticipation of a disposal, based on the
estimated fair value, which has been recognised as an exceptional item in the
income statement within administrative expenses. On 30 June 2022, the entire
shareholding was divested with sales proceeds of £9.0m, with no gain or loss
on disposal recorded due to the investment having already been impaired to its
recoverable amount. The sales proceeds have been included within cash
equivalents.

7. Borrowings

Borrowings comprise bank loans and are denominated in Sterling. The repayment
profile is as follows:

                               2022  2021

                               £m    £m
 Within one year or on demand  -     -
 Between one and two years     84.3  -
 After more than two years     -     83.9
                               84.3  83.9

 

The balances above are shown net of issue costs of £0.7m (2021: £1.1m),
which are being amortised over the term of the bank loan. The carrying amount
of borrowings is deemed to be a reasonable approximation to fair value.

The Group has total facilities of £175.0m. These facilities are provided by a
syndicate of four banks: NatWest, HSBC, BOI and AIB, and comprise the
following elements:

•    a fixed term loan of £85.0m, repayable on 31 January 2024 via a
single bullet repayment;

•    a four-year Revolving Credit Facility (RCF) of £85.0m that runs to
31 January 2024; and

•    in addition, the Group has a £5.0m overdraft facility renewable
annually.

The two financial covenants associated with these facilities have remained
unchanged, and are based on the ratios of bank-test net debt to bank-test
EBITDA and bank-test EBITDA to interest. The bank-test net debt to bank-test
EBITDA ratio must not exceed 3.25x. The bank-test EBITDA to interest ratio
must not be less than 4.5x. The facilities require cross-guarantees from the
most significant of CVS Group's trading subsidiaries but are not secured on
the assets of the Group. Bank-test EBITDA is based on the last twelve months'
adjusted EBITDA performance annualised for the effect of acquisitions
deducting costs relating to business combinations and adding back share option
expense, prior to the impact of IFRS 16.

Bank covenants are tested quarterly and the Group has considerable headroom in
both financial covenants and in its undrawn but committed facilities as at 30
June 2022.

Interest rate risk is also managed centrally and derivative instruments are
used to mitigate this risk. On 28 February 2020, the Group entered into a
four-year interest rate fixed swap arrangement to hedge fluctuations in
interest rates on £70.0m of its term loan.

At the year end £70.0m of the term loan was hedged using an interest rate
swap. The remainder of the debt is not hedged.

Undrawn committed borrowing facilities

At 30 June 2022, the Group has a committed overdraft facility of £5.0m (2021:
£5.0m) and an RCF of £85.0m (2021: £85.0m). Both the overdraft facility and
the RCF were undrawn at 30 June 2022 and 30 June 2021.

8. Dividends

The Directors have proposed a final dividend of 7.0p (2021: 6.5p) per share,
giving a total of £5.0m (2021: £4.6m). During the year, the 2021 final
dividend totalling £4.6m was paid (2021: £nil).

 

9. Cash flow generated from operations

                                                                                  Note  2022   2021

                                                                                        £m     £m
 Profit for the year                                                                    25.7   19.3
 Tax expense                                                                      3     10.3   13.8
 Finance expense                                                                        6.8    7.0
 Amortisation of intangible assets                                                      22.2   23.8
 Depreciation of property, plant and equipment                                          11.3   10.3
 Depreciation and impairment of right-of-use assets                                     14.1   14.0
 Profit on sale of property, plant and equipment and right-of-use assets                (0.3)  -
 Increase in inventories                                                                (6.6)  (0.4)
 Increase in trade and other receivables                                                (3.2)  (3.4)
 Decrease in trade and other payables                                                   (0.1)  (5.2)
 Decrease in provisions                                                                 (1.8)  (1.1)
 Share option expense                                                                   2.3    2.2
 Exceptional items                                                                6     12.4   -
 Total net cash flow generated from operations                                          93.1   80.3

 

10. Events after the reporting period

On 27 July 2022, the Group completed the purchase of 100.0% of the share
capital of Werrington Vets Limited, a company registered in England and Wales,
for consideration of £4.3m. This is a business comprising one companion
animal veterinary practice site in the UK, aligned with the Group's strategic
goals. Further information can be found in note 5.

 

On 16 September 2022, the Group completed the purchase of 100.0% of the share
capital of Woodlands Veterinary Clinic Limited, a company registered in
England and Wales, for consideration of £3.5m. This is a business comprising
two companion animal veterinary practice sites in the UK, aligned with the
Group's strategic goals. Further information can be found in note 5.

 

11. Related party transactions

Transactions with Directors and key management

During the year, the following dividends were paid to the Directors of the
Group: R Connell - £10,693; D Kemp - £426; R Gray - £325; R Fairman -
£1,158; and B Jacklin - £306. Dividends were also paid to the spouses of R
Fairman and R Alfonso of £709 and £130, respectively (2021: no dividend
paid).

 

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