REG - CVS Group plc - Final results for the year ended 30 June 2023
21/09/2023 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230921:nRSU1882Na&default-theme=true
RNS Number : 1882N CVS Group plc 21 September 2023
For Immediate Release
21 September 2023
CVS GROUP plc
("CVS", the "Company" or the "Group")
Final results for the year ended 30 June 2023
Strong results reflect continued customer demand for high-quality clinical
care and investment in growth
CVS, the UK listed veterinary group and a leading provider of veterinary
services, is pleased to announce its final results for the year ended 30 June
2023 ("2023").
Financial Highlights
£m except where stated 2023 2022 Change %
Revenue 608.3 554.2 9.8%
Group like-for-like ("LFL") sales growth (%)(1) 7.3% 8.0% -0.7 ppts
Adjusted EBITDA(2) 121.4 107.4 13.0%
Adjusted EBITDA(2) margin (%) 20.0% 19.4% +0.6 ppts
Adjusted profit before tax(3) 85.4 75.5 13.1%
Adjusted earnings per share(4) (p) 96.0 85.8 11.9%
Operating profit 62.3 42.8 45.6%
Profit before tax 53.9 36.0 49.7%
Basic earnings per share (p) 58.8 36.2 62.4%
Net bank borrowings(5) 74.0 36.0 105.6%
Final dividend (p) 7.5 7.0 7.1%
· Revenue increased by 9.8%, to £608.3m (2022: £554.2m), with
Group like-for-like(1) sales growth of 7.3% in line with the Group's stated
organic revenue growth target of between 4% and 8%, reflecting continued
demand for the Group's high-quality clinical care
· Adjusted EBITDA(2) growth of 13.0%, to £121.4m (2022: £107.4m),
underpinned by strong revenue performance and the continued investment in our
facilities, equipment, technology and colleagues in addition to the
recognition of research and development expenditure tax credit
· Profit before tax increased by 49.7%, to £53.9m (2022: £36.0m)
benefitting from the increase in adjusted EBITDA partially offset by an
increase in finance expense, depreciation and costs relating to business
combinations. The prior year was impacted by the one-off impairment of
investment relating to the acquisition of Quality Pet Care Ltd
· Leverage(6) increased to 0.73x (2022: 0.40x) as a result of the
above investment and acquisitions
· Operating cash conversion improved 4.9ppts to 70.0%
· In light of the continued growth of the Group and its positive
operating cash generation, the Board is recommending the payment of a final
dividend of 7.5p per Ordinary share (2022: 7.0p)
· In February 2023, we successfully refinanced our debt facilities
increasing available funds to £350m from £170m. The interest margin and
covenants for the facility remain unchanged
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 2021, revenue is included from
September 2022 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.
Significant operational and strategic progress
· 6.5% increase in the average number of vets employed in the year
against a continued backdrop of constrained availability of vets across the
industry
· We have continued to increase investment in our people,
facilities and equipment, investing £45.7m in 2023 (2022: £24.5m), including
completing 21 refurbishment and relocation projects in the year (2022: 23) in
accordance with our plans outlined at our capital markets day in 2022
· We have published our second standalone Sustainability Report,
describing the goals and activities of our ESG working groups and introduced
targets across our work groups
· We have invested £54.6m in 11 acquisitions comprising 16
practice sites in line with our inorganic growth strategy
· Our client Net Promoter Score (NPS) increased to 73.0 (2022:
71.9) reflecting our continued focus on delivering high-quality clinical care
· Our employee NPS increased to 14.6 (2022: 4.8) reflecting our
focus in supporting and developing our colleagues
Competition and Markets Authority (CMA)
On 7 September 2023, the CMA announced a Market Review of the Veterinary
sector for household pets in the UK. The review is carried out under the
CMA's general review function which allows it to obtain, compile and keep
under review information relating to the CMA's functions. The Market Review is
voluntary and we will work closely with the CMA in support. The CMA have
stated they will provide a further update in early 2024.
Current trading in line with expectations
· The new financial year has started well, we are pleased with the
momentum in the business and continue to trade in line with market
expectations
· Continued growth in our Healthy Pet Club to 494,000 members (+4%
compared to 31 August 2022); representing roughly 40% of the companion animal
active client base.
· Following our announcement in July 2023 of our entry into the
Australian veterinary services market, we have now completed total
acquisitions of five first-opinion small animal practices (comprising five
sites) for initial consideration of £23.8m and exchanged contracts of a
further two comprising of four practice sites
· We have acquired a further two Veterinary practices in the UK,
following submission of briefing papers to the Competition and Markets
Authority (CMA), for consideration of £6.6m
· We have a strong pipeline of additional acquisition opportunities
in both the UK and Australia
· 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 are on track to continue to deliver against the KPIs set out
at the Capital Markets Day in November 2022
Richard Fairman, Chief Executive Officer, commented:
"I'm pleased that we have delivered another strong set of results, with good
growth against all of our six strategic targets announced at our Capital
Markets Day in November 2022. Our continued focus on providing the best
possible care to animals, led by our passionate and caring colleagues who are
committed to high-quality veterinary care, has contributed to the strength of
our performance.
"I am delighted to announce we have now completed five acquisitions in
Australia (comprising five sites) and a further two acquisitions in the UK
(comprising two sites). We are excited by the opportunity Australia presents
and delighted to welcome the teams from these Australian and UK practices into
the Group.
"CVS remains committed to providing high-quality care to our clients and their
animals. With the continued support of our outstanding colleagues and our
planned investment in people, practice facilities and technology, I look
forward to sharing further successes in 2024 and beyond."
Results webcast
Management will host a live webcast and Q&A for analysts at 9am GMT this
morning. Those wishing to join should email CVSG@camarco.co.uk
(mailto:CVSG@camarco.co.uk) for access. For those unable to join, there will
be a playback facility available on the CVS website later.
Contacts
CVS Group
plc
via Camarco
Richard Fairman, CEO
Ben Jacklin, Deputy CEO
Robin Alfonso, CFO
Peel Hunt LLP (Nominated Adviser & Broker)
+44 (0)20 7418 8900
Adrian Trimmings / Michael Burke / Andrew Clark / Lalit Bose
Berenberg (Joint
Broker)
+44 (0)20 3207 7800
Toby Flaux / Ben Wright / James Thompson / Milo Bonser
Camarco (Financial PR)
Geoffrey
Pelham-Lane
+44 (0)7733 124 226
Ginny Pulbrook
+44 (0)7961 315 138
About CVS Group plc (www.cvsukltd.co.uk (http://www.cvsukltd.co.uk/) )
CVS Group is an AIM-listed provider of veterinary services in the UK,
Australia, the Netherlands and the Republic of Ireland. CVS is focused on
providing high quality clinical services to its clients and their animals,
with outstanding and dedicated clinical teams and support colleagues at the
core of its strategy.
The Group has c.500 veterinary practices across its four markets, including
nine specialist referral hospitals and 39 dedicated out-of-hours sites.
Alongside the core Veterinary Practices division, CVS operates Laboratories
(providing diagnostic services to CVS and third-parties), Crematoria
(providing pet cremation and clinical waste disposal for CVS and third-party
practices), Buying Groups and the Group's online retail business ("Animed
Direct").
The Group employs c.8,800 personnel, including c.2,300 veterinary surgeons and
c.3,300 nurses.
Chair's statement
Building on our strong foundations to deliver continued high-quality clinical
care and investment in growth
Introduction
I am delighted to report on another successful year in which we have increased
investment in future growth, as well as announcing our entry into the
Australian veterinary services market post the year end.
We have previously set out our clear strategy for growth underpinned by our
purpose to give the best possible care to animals and our vision to be the
veterinary company people most want to work for. In November 2022, we outlined
our updated five-year plan in support of this strategy with continued focus on
organic growth and through investment in people, practice facilities, clinical
equipment and technology and further acquisitions in the UK and overseas.
Whilst we are in the early stages of this five-year plan, we have made a
positive start with increased investment and eleven practice acquisitions
completed in the financial year.
I would like to take this opportunity to thank all CVS colleagues for their
continued professionalism and commitment in providing great care for our
clients and their animals.
Improved financial performance
We have delivered another strong set of financial results with increased
revenue and earnings, strong operating cash conversion and improved balance
sheet strength. This positions CVS well to deliver investment in future
growth.
Revenue for the financial year increased by 9.8% to £608.3m (2022: £554.2m)
reflecting our continued focus on providing the best possible clinical care to
animals. We continue to see robust client demand for our high- quality
services with long term drivers of a growing pet population, improvements in
animal healthcare and the humanisation of pets.
Adjusted EBITDA increased by 13.0% to £121.4m (2022: £107.4m) through
revenue growth, our continued discipline in managing costs and recognition of
net Research and Development Expenditure Tax Credit of £9.6m. Profit before
tax increased by 49.7% to £53.9m (2022: £36.0m) with adjusted EPS increasing
by 11.9% to 96.0p (2022: 85.8p) and basic EPS increasing by 62.4% to 58.8p
(2022: 36.2p).
CVS continues to be highly cash generative with the improved revenue and
earnings resulting in cash generated from operations increasing by 15.9% to
£107.9m (2022: £93.1m). In accordance with our strategy, we have increased
our investment in our people, our facilities and our equipment to further aid
growth and, as a result, net debt increased to £70.7m (2022: £35.3m) and
leverage increased to 0.73x, from 0.40x.
We successfully refinanced our bank debt facilities in February 2023, with
£350.0m of total facilities now available comprising a term loan of £87.5m
and a £262.5m revolving credit facility. The margin under these facilities
remained unchanged. Financial covenants also remained unchanged with
considerable headroom at 30 June 2023 under both financial covenants. We also
have access to a £5.0m overdraft, renewable annually.
Strategic progress
Our strategy, 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.
As outlined at our Capital Markets Day in November 2022, we have increased
investment in practice facilities, clinical equipment and technology to drive
growth with capital expenditure of £45.7m in the financial year (2022:
£24.5m). We completed 21 property relocation and refurbishment projects in
the year.
We acquired 11 veterinary practices (comprising 16 practice sites) in the year
for initial cash consideration of £54.6m.
In July 2023 we announced our entry into the Australian veterinary services
market with our first acquisitions of veterinary practices. Having explored a
number of new potential markets we identified Australia as a particularly
attractive market given the relatively low levels of corporate consolidation,
favourable market dynamics and strong similarities with the UK, including
highly trained veterinary surgeons, shared language and culture, and the
Group's experience with UK vets working between Australia and the UK.
At the heart of our growth ambitions is our vision to be the veterinary
company people most want to work for. We have taken further positive steps in
the year to provide additional support to our colleagues with a number of new
and enhanced employee benefits introduced. These include a health care cash
plan enabling colleagues to cover the cost of a range of medical services and
support available to colleagues across a variety of health-related life
events, including fertility, pregnancy loss, major surgery and
hospitalisation.
CVS introduced a new Equity, Diversity and Inclusion (EDI) strategy in 2022
and we have developed this in the past financial year. New policies have been
introduced covering bullying, harassment and incivility and we introduced an
EDI training course for all CVS colleagues. We have also introduced a regular
survey question measure of whether our colleagues feel equally included at
work, and in June 2023 83.6% of colleagues responded positively. Nearly 625
learners have enrolled in our Equity, Diversity and Inclusion training course
which raises awareness of bias and prejudice in the workplace and recommends
actions to consciously improve.
Governance and the Board
We remain committed to the highest levels of corporate governance and, as an
AIM-listed 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. Joanne Shaw was appointed as
a new Non-Executive Director with effect from 1 July 2023. Joanne brings a
wealth of healthcare experience from her current roles as Trustee and Audit
Committee Chair at Cancer Research UK and Chair at the Royal College of
Paediatrics and Child Health, in addition to her previous roles as
Non-Executive Director at NHS England, Chair of NHS Direct, Non-Executive
Director at Kensington and Chelsea Primary Care Trust and Chair of the British
Equestrian Association.
Ben Jacklin was promoted to a newly created role of Deputy Chief Executive
Officer on 1 July 2023 reflecting Ben's significant contribution over the past
few years in his Chief Operating Officer role. Ben retains responsibility for
overseeing the Group's operations in this new role.
Dividends
In light of the continued growth of the Group and its positive operating cash
generation, the Board is recommending a continuation of our progressive
dividend policy, with the payment of a final dividend of 7.5p per Ordinary
share (2022: 7.0p). The ex-dividend date is 2 November 2023 and the dividend
payment date is 8 December 2023.
Shareholder engagement
The Board continues to engage actively with existing and potential new
shareholders. Our Capital Markets Day in November 2022 was well attended in
person and through a live stream of the event. We outlined our growth
ambitions over the next five years and investors and analysts attending in
person had the opportunity to tour two of our veterinary practices and
experience practical demonstrations.
The Executive Directors attended a number of investor conferences in the UK,
the US and Europe during the financial year and all Directors make themselves
available to meet with investors on request.
We continue to host a sell-side analysts and institutional investors' webcast
at our interim and full-year results, including a question and answer session,
with a replay facility provided on our investor website.
Outlook
The financial performance achieved in the past financial year, and our clear
strategy for future growth, positions CVS well to benefit from the sizeable
and growing veterinary services market and continued humanisation of pets.
I look forward to reporting on further success in the future.
Richard Connell
Chair
21 September 2023
Chief Executive Officer's review
Continuing our focus of providing the best possible care to our clients and
their animals
Introduction
As a business whose purpose is to provide the best possible care to animals,
the passion and care of our colleagues are at the heart of our success. I
would like to begin by thanking each and every one of our colleagues for their
hard work and support over the past year in delivering great care to our
clients and their animals.
In November 2022, we hosted a Capital Markets Day which included tours of two
of our small animal veterinary practices. At this event, we announced our five
year plan and the six strategic targets underpinning this plan:
• organic revenue growth of 4%-8% per annum;
• adjusted EBITDA1 margins of between 19% and 23% through investment
in our facilities;
• investment in practice facilities, clinical equipment and
technology to deliver additional organic growth;
• acquisitions subject to disciplined criteria for returns and
earnings accretion;
• operating cash conversion of more than 70%; and
• leverage on a bank test basis remaining below 2.0x.
A clear capital allocation strategy
We have a clear strategic focus to provide high-quality clinical care to
animals, and key to the delivery of this is investment in our existing
practice facilities, clinical equipment and technology, and expanding our
Group through strategically aligned acquisitions subject to disciplined
criteria.
In support of this planned increase in investment, we successfully refinanced
our debt facilities in February 2023, increasing the available funds to
£350.0m, comprising:
• a £87.5m term loan, repayable via bullet payment in February
2027; and
• a £262.5m revolving credit facility
The interest margin and covenants for the facility remain unchanged, with
maximum leverage of 3.25x and interest cover no less than 4.5x. We obtained
commercial terms with increased flexibility to support our growth ambitions,
and welcomed Barclays, JP Morgan, Lloyds Bank, Virgin Money and Danske Bank to
our banking syndicate, alongside long-term partners HSBC, NatWest and AIB.
In the financial year to June 2023, we invested £45.7m and completed 21
practice refurbishments and relocation projects. We are pleased with the
returns to date from this investment, with higher-quality facilities and
enhanced technology allowing us to provide high-quality care to our clients
and their animals.
This investment included a brand new greenfield site, Southport Vets, which
opened in December 2022. This 3,000 sq ft building comprises four consulting
rooms together with an operating theatre and specialist dental suite, plus an
in-house laboratory and digital x-ray facilities.
Alongside this investment, we invested initial cash consideration of £54.6m
in acquiring 11 practices (16 practice sites) in the financial year, and it
has been a pleasure to welcome our new colleagues to CVS.
Financial performance
In terms of financial performance during the full year ended 30 June 2023 we
have delivered:
· continued organic revenue growth with a 7.3% increase in
like-for-like sales (2022: 8.0%), consistent with the Group's organic revenue
growth ambition of between 4% and 8%.
· adjusted EBITDA margin expansion of 60bps to 20.0%, within our
stated ambition of margins between 19% and 23%.
· continued investment in our facilities and equipment to support
growth, with total capital expenditure of £45.7m (2022: £24.5m), within the
Group's capital expenditure ambition of £30m to £50m investment per annum.
· investment of £54.6m in 11 practice acquisitions (comprising 16
practice sites) (2022: £8.4m in three practice acquisitions (comprising four
practice sites)), in line with the guidance of £50m+ investment per annum;
and .
· operating cash conversion of 70%, broadly in line with our stated
ambition of 70%. In light of the increased investment made in the financial
year, leverage increased to 0.73x at 30 June 2023 (30 June 2022: 0.40x), but
remained well below our stated target of less than 2.0x leverage as set out in
our Capital Markets Day ambitions.
Strategy
Our purpose is to give the best possible care to animals and our vision is to
be the veterinary company people most want to work for and these are
underpinned by our 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 recommend and provide the best clinical care every time we
continue to invest in research and development towards improved clinical
standards. In 2022 we launched our Clinical Research Awards and to date we are
supporting 16 research projects, with more funds to be made available in the
coming year. These awards facilitate colleagues to be able to undertake
high-quality and impactful research, as well as work collaboratively with
universities and research institutions to continue to break new ground in
veterinary care.
Our vision to be the veterinary company people most want to work for is
underpinned by our strategic pillar to be a great place to work and have a
career. During the year, we launched a range of new benefits and policies.
Among these is a zero-tolerance policy towards abusive clients to put
colleague safety in practices at the forefront and this can result in
veterinary services being terminated for abusive clients. The BVA published
data in 2021 which showed six out of ten vets had reported feeling intimidated
by clients' language or behaviour in the previous year. We hope this policy
helps our colleagues in handling difficult situations with the confidence that
the Group is in support of their welfare.
We have increased investment in our practice facilities, equipment and
technology in the past year so that we can achieve a minimum practice facility
standard. This standard includes optimal layout of clinical spaces, increasing
the number of consult rooms and operating theatres, installing improved
technology such as dental x-ray and advanced imaging facilities, and improving
colleague areas such as kitchens and office spaces.
As a veterinary business, taking our responsibilities seriously is in our DNA.
We work closely with industry bodies to ensure we are improving standards of
care and we fully embrace the RCVS Practice Standards Scheme (PSS). In June
2023, the RCVS added a Sustainability Award to its PSS whose requirements
range from having a written environmental sustainability policy, to
demonstration of techniques to minimise anaesthetic gas usage and annual waste
surveys being undertaken with demonstrable action as a result. We are
encouraging our practices to participate in this new award.
Focus on our people
To enable us to provide great care we have invested in employing an additional
6.5% vets and 8.4% nurses on average in the financial year to 30 June 2023 in
comparison to the previous financial year. We continue to increase the number
of clinical colleagues we employ at a significantly faster rate than the
growth of the population of practicing vets in the UK.
We are pleased that the RCVS has seen a rise in the number of EU vets
registering to work in the UK for the first year post Brexit, with a 30%
increase in 2022. Meanwhile, the arrangements that allow graduates from
European Association of Establishments for Veterinary Education
(EAEVE)-accredited schools to be recognised by the RCVS have been extended for
another year.
Although these structural improvements are positive, our ability to attract
and retain colleagues is significantly enhanced by our focus on our people and
on being a great place to work and have a career. We measure employee Net
Promoter Score (eNPS) monthly, and this score has increased consistently each
year since we first began to measure it. At June 2023 our eNPS was 14.6 (2022:
4.8) with the increase a reflection of our efforts in improving the
satisfaction of our colleagues.
We continue to focus on the wellbeing of our colleagues with over 300 first
aiders for mental health trained, considerable awareness built across CVS and
regular initiatives to promote positive wellbeing. 100 practice teams have
utilised our new "What matters to us?" framework, which helps colleagues feel
empowered to make local changes to improve their wellbeing. Some 400 managers
across CVS have undertaken a new course developed on supporting the wellbeing
of their teams.
Developing a culture where everybody can contribute
Our values are customer focus, commitment to excellence, success through our
people, and honesty and integrity. In our 2022 Annual Report, we introduced
our Group-wide culture survey, in which we sought feedback from colleagues
across the business on their experiences of inclusion, support and fairness
within CVS.
During 2023, we have developed actions in response to the results of this
survey, with our main focus being on developing an Equity, Diversity and
Inclusion programme that enables all our colleagues to feel included and
psychologically safe. We developed a psychological safety course to give
leaders practical knowledge and skills for creating a psychologically safe
team environment. By the end of June 2023, 372 leaders had completed the
course, with positive feedback on its impact in the workplace.
Sustainability
We published our first Sustainability Report in 2022 and we have concentrated
our focus in the past year on six key areas, namely Energy and Carbon, Waste,
One Health, People Development, Wellbeing and EDI.
During the year, we introduced our new network of Environment Champions. These
are volunteers from across the business supporting us to reduce our impact on
the environment, improve the way we deal with our waste and cut our carbon
footprint. Our aim is for each practice or building to have an Environment
Champion, forming a network of CVS Group colleagues who volunteer to help
raise energy and environmental awareness.
Australia market entry
Since the year end, in July 2023 we announced our entry into the Australian
veterinary services market and we have now completed five first-opinion small
animal practices (comprising five sites) with a strong pipeline of additional
opportunities.
We identified Australia as an attractive market and I am delighted to welcome
our new colleagues in Australia to CVS.
Competition and Markets Authority (CMA)
On 7 September 2023, the CMA announced a Market Review of the Veterinary
sector for household pets in the UK. The review is carried out under the
CMA's general review function which allows it to obtain, compile and keep
under review information relating to the CMA's functions. The Market Review is
voluntary and we will work closely with the CMA in support. The CMA have
stated they will provide a further update in early 2024.
Outlook
I am proud of the achievements of our team of colleagues over the past year,
as reflected in another set of strong financial results.
We set out a clear five-year plan at our Capital Markets Day in November 2022
and the achievements in the past year, the refinancing of our bank facilities
and balance sheet all position us well to deliver against this ambition.
Whilst we continue to be mindful of inflationary pressures on household
incomes, we are confident that our strategy for growth focused on high-quality
clinical care and investment in facilities and technology positions us well to
deliver further growth over the coming years.
With the continued support of our outstanding colleagues, I look forward to
sharing further success in 2024 and beyond.
Richard Fairman
Chief Executive Officer
21 September 2023
Operational review
Continuing to attract great talent to deliver the best possible care for our
patients and their owners
I am once again proud to present a review of our operations, on behalf of all
our dedicated colleagues across each of our divisions. In an inflationary
environment which has been challenging for consumers and businesses across
many other industries, we have seen another successful year characterised by
investment in our core businesses. These investments further our pursuit of
the best possible care for our patients and working environments that attract
the very best veterinary talent. They are a testament to the continued
resilience of clients in the veterinary sector and, particularly for CVS,
their ongoing desire to give their pets the very best care they can.
We launched our strategy back in 2019: a purpose to give the best possible
care to animals, which we will deliver through our vision to be the veterinary
company people most want to work for. Underlying 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.
We continue to demonstrate that through delivery of this strategy we achieve
strong and sustainable growth.
Our clinical leadership teams continue to work with our colleagues and
practices delivering clinical development and quality improvement. During the
year we executed a number of clinical improvement projects, developed by our
clinical leadership teams. In 105 of our first-opinion companion animal
practices we launched a project to increase screening for hypertension (high
blood pressure) in older cats. Up to 40% of cats over seven years old will
have hypertension, many of which are undiagnosed. Undiagnosed hypertension can
lead to serious disorders affecting the brain, heart and kidneys, including
weight loss, retinal disease and renal failure amongst other serious
complications. However, early diagnosis can lead to significantly better
outcomes for each patient. This project led to 5,984 additional blood pressure
measurements to screen cats for hypertension, and 444 more cats being
diagnosed and treated in the participating sites. This is just one example of
the difference we can make to all stakeholders with clinical projects such as
these. First and foremost we can improve outcomes for patients, while
improving the experience and outcome for clients and ultimately generating
revenues from the accurate diagnosis and treatment of clinical cases.
Being a great place to work and have a career is our ambition for all of our
colleagues, not just vets. Our veterinary nurses perform a vital role in
practice and during the year we took time to understand why nurses leave their
roles and the sector, and what factors predict those who will leave. The study
used multivariable logistic regression analysis to identify that higher
quality property facilities were predictive of nurses choosing not to leave,
underlining the importance and benefit of investment in our facilities.
The data used for the study was from 2021, and since then we have seen a
continued reduction in attrition within our nursing population and across the
Company, probably in part due to the investments we have made in facilities
across CVS. During the year we completed 21 major property projects, including
15 major relocations, 5 refurbishments and a new greenfield site in Southport.
Alongside those facilities investments we have continued to invest in
developing career pathways and new employee benefits, and improving wellbeing
and engagement, all of which move us towards our vision.
We have opened a second nurse training school, based in Norfolk, which is in
addition to our existing school at Chestergates. This enables us to train more
of our own student veterinary nurses and help them to qualify as Registered
Veterinary Nurses, as well as offering training to some external students.
Such career development opportunities are critical to those colleagues
aspiring to become veterinary nurses, and being able to train nurses in house
is a significant benefit.
The research into nurse attrition was led by our Group Director of Clinical
Research, and recognised by publication in the "Vet Record", a leading
peer-reviewed scientific journal in the profession.
Alongside the continued opportunities to invest in and grow our organic
business, we continue to see significant opportunity for acquisitions in the
UK and further afield. We continue to follow the guidance issued by the
Competition and Markets Authority and have successfully completed 11
acquisitions of 16 practice sites in the year. Continuing the discipline of
acquisition applied over the last few years these are high-quality practices
that fit with our provision of the best possible care, and I warmly welcome
these new colleagues to CVS.
Sustainability remains at the heart of what we do, and I am pleased that we
continue to focus on a wide variety of initiatives that we feel are material
to CVS and its stakeholders. Outlined in our 2022 Quality Improvement report,
published during the year, we shared that our data driven approach reduced the
use of Highest Priority Critically Important Antibiotics (HCPIA) by 20% in
twelve months.
Veterinary Practices division
Supporting our colleagues to deliver the best possible clinical care
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 performed well during the financial year with like-for-like
sales growth of 7.3%, contributing to total revenue growth of 10.1%. Adjusted
EBITDA increased 7.2%. We made 11 acquisitions during the financial year,
adding 16 practice sites to the Group.
Since the year end, a further seven practice sites have been acquired,
including five in Australia following CVS's entry into that market.
Companion Animal
Our Companion Animal division forms the majority of our Veterinary Practices
division. The focus of our Companion Animal division on delivering the best
possible care for our patients continues, and benefits from a growing market
as customers continue to seek out veterinary care for their pets.
We have placed particular emphasis on research and development to support the
progression of the profession. A series of clinical excellence projects has
been launched to provide a greater range of clinical services with each
project designed to help practices identify where they may be able to improve
the standard of clinical care.
We continue to focus on the recruitment, retention and development of our
highly skilled and dedicated colleagues. We employed an average of 6.5% more
vets in 2023 vs 2022 reflecting a further reduction in attrition, a record
graduate vet intake and the ongoing recruitment of some of the best talent in
the profession.
Referrals
Our Referrals operations have continued to grow, benefiting from the
leadership of a new management team. We continue to support our colleagues
with their careers, supporting them through their specialist exams. We have
also integrated our advance clinical services network into our Referrals
division, to aid collaboration across our teams.
Equine
Our Equine operations have seen good top-line revenue growth, despite being
the one area of our Veterinary Practices division more susceptible to
macroeconomic pressures. During the year we have expanded our Equicall
dedicated out-of-hours service, which benefits both CVS and third-party
practices. This not only provides vital specialist out-of-hours care to our
patients but removes the need for onerous out-of-hours rotas in practices,
providing a better work-life balance for colleagues.
Due to the ambulatory nature of this division, we are trialling a diary
optimisation tool, to help efficiently meet our clients' needs, and improve
collaboration between our practice sites.
Farm
Our Farm operations consists of 14 farm animal practice locations and a large
specialist poultry veterinary business. During the year we have introduced the
procurement of drugs for all of our Farm division through our Pharmsure
practice, to deliver best price and secure supply.
We have continued our investment in advanced breeding work, with Castle Farm
Vets expanding its advanced breeding programme. In addition, we have
introduced recruiting Approved Tuberculin Testers to undertake tuberculosis
testing across England, allowing vets to focus on clinical work.
International
Our International division comprises 27 practices in the Netherlands and three
practices in the Republic of Ireland. These include companion animal, equine
and farm practices.
During the year we continued to focus on our people and their careers. We have
supported our colleagues through further training with eight veterinary nurses
from CVS Netherlands successfully completing their training to become
Supervisory Radiation Protection colleagues, the first veterinary nurses in
the Netherlands with this qualification. In addition, we have focused on
attracting further clinical colleagues to ensure we can continue to service
client demand across our practices.
As we continue to review and ensure we are able to meet the high standards of
service and clinical care across our practices, during the year we made the
difficult decision to close our Gilabbey site in Cork, Republic of Ireland.
The existing facilities required major investment and a protracted renovation
to meet both our high clinical standards and the very highest standards of
health and safety that we set ourselves. Accordingly the best course of action
was to close the site and in the interests of our patients and clients,
transition client services to neighbouring competitor practices.
Since the year end, the Group has entered the Australian veterinary services
market. Having explored a number of new potential markets, the Board has
identified Australia as particularly attractive given the relatively low
levels of corporate consolidation, favourable market dynamics and strong
similarities with the UK, including highly trained veterinary surgeons, shared
language and culture, and the Group's experience with UK vets working between
Australia and the UK. The practices that have joined us are of the highest
quality, and with a long pipeline of accepted offers we expect to grow our
Australian business strongly over the coming years.
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 4.0% over the past year to around 489,000 members, representing roughly 40%
of our companion animal active client base.
MiPet products
We continue to enhance our own brand range, MiPet, with a further four
products planned to be added in the new financial year. Our own-brand spend
consistently makes up c.39% of the UK practices' pharmaceutical spending in
2023 and 2022.
Vet Direct
We continue to see strong growth in Vet Direct, our equipment and consumables
business, both from CVS and third-party practices. We introduced a dedicated
marketing team to promote Vet Direct to third-party customers.
Outlook
As we continue to focus on delivery of high-quality clinical care alongside
our people-focused strategy, we are optimistic that our Veterinary Practices
division will continue to deliver year-on-year growth despite the economic
uncertainties ahead. We operate in a resilient market and are comforted that
the results we are publishing for 2023 demonstrate spend on high-quality
veterinary care continues to be a priority for pet owners.
Our colleagues have always been and remain our biggest asset and I continue to
admire the hard work and dedication across our clinical teams. We have seen
attrition fall to its lowest level since we began recording it, and employee
net promoter score peaked at its highest level during the year, ending
strongly at 14.6.
Since the financial year end, the announcement of our entry into the Australia
market represents more good news for CVS. As a company dedicated to giving the
best possible care to animals, we see a fantastic opportunity for us to enter
this growing market, with low levels of corporate consolidation, and execute
our vision of being the veterinary company people most want to work for.
Having spent time in Australia over the last twelve months, including meeting
some fantastic veterinary practices, it is clear we have a significant
opportunity. We are excited to build a significant CVS business in Australia
with the same culture and values that have brought us success in the UK.
Laboratories division
Supporting clinical care through in-house analysers and nationwide coverage of
diagnostic testing
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 and introduced
further tests in the year.
Revenue has increased 7.7% compared to the prior year and adjusted EBITDA
increasing 10.8%, with strong case numbers contributing towards the rise. We
saw approximately a 3% increase in case volume, with approximately 45% of
diagnostic laboratory tests performed for CVS practices.
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, along with providing great client
service, we are optimistic for growth in the years to come.
Crematoria
Supporting clients to achieve a compassionate goodbye
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 revenue and adjusted EBITDA growth in the division was driven by the
Direct Pet Cremation service we introduced in 2021 and rolled out across all
our sites during the year. Putting customers directly in contact with
crematoria to make pet aftercare arrangements, and giving them more time to
consider their range of options, has resulted in significant changes to
customers' choices and generated improved customer care. We relocated our
Valley Pet Crematoria to a new site and incorporated temperature and
oxygen-controlled systems, which to date have only been used in human
cremators, to minimise our environmental impact by delivering optimal
combustion efficiency.
Outlook
The outlook for our Crematoria division remains strong, as owners continue to
value the opportunity to remember their beloved pet and utilise the offering
the Crematoria division provides in the experience of losing their pet,
through our range of more premium offerings. Whilst Direct Pet Cremation has
now been rolled out to all our CVS clinics, there are opportunities to broaden
our premium range of services in due course.
Online Retail Business
A trusted provider of your pets' food and pharmacy needs
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 5.4% and adjusted EBITDA growth of 11.4% and an increase in
visits to our website to 8.1m from 7.6m in 2022.
We have invested in two new pharmacy robots to bring efficiencies in warehouse
space, increasing dispatch productivity along with improving quality control.
Outlook
During the year we continued the design and implementation of a new website.
We continue to work on this and expect the new site to go live during 2024.
Our improved website and warehouse systems will enable us to increase
capacity, delivering future growth in online sales and improving customer
satisfaction.
Central administration
Central administration costs include those of the central finance, IT, human
resources, purchasing, legal, Board and property functions. Total costs were
£11.9m (2022: £16.6m), representing 2.0% of revenue (2022: 3.0%). The
decrease in central administration costs primarily relates to increase
Research and development claims recognised centrally partially offset by
increased spend on support functions.
Ben Jacklin
Deputy Chief Executive Officer
21 September 2023
Financial review
Our continued opportunities for investment in growth underpin our strategy
Financial highlights
As highlighted at our Capital Markets Day, we continue to focus on our
strategy to invest in the growth of our business with a record investment of
£45.7m in our facilities and equipment and £54.6m invested in acquisitions
in the UK during the year.
With operating cash conversion of 70.0%, leverage remained low at 0.73x (2022:
0.40x).
We were also delighted to announce our entry into the Australian veterinary
services market in July 2023. Our expansion into the Australian market is in
line with our growth objectives outlined in our five-year plan and since
entering the market in July we have successfully completed five acquisitions.
The Group continues to deliver its strategy, which translates and is supported
by the financial highlights below.
Statutory financial highlights are shown below:
2023 2022 Change
%
Revenue (£m) 608.3 554.2 9.8%
Gross profit (£m) 262.3 239.1 9.7%
Operating profit (£m) 62.3 42.8 45.6%
Profit before tax (£m) 53.9 36.0 49.7%
Profit after tax (£m) 41.9 25.7 63.0%
Basic earnings per share (p) 58.8 36.2 62.4%
Adjusted financial highlights
2023 2022 Change
£m £m %
Adjusted EBITDA (£m) 121.4 107.4 13.0%
Adjusted profit before tax (£m) 85.4 75.5 13.1%
Adjusted earnings per share (p) 96.0 85.8 11.9%
Revenue
Total revenue increased 9.8% to £608.3m from £554.2m with CVS continuing to
deliver high-quality clinical invention for an increasing pet population.
There was good growth across each of our four divisions notwithstanding a
challenging economic climate and cost of living crisis.
The Group continues to deliver against its strategy for sustainable growth.
There was strong like-for-like revenue growth of 7.3% (2022: 8.0%), with the
remaining revenue growth coming from acquisitions.
Our preventative Healthy Pet Club scheme saw membership continue to grow with
membership at June 2023 of 489,000, a 4.0% increase year on year (2022:
470,000) and we are pleased to be able to highlight a 6.5% increase in the
average number of vets employed in 2023 versus 2022.
We continue to invest in our practice facilities, clinical equipment and
technology with total capital expenditure of £45.7m (2022: £24.5m). We are
confident the investment creates an opportunity for us to further increase
organic growth and like-for-like sales by facilitating better clinical care
and providing our colleagues with a better working environment, which we
believe will support attracting and retaining talent.
Gross profit/gross profit margin
Gross profit of £262.3m increased by 9.7% from £239.1m benefiting from
revenue growth with gross profit margin flat at 43.1%. During the year, there
was an improvement in gross margin before clinical staff costs to 77.7% from
76.9%; offset by an increase in clinical staff costs as we continue to invest
in people. We continue to focus on ensuring we purchase drugs at the best
possible price whilst maintaining the highest quality to enable us to focus on
great clinical care.
Adjusted EBITDA and adjusted earnings per share
Adjusted EBITDA increased by 13.0% to £121.4m from £107.4m benefiting from
an increase in gross profit and includes £9.6m (2022: £2.0m) of net Research
and Development Expenditure Tax Credits; offsetting utility inflation,
investment in people and to a lesser extent wage inflation.
Adjusted EBITDA margin increased to 20.0% from 19.4%, in line with our
ambition from the Capital Markets Day for organic expansion of our margin from
19.0% to 23.0%.
Adjusted EPS (as defined in note 1 to the FY23 Annual Report) increased 11.9%,
to 96.0p from 85.8p. Adjusted EPS exclude the impact of amortisation of
intangible assets, costs relating to business combinations and exceptional
items.
Operating profit, profit before tax and basic earnings per share
Operating profit increased by 45.6% to £62.3m from £42.8m benefiting from
the improvement in adjusted EBITDA and a reduction in exceptional items.
Profit before tax increased by 49.7% to £53.9m from £36.0m. Finance expense
increased to £8.4m from £6.8m following an increase in SONIA rates and
increased bank borrowings to support investment. Consequently, basic EPS
increased 62.4%, to 58.8p from 36.2p.
A reconciliation between statutory operating profit and adjusted EBITDA is
shown below:
2023 2022
£m £m
Operating profit 62.3 42.8
Adjustments for:
Amortisation, depreciation, impairment and profit on disposal 50.2 47.3
Costs relating to business combinations 6.6 4.9
Exceptional items* 2.3 12.4
Adjusted EBITDA 121.4 107.4
* Exceptional items relate to the closure of Gilabbey Veterinary Hospital and
include a trading loss for the year of £1.3m, loss of disposal of patient
data records of £0.8m and impairment of right-of-use asset, net of reduction
in lease liability, of £0.2m.
We believe the Group is well placed to continue to deliver further growth
underpinned by our strategy and integrated business model. Our balance sheet
further supports investment opportunities to deliver on our growth ambitions.
Taxation
The Group's tax charge for the year is £12.0m (2022: £10.3m), an increase of
£1.7m at an effective tax rate of 22.2% (2022: 28.6%).
A reconciliation of the expected tax charge, at the standard rate, to the
actual charge is shown below:
£m % *
Profit before tax 53.9
Expected tax at UK standard rate of tax 11.1 20.5%
Expenses not deductible for tax purposes 1.3 2.4%
Adjustments to deferred tax in respect of previous periods 0.4 0.8%
Adjustments to previous year tax charge (2.3) (4.3%)
Impact of unrecognised losses 0.6 1.1%
Effect of difference between closing deferred tax rate and current tax rate 0.9 1.7%
Actual charge/effective rate of tax 12.0 22.2%
* 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 and depreciation on fixed assets that do
not qualify for tax relief. Tax relief for some expenditure, mainly fixed
assets, is received over a longer period than that for which the costs are
charged in the financial statements.
Financial position
2023 2022 Change
£m £m £m
Intangible assets 256.1 216.5 39.6
Property, plant and equipment 101.5 69.7 31.8
Right-of-use assets 102.9 101.7 1.2
Other non-current assets - 2.4 (2.4)
Current assets 111.8 127.9 (16.1)
Current liabilities (105.1) (101.4) (3.7)
Non-current liabilities (210.6) (199.4) (11.2)
Equity 256.6 217.4 39.2
Intangible assets
The Group's intangible assets consist of goodwill, patient data records and
computer software. The increase during the year is mainly from business
combinations of £59.6m, partially offset by amortisation of £22.6m. In
addition, £0.8m was impaired and treated as an exceptional item in respect of
the closure of Gilabbey. The Group reviews goodwill for impairment and as at
30 June 2023 maintains significant headroom with no indications of impairment.
Plant, property and equipment
The Group's continued focus and commitment to investing in our facilities and
equipment resulted in additions of £44.5m, (including business combinations)
(2022: £23.7m), offset by a depreciation charge in the year of £12.6m (2022:
£11.3m).
Other non-current assets
The Group maintains a cash flow hedge for the purpose of hedging interest
rates; as at 30 June 2023 the fair value of this hedge was £2.1m which is now
included within current assets as the hedge expires in February 2024 (2022:
£2.3m). In addition, during the year available for sale investments with a
carrying value of £0.1m were disposed.
Current assets
The net decrease in current assets of £16.1m to £111.8m from £127.9m is
driven from the reduction in cash held to £21.5m from £49.0m; partially
offset by an increase in working capital balances, including stock and debtors
following the growth in revenue.
Equity
The net increase in equity of £39.2m is mainly attributable to profit for the
year of £41.9m (2022: £25.7m), transactions related to share-based payments
taken to reserves of £3.0m (2022: £3.3m), partially offset by annual
dividends of £5.0m (2022: £4.6m).
Cash flow and movement in net debt
Net debt increased by £35.4m during the year from £35.3m to £70.7m
following an increase in investment in our facilities and equipment of £45.7m
from £24.5m and an increase in investment in acquisitions in the UK of
£54.6m from £8.4m.
The movement in net debt is explained as follows:
2023 2022
£m £m
Adjusted EBITDA 121.4 107.4
Working capital movements (10.9) (14.0)
Capital expenditure - maintenance (11.4) (10.8)
Repayment of right-of-use liabilities (14.1) (12.7)
Operating cash flow 85.0 69.9
Operating cash conversion (%) 70.0% 65.1%
Taxation paid (14.9) (11.2)
Net interest paid (7.2) (6.4)
Free cash flow 62.9 52.3
Capital expenditure - investment (34.3) (13.7)
Business combinations (net of cash acquired)/other investments (54.6) (20.8)
Contingent consideration (2.6) (0.3)
Dividends paid (5.0) (4.6)
Other financing activities (4.4) 2.4
Net (outflow)/inflow (38.0) 15.3
Increase/(decrease) in unamortised borrowing costs 2.6 (0.4)
(Increase)/decrease in net debt (35.4) 14.9
The Group continues to remain highly cash generative with operating cash flow
of £85.0m (2022: £69.9m). Negative working capital movements of £10.9m was
mainly driven by an increase in stock and other receivables.
Operating cash conversion of 70.0% (2022: 65.1%) was in line with our capital
markets day ambition of 70%.
Interest paid of £7.2m (2022: £6.4m) reflects the increasing SONIA rates
from 1.1874% on 30 June 2022 to 4.9286% on 30 June 2023, together with
increased bank borrowings following enhanced investment in capital expenditure
and strategic acquisitions.
Maintenance capital expenditure of £11.4m (2022: £10.8m) reflects
expenditure required in order to maintain the quality of our facilities and
services.
Investment capital expenditure of £34.3m (2022: £13.7m) includes new sites,
relocations, significant refurbishments and extensions and new equipment. We
are pleased with the additional investment we have made in the year and
continue to see further opportunities to grow organic revenue in line with our
growth ambitions and commitment to spend between £30.0m and £50.0m per
annum.
Business combinations of £54.6m (2022: £8.4m) consisted of 11 practices
(comprising 16 practice sites). This investment in the year is again in line
with our growth ambition set out at the Capital Markets Day in November 2022.
A dividend of £5.0m (2022: £4.6m) was paid in the year reflecting a final
dividend for the prior year of 7.0p per share.
Other financing activities includes £3.6m of costs in respect of refinancing
our facilities which were capitalised on the balance sheet.
Net debt and borrowing costs
The Group's net debt comprises the following:
2023 2022
£m £m
Borrowings repayable:
Within one year - -
After more than one year:
Term loan and revolving credit facility 95.5 85.0
Unamortised borrowing costs (3.3) (0.7)
Total borrowings 92.2 84.3
Cash and cash equivalents (21.5) (49.0)
Net debt 70.7 35.3
In February 2023, the Group successfully increased its loan facilities from
£170.0m to £350.0m which comprises a £87.5m term loan and £262.5m
revolving credit facility. This facility is supported by eight banks and for a
four-year term. The facility has two key financial covenants:
• net debt to bank test EBITDA of no more than 3.25x; and
• bank-test EBITDA to interest ratio of no less than 4.5x.
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 adoption of IFRS 16.
The increase in loan facilities supports the Group's ambition to continue to
invest via both organic growth and acquisition opportunities in the future in
line with our Capital Markets Day ambitions.
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, which end on 31 January
2024. In the prior year the two hedge arrangements were transitioned from
LIBOR to the SONIA benchmark rate.
The Group has a strong balance sheet with a leverage at 30 June 2023 of 0.73x,
an increase from 0.40x at 30 June 2022. The Group has the ability to generate
cash which enables it to effectively manage working capital. The Group targets
a long-term net debt to EBITDA ratio of less than 2.0x and closely monitors
this in line with acquisition investment opportunities.
Going concern and viability
At the 30 June 2023, the Group had cash balances of £21.5m and an unutilised
overdraft facility of £5.0m. Total facilities of £350.0m, of which £254.5m
were undrawn at 30 June 2023, are available to support the Group's organic and
acquisitive growth initiatives over the coming years, comprising a term loan
of £87.5m and an RCF of £262.5m. The Group is fully compliant with all
covenants in respect of these facilities.
The Directors consider that the £5.0m overdraft and the £350.0m facility
enable them to meet all current liabilities when they fall due. 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 five years to 30 June 2028, 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 its
liabilities as they fall due over the period. For this reason, the going
concern basis continues to be adopted in preparing the financial statements.
Share price performance
At the year end the Company's market capitalisation was £1.4bn (1,970p per
share), compared to £1.2bn (1,656p per share) at the previous year end.
Key contractual arrangements
The Directors consider that the Group has only two significant third-party
supplier contracts which are for the supply of veterinary drugs. In the event
that these suppliers ceased trading, the Group would be able to continue in
business without significant disruption in trading by purchasing from
alternative suppliers.
Forward-looking arrangements
Certain statements and arrangements described in the Annual Report and 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
21 September 2023
The Group's principal risks and uncertainties are available on pages 60 to 68
of the Group's FY23 Annual Report and the Group's key performance indicators
are available on pages 24 to 27 of the Group's FY23 Annual Report.
Consolidated income statement
for the year ended 30 June 2023
Note 2023 2022
£m £m
Revenue 2 608.3 554.2
Cost of sales (346.0) (315.1)
Gross profit 262.3 239.1
Administrative expenses (200.0) (196.3)
Operating profit 62.3 42.8
Finance expense (8.4) (6.8)
Profit before tax 2 53.9 36.0
Tax expense 3 (12.0) (10.3)
Profit for the year 41.9 25.7
Earnings per Ordinary share (EPS)
Basic 4 58.8p 36.2p
Diluted 4 58.5p 35.9p
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
KPls. 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 2023 2022
£m £m
Profit before income tax 53.9 36.0
Adjustments for:
Finance expense 8.4 6.8
Amortisation of intangible assets 22.6 22.2
Depreciation of property, plant and equipment 12.6 11.3
Depreciation of right-of-use assets 15.2 14.1
Profit on disposal of property, plant and equipment and right-of-use assets (0.2) (0.3)
Costs relating to business combinations1 6.6 4.9
Exceptional items2 2.3 12.4
Adjusted EBITDA 2 121.4 107.4
Adjusted earnings per share (EPS):
Adjusted EPS 4 96.0p 85.8p
Diluted adjusted EPS 4 95.5p 85.0p
1. Includes amounts paid in respect of acquisitions in prior years
expensed to the income statement.
2. Exceptional items relate to impairment in respect of the Gilabbey
Veterinary practice closure in the current year and the impairment of Quality
Pet Care Ltd in the prior year. Further information is available in note 6 of
the FY23 Annual report.
Consolidated statement of financial position
as at 30 June 2023
Company registration number: 06312831
Note Group Group
2023 2022
£m £m
Non-current assets
Intangible assets 256.1 216.5
Property, plant and equipment 101.5 69.7
Right-of-use assets 102.9 101.7
Investments - 0.1
Amounts owed by Group undertakings - -
Derivative financial instruments - 2.3
460.5 390.3
Current assets
Inventories 28.4 26.2
Trade and other receivables 58.1 52.7
Derivative financial instruments 2.1 -
Current tax receivable 1.7 -
Cash and cash equivalents 21.5 49.0
111.8 127.9
Total assets 2 572.3 518.2
Current liabilities
Trade and other payables (91.1) (86.6)
Provisions (0.7) (2.1)
Lease liabilities (13.3) (9.4)
Current tax liabilities - (3.3)
(105.1) (101.4)
Non-current liabilities
Borrowings 6 (92.2) (84.3)
Lease liabilities (93.6) (95.1)
Deferred tax liabilities (24.8) (20.0)
(210.6) (199.4)
Total liabilities 2 (315.7) (300.8)
Net assets 256.6 217.4
Shareholders' equity
Share capital 0.1 0.1
Share premium 107.0 105.4
Capital redemption reserve 0.6 0.6
Treasury reserve - -
Cash flow hedge reserve 1.4 1.6
Cost of hedging reserve - -
Merger reserve (61.4) (61.4)
Foreign exchange translation reserve (0.2) -
Retained earnings 209.1 171.1
Total equity 256.6 217.4
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 21 September 2023 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 2023
Share capital Share premium Capital redemption Treasury Cash flow Cost of Merger reserve Foreign exchange translation reserve Retained earnings Total
£m £m reserve reserve hedge hedging £m £m £m equity
£m £m reserve reserve £m
£m £m
At 1 July 2022 0.1 105.4 0.6 - 1.6 - (61.4) - 171.1 217.4
Profit for the year - - - - - - - - 41.9 41.9
Other comprehensive income and losses
Cash flow hedges:
Fair value loss - - - - (0.2) - - - - (0.2)
Deferred tax on cash flow hedge and available-for-sale financial assets - - - - - - - - - -
Exchange differences on translation of foreign operations - - - - - - - (0.2) - (0.2)
Total other comprehensive loss - - - - (0.2) - - (0.2) - (0.4)
Total comprehensive (loss)/income - - - - (0.2) - - (0.2) 41.9 41.5
Transactions with owners
Issue of Ordinary shares - 1.6 - - - - - - - 1.6
Purchase of Treasury Shares - - - (1.2) - - - - - (1.2)
Disposal of Treasury shares - - - 1.2 - - - - (0.7) 0.5
Credit to reserves for share‑based payments - - - - - - - - 1.7 1.7
Deferred tax relating to share‑based payments - - - - - - - - 0.1 0.1
Dividends to equity holders of the Company - - - - - - - - (5.0) (5.0)
Total transactions with owners - 1.6 - - - - - - (3.9) (2.3)
At 30 June 2023 0.1 107.0 0.6 - 1.4 - (61.4) (0.2) 209.1 256.6
Share capital Share premium Capital redemption Treasury Cash flow Cost of Merger reserve Foreign exchange translation reserve Retained earnings Total
£m £m reserve reserve hedge hedging £m £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 (loss)/income - - - - 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
Disposal of treasury reserve - - - - - - - - - -
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
Consolidated statement of cash flow
for the year ended 30 June 2023
Note Group Group
2023 2022
£m £m
Cash flows from operating activities
Cash generated from operations 8 107.9 93.1
Taxation paid (14.9) (11.2)
Interest paid (7.2) (6.4)
Exceptional items (1.3) -
Net cash generated from operating activities 84.5 75.5
Cash flows from investing activities
Business combinations (net of cash acquired) 5 (54.6) (8.4)
Purchase of property, plant and equipment (42.3) (23.0)
Proceeds from sale of property, plant and equipment 0.3 0.2
Purchase of intangible assets (3.4) (1.5)
Purchase of other investments - (21.4)
Proceeds from sale of other investments 0.1 9.0
Net cash used in investing activities (99.9) (45.1)
Cash flows from financing activities
Dividends paid 7 (5.0) (4.6)
Proceeds from issue of Ordinary shares 1.6 2.3
Proceeds from sale of Treasury shares 0.5 -
Purchase of Treasury shares (1.2) -
Repayment of obligations under right-of-use assets (14.1) (12.7)
Debt issuance costs (3.6) -
Repayment of borrowings (0.8) (0.1)
Increase of borrowings 10.5 -
Net cash used in financing activities (12.1) (15.1)
Net (decrease)/increase in cash and cash equivalents (27.5) 15.3
Cash and cash equivalents at the beginning of the year 49.0 33.7
Cash and cash equivalents at the end of the year 21.5 49.0
Notes to the consolidated financial statements
for the year ended 30 June 2023
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, Norfolk 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 2023 or
2022, for the purpose of the Companies Act 2006, but is derived from those
financial statements. Statutory financial statements for 2023, 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 2022 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 with United Kingdom
adopted international accounting standards as applied in accordance with the
provisions of the Companies Act 2006 and
applicable law. The consolidated financial statements have been prepared on a
going concern basis and under the historical cost convention, except for
certain financial instruments 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 FY23 financial statements. Further details are provided
in the Directors' Report of the Group's FY23 Annual Report.
The accounting policies set out in the FY23 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
KPls. 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 PBT, 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 2023 2022
£m £m
Profit before income tax 53.9 36.0
Adjustments for:
Finance expense 8.4 6.8
Amortisation of intangible assets 22.6 22.2
Depreciation of property, plant and equipment 12.6 11.3
Depreciation of right-of-use assets 15.2 14.1
Profit on disposal of property, plant and equipment and right-of-use assets (0.2) (0.3)
Costs relating to business combinations1 6.6 4.9
Exceptional items2 2.3 12.4
Adjusted EBITDA 2 121.4 107.4
Adjusted earnings per share (EPS):
Adjusted EPS 4 96.0p 85.8p
Diluted adjusted EPS 4 95.5p 85.0p
1. Includes amounts paid in respect of acquisitions in prior years
expensed to the income statement.
2. Exceptional items relate to impairment and trading losses in respect
of the Gilabbey Veterinary Hospital closure in the current year and the
impairment of Quality Pet Care Ltd in the prior year. Further information is
available in note 6 of the FY23 Annual report.
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 2023 2022
£m £m
Borrowings repayable after more than one year:
Term loan and revolving credit facility 95.5 85.0
Unamortised borrowing costs (3.3) (0.7)
Total borrowings 6 92.2 84.3
Cash and cash equivalents (21.5) (49.0)
Net debt 70.7 35.3
For bank covenant reporting, an alternative calculation for net debt in used.
This definition can be found in note 3 of the FY23 Annual report.
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 2021, revenue is included from
September 2022 in the like‑for‑like calculations.
Critical accounting estimates and judgements
Accounting estimate: Research and Development Expenditure Tax Credit (RDEC)
Certain companies within the Group may be entitled to claim tax credits in
relation to the Research and Development Expenditure Tax Credit (RDEC) scheme
in the UK. Tax credits receivable under this scheme are determined to have the
substance of a government grant and accordingly these tax credits are
accounted for under IAS 20. Further information can be found in the Government
grants accounting policy.
The Group has recognised £1.8m in respect of their estimated claim for the
current year, being 2023, which is after applying a discount of £5.2m to
reflect uncertainty. The Group has also recorded £5.7m in respect of claims
submitted for 2022 and 2021, after applying a discount of £5.7m, and a
further £4.0m in respect of earlier years following the expiry of the enquiry
windows for those claims.
The total RDEC in the consolidated income statement is therefore £11.5m
(2022: £2.0m).
The Group has recognised £15.5m to date for claims already filed, or as
estimates for claims yet to be made for qualifying expenditure that has
already been incurred. Of this amount, £7.5m has an open enquiry window, and
this would therefore be the maximum amount that could be disallowed in the
event of challenge from HMRC. Alternatively, the maximum income that will be
recorded in future periods in relation to R&D expenditure that has already
taken place is estimated to be £11.0m, which would arise if all previously
submitted claims were paid in full, and the estimate for 2023, which is yet to
be submitted, was also recovered in full.
Management's policy remains to recognise the remainder of submitted claims
when the uncertainty has been removed either via formal acceptance of the
claims, or the expiry of the enquiry windows.
The net benefit of the RDEC scheme in the year was £9.6m after associated
costs (2022: £2.0m).
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 Chief Operating Decision Maker.
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 £441.7m of fees and £166.6m of goods (2022: £398.1m and
£156.1m respectively).
Operating segments
The Group is split into four operating segments (Veterinary Practices,
Laboratories, Crematoria and Online Retail Business) and a centralised support
function (Central administration) 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 Central administration
segment. Central administration 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 2023 Veterinary Laboratories Crematoria Online Retail Central administration Group
Practices £m £m Business £m £m
£m £m
Revenue 541.6 29.3 10.9 49.1 (22.6) 608.3
Adjusted EBITDA 116.6 9.2 3.6 3.9 (11.9) 121.4
Profit/(loss) before tax 59.7 8.2 3.1 3.8 (20.9) 53.9
Total assets 471.9 44.0 23.9 19.4 13.1 572.3
Total liabilities (171.3) (5.3) (3.2) (15.5) (120.4) (315.7)
Reconciliation of adjusted EBITDA
Profit/(loss) before tax 59.7 8.2 3.1 3.8 (20.9) 53.9
Finance expense 4.2 - - - 4.2 8.4
Amortisation of intangible assets 22.5 - 0.1 - 22.6
Depreciation of property, plant and equipment 10.9 0.9 0.5 - 0.3 12.6
Depreciation of right-of-use assets 14.7 0.1 - - 0.4 15.2
Profit on disposal of property, plant and equipment and right-of-use assets (0.2) - - - - (0.2)
Costs relating to business combinations 2.5 - - - 4.1 6.6
Exceptional items 2.3 - - - - 2.3
Adjusted EBITDA 116.6 9.2 3.6 3.9 (11.9) 121.4
Year ended 30 June 2022 Veterinary Laboratories Crematoria Online Retail Central administration 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 57.3 7.6 2.9 3.4 (35.2) 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 57.3 7.6 2.9 3.4 (35.2) 36.0
Finance expense 4.1 - - - 2.7 6.8
Amortisation of intangible assets* 22.1 - - 0.1 - 22.2
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)
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
* Amortisation of intangibles in the prior year of £7.5m has been
re-allocated from Central administration to Veterinary practices to better
reflect the nature of the charge.
Geographical segments
The business operates predominantly in the UK. As at 30 June 2023, it has 27
veterinary practices in the Netherlands and three 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
2023 2022
£m £m
Current tax
Current tax on profits for the year 14.1 13.1
Adjustments in respect of previous years (2.3) -
Total current tax charge 11.8 13.1
Deferred tax
Origination and reversal of temporary differences (0.2) (2.4)
Adjustments in respect of previous years 0.4 (0.4)
Total deferred tax charge/(credit) 0.2 (2.8)
Total tax expense 12.0 10.3
b) Reconciliation of effective tax charge
UK corporation tax rate is calculated using the blended standard rate of tax
for the year of 20.5% (2022: 19.0%). Taxation for other jurisdictions is
calculated at the rates prevailing in the respective jurisdictions. The total
taxation charge for the year differs from the theoretical amount that would
arise using the blended standard rate of UK corporation tax of 20.5% (2022:
19.0%) as explained below:
2023 2022
£m £m
Profit before tax 53.9 36.0
Effective tax charge at 20.5% (2022: 19.0%) 11.1 6.8
Effects of:
Expenses not deductible for tax purposes 1.3 1.2
Loss on disposal of non-qualifying assets - 2.3
Adjustments to deferred tax charge in respect of previous years 0.4 (0.4)
Adjustments to current tax charge in respect of previous years (2.3) -
Current year tax losses not recognised/utilisation of brought forward 0.6 0.2
losses previously unrecognised
Effect of difference between closing deferred tax rate and current tax rate 0.9 0.2
Total tax expense 12.0 10.3
Factors affecting the current tax charge
UK corporation tax is calculated at 20.5% (2022: 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 22.2% (2022: 28.6%) and has
decreased from the prior year mainly due to the non-recurring impact in the
prior year of the impairment and subsequent disposal of an investment, which
resulted in tax losses of £13.4m.
Changes in tax rates
The UK corporation tax rate for the period up to 31 March 2023 was 19.0% and
increased to 25% from 1 April 2023 (2022: 19.0%).
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 2023 or 30 June 2022.
4. Earnings per Ordinary share
a) Basic
2023 2022
Profit for the year (£m) 41.9 25.7
Weighted average number of Ordinary shares in issue 71,272,880 70,926,977
Basic earnings per share (pence) 58.8 36.2
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 both share option schemes, 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.
2023 2022
Profit for the year (£m) 41.9 25.7
Weighted average number of Ordinary shares in issue 71,272,880 70,926,977
Adjustment for contingently issuable shares - LTIPs 173,688 248,506
Adjustment for contingently issuable shares - SAYE schemes 205,853 377,056
Weighted average number of Ordinary shares for diluted earnings per share 71,652,421 71,552,539
Diluted earnings per share (pence) 58.5 35.9
Alternative performance measure: adjusted earnings per share
2023 2022
£m £m
Profit before tax 53.9 36.0
Adjustments for:
Amortisation of intangible assets 22.6 22.2
Costs relating to business combinations 6.6 4.9
Exceptional items 2.3 12.4
Adjusted profit before tax 85.4 75.5
Tax expense amended for the above adjustments (17.0) (14.6)
Adjusted profit after tax 68.4 60.9
Weighted average number of Ordinary shares in issue 71,272,880 70,926,977
Weighted average number of Ordinary shares for diluted earnings per share 71,652,421 71,552,539
Pence Pence
Adjusted earnings per share 96.0 85.8
Diluted adjusted earnings per share 95.5 85.0
5. Business combinations
Details of business combinations in the year ended 30 June 2023 are set out
below. The reason for each acquisition was to expand the CVS Group business
through acquisitions aligned to our strategic goals.
Name of business combination Date of acquisition
Werrington Vets Limited 27 July 2022
Woodlands Veterinary Clinic Limited 16 September 2022
Market Cross Veterinary Clinic Limited 18 October 2022
Seadown Veterinary Services Ltd 09 November 2022
The Harrogate Vet Limited 24 November 2022
AT Animal Care Limited 24 January 2023
Macqueen Veterinary Practice (trade and assets) 26 January 2023
Matt Smith Pet Care Limited 26 January 2023
East of England Veterinary Specialists Limited 28 February 2023
Brunswick Veterinary Practice (trade and assets) 31 March 2023
Top Vets Limited 25 May 2023
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 2023:
Book value of Fair value Fair value
acquired adjustments £m
assets £m
£m
Property, plant and equipment 2.2 - 2.2
Patient data records - 17.3 17.3
Right-of-use assets 4.3 - 4.3
Inventories 0.4 - 0.4
Deferred tax liability (0.3) (4.4) (4.7)
Trade and other receivables 3.6 - 3.6
Trade and other payables (2.8) - (2.8)
Loans (0.8) - (0.8)
Lease liabilities (4.3) - (4.3)
Total identifiable assets 2.3 12.9 15.2
Goodwill 42.1
Total consideration (net of cash acquired of £5.0m) 57.3
Initial consideration paid (net of cash acquired of £5.0m) 54.6
Deferred consideration payable 1.2
Contingent consideration payable 1.5
Total consideration (net of cash acquired of £5.0m) 57.3
The total consideration of £57.3m is prior to the agreement of the completion
accounts. The amounts recognised are subject to adjustment in line with IFRS
3 for up to twelve months from acquisition, with goodwill being adjusted
accordingly.
Contingent consideration payable relates to a business combination made in the
year where consideration is payable over a 3 year period based on the practice
reaching certain adjusted EBITDA targets. This is held at fair value and it is
expected that this will be payable.
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 £10.7m and
£2.4m respectively. The post-acquisition period is from the date of
acquisition to 30 June 2023. Post-acquisition EBITDA represents the direct
operating result of practices from the date of acquisition to 30 June 2023
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 £4.4m (2022: £4.9m) are included within other expenses
in note 6 of the financial statements.
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 2022. During the
year £nil (2022: £0.4m) was paid to settle deferred consideration payable
from the prior year.
Business combinations subsequent to the year end
Details of business combinations made subsequent to the year end are set out
below. The reason for each acquisition was to expand the CVS Group business
through acquisitions aligned to our strategic goals.
Name of business combination % Share capital acquired Date of acquisition Country of incorporation
Vetright Pty Ltd* 75% 26 July 2023 Australia
McDowall Veterinary Hospital Pty. Ltd 100% 26 July 2023 Australia
Brunker Road Veterinary Centre Pty Limited 100% 17 August 2023 Australia
North Road Veterinary Centre Trade and asset 23 August 2023 Australia
Cattle Dog Health Pty Ltd 100% 23 August 2023 Australia
The table below summarises the total assets acquired through business
combinations subsequent to the year end:
Book value of Fair value Fair value
acquired adjustments £m
assets £m
£m
Property, plant and equipment 0.5 - 0.5
Patient data records - 13.5 13.5
Right-of-use assets 1.1 - 1.1
Inventories 0.2 - 0.2
Deferred tax liability - (4.1) (4.0)
Trade and other receivables 0.3 - 0.3
Trade and other payables (0.8) - (0.8)
Loans (0.2) - (0.2)
Lease liabilities (1.1) - (1.1)
Total identifiable (liabilities)/assets - 9.4 9.4
Goodwill 15.0
Total consideration (net of cash acquired of £0.5m) 24.4
Initial consideration paid (net of cash acquired of £0.5m) 23.8
Deferred consideration payable 0.6
Total consideration (net of cash acquired of £0.5m) 24.4
* On 26 July 2023, the Group acquired a 75% interest in Vetright Ptd Ltd
(included on page 140) in Australia for initial cash consideration of £8.7m.
The identifiable net assets at acquisition were valued at £5.7m, of which 25%
will be attributed to Non-Controlling Interest (NCI). NCI are measured at the
proportionate share of the identifiable net assets at the date of acquisition.
The acquisition comprised net assets (being principally patient data records)
with a fair value of £5.1m, resulting in goodwill of £5.3m.
The total consideration of £24.4m is prior to the agreement of the completion
accounts. The amounts recognised are subject to adjustment in line with IFRS
3 for up to twelve months from acquisition, with goodwill being adjusted
accordingly.
Goodwill and intangible assets recognised in the year relating to business
combinations are not expected to be deductible for tax purposes.
In addition to the above, the Group has made a further two acquisitions:
On 15 September 2023, the Group completed the purchase of 100.0% of the share
capital of Bridge Veterinary Practice Limited, a company registered in England
and Wales, for initial cash consideration of £3.5m. 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 £3.7m.
On 18 September 2023, the Group completed the purchase of 100.0% of the share
capital of Masefield Veterinary Services Ltd, a company registered in England
and Wales, for initial cash consideration of £3.1m, 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 £3.0m.
6. Borrowings
Borrowings comprise bank loans and are denominated in Sterling. The repayment
profile is as follows:
Group 2023 2022
£m £m
Within one year or on demand - -
Between one and two years - 84.3
After more than two years 92.2 -
92.2 84.3
The balances above are shown net of issue costs of £3.3m (2022: £0.7m),
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 £350.0m to 21 February 2027, provided by a
syndicate of eight banks: AIB, Barclays, Danske, HSBC, JP Morgan, Lloyds,
NatWest and Virgin Money. The facility comprises the following elements:
• a fixed term loan of £87.5m, repayable on 21 February 2027 via a
single bullet repayment;
• a four-year Revolving Credit Facility of £262.5m, available to 21
February 2027; and
• we retain our £5.0m overdraft facility, renewable annually.
The two financial covenants associated with these facilities 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 2023.
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 2023, the Group has a committed overdraft facility of £5.0m (2022:
£5.0m) and an RCF of £262.5m (2022: £85.0m). The overdraft was undrawn at
30 June 2023 (2022: undrawn) and the RCF was £8.0m drawn (2022: fully
undrawn).
7. Share capital
Dividends
The Directors have proposed a final dividend of 7.5p (2022: 7.0p) per share,
giving a total of £5.4m (2022: £5.0m). During the year the 2022 final
dividend totalling £5.0m was paid (2022: £4.6m).
8. Cash flow generated from operations
Group Company
2023 2022 2023 2022
£m £m £m £m
Profit/(loss) for the year 41.9 25.7 (0.8) (0.6)
Tax expense 12.0 10.3 - -
Finance expense 8.4 6.8 - -
Amortisation of intangible assets 22.6 22.2 - -
Depreciation of property, plant and equipment 12.6 11.3 - -
Depreciation and impairment of right-of-use assets 15.2 14.1 - -
Profit on sale of property, plant and equipment and right-of-use assets (0.2) (0.3) - -
Increase in inventories (1.8) (6.6) - -
(Increase)/decrease in trade and other receivables (4.6) (3.2) 4.2 2.9
Decrease in trade and other payables (0.8) (0.1) - -
Decrease in provisions (1.4) (1.8) - -
Share option expense 1.7 2.3 - -
Exceptional items 2.3 12.4 - -
Total net cash flow generated from operations 107.9 93.1 3.4 2.3
9. Related party transactions
Directors' and key management's compensation is disclosed in note 8 of the
FY23 Annual Report.
Company
During the year the Company had the following transactions with CVS (UK)
Limited:
2023 2022
£m £m
Recharge of expenses incurred by CVS (UK) Limited on behalf of the Company (0.8) (0.6)
Cash advanced to fund payment of dividend (5.0) (4.6)
The following balances were owed by related companies:
2023 2022
Receivable Payable Receivable Payable
£m £m £m £m
CVS (UK) Limited 75.2 - 79.4 -
Amounts owed by CVS (UK) Limited are unsecured and interest free and have no
fixed date of repayment.
Transactions with Directors and key management
On 24 November 2022, the Group completed the purchase of 100.0% of the share
capital of The Harrogate Vet Limited, a company registered in England and
Wales, for total consideration of £2.5m, plus deferred consideration of
£0.1m and contingent consideration of £1.5m. This is a business comprising
one animal veterinary practice site in the UK. Prior to acquisition, the
company was partially owned by the spouse of one of the Executive Directors of
the Group, and as such the acquisition is considered a related party
transaction. The terms of the acquisition, including consideration paid, were
on an arm's length basis and consistent with acquisitions of other unrelated
entities.
Consideration of £1.6m remains payable to the related party, of which £1.5m
is contingent on fixed EBITDA targets within the practice acquired. The
related party remained in part-time employment within the Group and received a
salary in 2023 of £8,400 which is on an arm's length basis.
The following dividends were paid to the Directors of the Group:
2023 2022
£ £
R Connell 11,830 10,693
R Gray 420 325
D Kemp 561 426
D Wilton 455 -
R Fairman 1381 1,158
B Jacklin 467 306
Spouse R Fairman 848 709
Spouse R Alfonso 243 130
Spouse B Jacklin 86 -
10. Events after the reporting period
Since the 30 June 2023, the Group has entered the Australian veterinary
services market and completed 5 acquisitions comprising of 5 practice sites
for initial cash consideration of £23.8m (Australian $46.8m), detailed below.
This is aligned with the Group's strategic goals.
Name of business combination % Share Capital acquired Date of acquisition Country of incorporation
Vetright Pty Ltd 75% 26 July 2023 Australia
McDowall Veterinary Hospital Pty. Ltd 100% 26 July 2023 Australia
Brunker Road Veterinary Centre Pty Limited 100% 17 August 2023 Australia
North Road Veterinary Centre Trade and asset 23 August 2023 Australia
Cattle Dog Health Pty Ltd 100% 23 August 2023 Australia
In addition to the above, the Group completed the following two acquisitions
of two practice sites in the UK.
On 15 September 2023, the Group completed the purchase of 100.0% of the share
capital of Bridge Veterinary Practice Limited, a company registered in England
and Wales, for initial cash consideration of £3.5m. This is a business
comprising one companion animal veterinary practice site in the UK, aligned
with the Group's strategic goals.
On 18 September 2023, the Group completed the purchase of 100.0% of the share
capital of Masefield Veterinary Services Ltd, a company registered in England
and Wales, for initial cash consideration of £3.1m. This is a business
comprising one companion animal veterinary practice site in the UK, aligned
with the Group's strategic goals.
Further information on these business combinations can be found in note 5.
In addition the Group has exchanged contracts in respect of the acquisition of
an additional small animal first opinion veterinary practice in the UK, with
completion expected by the end of September 2023. Consideration for this
pending acquisition is £2.5m.
On 7 September 2023, the CMA announced a Market Review of the Veterinary
sector for household pets in the UK. The review is carried out under the CMA's
general review function which allows it to obtain, compile and keep under
review information relating to the CMA's functions. The Market Review is
voluntary and we will work closely with the CMA in support. The CMA have
stated they will provide a further update in early 2024.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR EADNFADKDEEARecent news on CVS
See all newsREG - CVS Group plc - Total Voting Rights
AnnouncementREG - CVS Group plc - Disposal of Crematorium Operations
AnnouncementREG - CVS Group plc - Total Voting Rights
AnnouncementREG - CVS Group plc - PDMR Dealing
AnnouncementREG - CVS Group plc - Standard form for notification of major holdings
Announcement