REG - CVS Group plc - Interim Results
24/03/2022 07:00
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RNS Number : 8357F CVS Group plc 24 March 2022
For Immediate Release 24 March 2022
CVS Group plc
("CVS" or the "Company" and, together with its subsidiaries, the "Group")
Interim results for the six months ended 31 December 2021
Well positioned for further growth with care at our heart
CVS, the AIM-quoted veterinary group and one of the UK's leading providers of
integrated veterinary services, is pleased to announce its unaudited interim
results for the six months ended 31 December 2021 ("H1 2022") and provide an
update on year-to-date trading. Comparative data is provided for the six
months ended 31 December 2020 ("H1 2021"), unless otherwise stated.
Financial Highlights
£m except where stated H1 2022 (unaudited) H1 2021 (unaudited) Change(6) % FY 2021 (audited)
Revenue 273.7 245.6 11.4% 510.1
Group like-for-like ("LFL") sales growth(1) (%) 9.6% 7.8% +1.8 ppts 17.4%
Adjusted EBITDA(2) 52.0 45.1 15.5% 97.5
Adjusted EBITDA(2) margin (%)
Adjusted EBITDA(2) margin (%) 19.0% 18.4% +0.6 ppts 19.1%
Adjusted profit before income tax(3) 36.2 29.7 21.9% 66.2
Adjusted earnings per share(4) (p) 41.5 33.3 24.6% 75.1
Operating profit 26.3 18.4 42.9% 40.1
Profit before income tax 22.9 14.8 54.7% 33.1
Basic earnings per share (p) 24.7 16.0 54.4% 27.3
Net bank borrowings(5) 63.2 44.4 42.3% 51.3
Notes
1( ) Like-for-like sales are defined as revenue generated from
like-for-like operations compared to the prior year, adjusted for the number
of working days. For example, for a practice acquired in September 2020,
revenue is included in the like-for-like calculations from September 2021.
2( ) Adjusted EBITDA (earnings before interest, tax, depreciation
and amortisation) is profit before income tax, net finance expense,
depreciation, amortisation, costs relating to business combinations, and
exceptional items. Adjusted EBITDA is used as a financial metric that removes
the cost of debt, costs relating to depreciation and amortisation and one-off
costs to achieve a normalised earnings figure that is not distorted by
irregular items or structural investment. Alternative performance measures
("APM") are defined in note 2 to the financial statements.
( )3( ) Adjusted profit before income tax is calculated as profit
before amortisation, taxation, costs relating to business combinations, and
exceptional items. APM are defined in note 2 to the financial statements.
4 Adjusted earnings per share is calculated as adjusted profit
before income tax less applicable taxation divided by the weighted average
number of Ordinary shares in the year. APM are defined in note 2 to the
financial statements.
5 Net bank borrowings is drawn bank debt less cash at bank.
6 Percentage increases and decreases are calculated based on the
underlying values throughout this document.
7 CVS acquired Quality Pet Care Ltd, a small group of eight
first-opinion practices in the UK trading as 'The Vet', in August 2021 for
consideration of £20.4m. The financial statements of Quality Pet Care Ltd,
filed at Companies House for its financial year ended 31 March 2021, show
that these eight practices generated combined revenue of £11.3m for that
financial year. Quality Pet Care Ltd is treated as an investment as described
in note 11, and is not included in the consolidated figures throughout this
document.
Operational Highlights
· Organic growth continues:
o 9.6% increase in like-for-like sales(1)
o 11.3% increase in underlying like-for-like sales (this underlying
measure excludes the prior year impact of one-off COVID-19 testing in our
laboratories and Healthy Pet Club revenue deferred from FY20 to FY21)
o Membership of our affordable preventative healthcare scheme, Healthy Pet
Club ("HPC"), has increased to 461,000, up 2.7% since the 2021 financial
year-end (+7.6% vs. 31 December 2020)
· Continued focus on high quality clinical care supported by investment
in our facilities:
o Our focus on quality clinical care in our first-opinion practices
continues to be supported by our diagnostic laboratories, our specialist-led
multi-disciplinary referral hospitals, our out-of-hours centres and our
crematoria
o We have continued to invest in our facilities and equipment to support
growth, with 19 practice refurbishments and relocations completed in H1 2022
and capital investment of £10.6m
· Increase in clinical resource with c.9% more vets employed on average
in calendar year 2021 vs 2020, as we continue to create new roles to support
growth:
o 116 new permanent veterinary surgeon roles created during H1 2022
o Vet vacancy rate remains stable averaging at 10.3% for H1 2022
o Employee net promotor score increased to 3.7 (H1 2021: 1.3), reflecting
improved colleague satisfaction in light of our focus on, and investment in,
our highly skilled and dedicated team
Current Trading & Outlook
· Like-for-like sales(1) growth for the Group in the first eight
months of 10.0% and 11.4% on an underlying basis (28 February 2021: 8.2%),
total sales growth of 11.5% (28 February 2021: 8.7%)
· Adjusted EBITDA margin improved to 18.6% (28 February 2021: 18.1%)
· Stable vet vacancy rate, averaging 10.3% for the first eight months
(28 February 2021: 7.5%)
· Healthy Pet Club membership increased to 466,000 members
· Well positioned for future growth, with increased investment in
facilities, equipment and a pipeline of further acquisition opportunities
· We remain on course to deliver full year results in line with
management expectations
Richard Fairman, Chief Executive Officer, commented:
"I am pleased to report on another strong set of results which reflect the
commitment, dedication and professionalism of our colleagues. I would like to
take this opportunity to thank them all for their outstanding contribution.
We continue to focus on providing high quality care to our clients and their
animals, through our evidence-based clinical approach. Our integrated model
ensures that we can provide end-to-end, joined-up and continuous care.
Demand for our services continues to increase as consumers seek the best
possible care for their animals. Our ongoing strategy of investment in our
people, in our practice and other facilities, and in our clinical equipment is
generating beneficial returns through organic growth. We will continue to
augment this organic growth through acquisitions.
The positive trading momentum in H1 2022 has continued into the first two
months of our second half, and with a strongly cash generative model we remain
well placed to continue to invest and acquire to deliver future growth."
Results webcast
Management will host a live webcast and Q&A for analysts and investors at
9am GMT this morning. Those wishing to join should email CVSGroup@mhpc.com
(mailto:CVSGroup@mhpc.com) for the registration details. For those unable to
join, there will be a playback facility available on the CVS website later.
Contacts:
CVS Group
plc
via MHP Communications
Richard Fairman, CEO
Ben Jacklin, COO
Robin Alfonso, CFO
Singer Capital Markets (Nominated Adviser &
Broker)
+44 20 7496 3000
Aubrey Powell / Rachel Hayes / Jen Boorer
MHP Communications (Financial
PR)
+44 20 3128 8193
Andrew Jaques / Simon Hockridge / Rachel Farrington / Charles Hirst
About CVS Group plc (www.cvsukltd.co.uk (http://www.cvsukltd.co.uk) )
CVS Group is an AIM-quoted fully-integrated provider of veterinary services in
the UK, with practices in the Netherlands and the Republic of Ireland. CVS is
focused on providing high quality clinical services to its customers and their
animals, with outstanding and dedicated clinical teams and support colleagues
at the core of its strategy.
The Group has c.500 veterinary practices across its three markets, including
eight specialist referral hospitals and 35 dedicated out-of-hours sites.
Alongside the core Veterinary Practices division, CVS operates Laboratories
(providing diagnostic services to CVS and third-parties), Crematoria
(providing pet cremation and clinical waste disposal for CVS and third-party
practices), Buying Groups and the Group's online retail business ("Animed
Direct").
The Group employs c.7,900 personnel, including c.2,100 veterinary surgeons and
c.2,800 nurses.
Introduction
The Board is pleased to announce another strong set of results, with continued
growth in both revenue and underlying profit.
The focus of our highly skilled and dedicated team on first-class standards of
clinical care, delivered through our fully integrated model, has driven the
strong H1 performance, with an increase in like-for-like sales(1) of 9.6%
(11.3% on an underlying basis), leading to a 0.6 ppt improvement in adjusted
EBITDA(2) margin to 19.0%.
Market trends
CVS continues to operate in a growing market with favourable consumer trends.
Whilst there is a lack of definitive data available, the population of pets
has increased in the UK since the start of the first lockdown in March 2020,
with a survey by the Pet Food Manufacturers' Association showing 3.2 million
UK households having bought a pet since the start of lockdown restrictions.
Whilst we do not assume a further increase in the pet population, we are yet
to see the full benefit of this past increase. Spend on veterinary services
increases in line with the age of pets, with older cats and dogs needing
greater levels of clinical care. Hence, we expect the full benefit of the
increase in the pet population to be seen in the next five to ten years as the
puppies and kittens born in the past two years reach their mature later
years.
CVS is well placed to provide high standards of clinical care throughout a
pet's life, with our first-opinion practices supported by our specialist-led
multi-disciplinary hospitals, our out-of-hours centres and our diagnostic
laboratories. Our crematoria also provide a compassionate cremation service at
the end of an animal's life and this is an important offering given that
clients who lose a pet often buy a replacement.
Strategic focus
We have focused on delivering strong organic growth in recent years,
demonstrating the Group's resilience and ability to increase revenues despite
the challenges faced during the COVID-19 pandemic over the past two years.
This is clearly reflected in our underlying like-for-like sales growth in H1
2022 of 11.3%, which is adjusted for one-off HPC revenue recognition and the
benefit of COVID-19 testing in H1 2021.
In light of the increase in the pet population and the continued humanisation
of pets, demand for our high quality veterinary services has increased. We
have consciously increased our investment in our people, in the relocation and
refurbishment of our existing practices, and in clinical equipment, to service
this increased demand. Whilst we are encouraged by the returns from this
investment to date, we also recognise the opportunity to establish new
practices through greenfield sites. We have now commenced work at our new
greenfield multi-disciplinary referral hospital in Bristol, we have
established four greenfield farm practices in the past two years, and we are
exploring opportunities for greenfield companion animal practices in areas of
the UK which are currently underserved of which we have identified 10 possible
locations with some progressing as near-term opportunities.
We continue to look for selective synergistic acquisitions to complement our
growth. The recent Competition and Markets Authority ("CMA") phase one
decision on our acquisition of Quality Pet Care Ltd (discussed below) provides
insight as to how the CMA determines local competition among first opinion
small animal practices, in particular its assessment that a combined share of
over 30% of FTE (full-time equivalent) vets employed in the catchment area
immediately surrounding a practice indicates a potential for substantial
lessening of competition. This will help inform our future acquisitions
strategy enabling us to focus on the significant areas of the UK where CVS has
minimal existing presence and, even in areas where we have existing practices,
there will be acquisition opportunities which would not result in a combined
local market share reaching the 30% threshold.
The Group has a pipeline of future acquisition opportunities in the UK, and
will continue to explore new opportunities in Europe. Following the end of the
period, the Group has completed the acquisition of a small, single-site
companion animal veterinary practice in the Netherlands.
The Board has a clear strategy, focusing on four strategic pillars which
underpin the Group's purpose to give the best possible care to animals and its
vision to be the veterinary company people most want to work for, enabling the
Group to deliver consistent growth and shareholder value.
1. We recommend and provide the best clinical care every time
The Group's preventative healthcare scheme, Healthy Pet Club, provides peace
of mind for pet owners through high standards of preventative healthcare. The
scheme provides an annual vaccination, regular flea and worming treatments and
six-monthly health checks. These regular checks ensure any clinical issues are
highlighted early, often leading to improved clinical care and less invasive
intervention being required subsequently. Membership of the scheme has
increased 2.7% since 30 June 2021, to 461,000 members as at 31 December 2021.
Our Vet Oracle(TM) business, a virtual specialist hospital, provides
industry-leading veterinary diagnostic services directly to vets across the
globe. This currently comprises five specialisms: telemedicine, teleradiology,
telecardiology, teleoncology and teledermatology. Although Vet Oracle is
nascent, it continues to grow with an 84% increase in the total number of
cases received in H1 2022 versus H1 2021. Through Vet Oracle we are helping to
improve standards of healthcare worldwide, illustrating our continuous strive
to improve the level of service, support and expertise available to our
clinical teams and our clients.
We continue to support the profession in clinical quality improvement, and
have continued to lead on this front with our internationally recognised work
on clinical auditing. This has included reducing our prescription of the
highest priority critically important antibiotics ("HPCIA"), and reducing the
number of neutering post-operative complications requiring medical
interventions below published national benchmarks.
2. We are a great place to work and have a career
In 2021, we implemented a number of initiatives to support our colleagues and
to thank them for their continued contribution. These initiatives include
increased holiday allowance with an additional day of holiday for every
completed year of service up to a maximum of five. In addition, our latest
Save-As-You-Earn equity incentive scheme, granted in November 2021, saw c.18%
of colleagues participate, taking advantage of the 20.0% discount to the
market share price, in accordance with HMRC rules.
We continue to provide resources and implement working practices designed to
improve our colleagues' wellbeing and work/life balance. This includes
improved out-of-hours cover and the expansion of our dedicated Vet Oracle
telemedicine services, providing advice and support to CVS vets.
We continue to provide industry leading career development opportunities for
our colleagues, including: our advanced clinical services network; our
Learning, Education and Development department, which has enrolled over 800
colleagues onto apprenticeships and created 256 learning webinars which have
had c.10,000 views; and c.50% of both our executive committee and senior
leadership group are clinicians who have developed into leadership roles.
As a result of these initiatives, the Group is pleased to see continued
stability in vacancy rates for veterinary surgeons at 10.3% in H1 2022
compared to 8.3% at 30 June 2021 (H1 2021: 7.4%) and attrition broadly stable
with early signs we are making some improvements, following the significant
improvement made in 2019.
Due to increasing client demand for the best quality veterinary services, we
are increasing the number of vets and nurses we employ with on average c.9%
more vets employed and c.12% more nurses employed in calendar year 2021 vs
2020, with the Group having created 116 new permanent veterinary surgeon roles
in the first half alone. Our 'refer-a-friend' programme resulted in over 200
successful appointments in H1 2022, almost three times the number of referrals
made in H1 2021. We recognise there are tailwinds that will improve the
availability of vets in the medium term, including the increase in graduate
intake amongst existing and new veterinary schools.
We continue our monthly tracking of our employee engagement with our Employee
Net Promoter Score ("eNPS"), which increased to 3.7 at the end of H1 2022,
from 2.9 at 30 June 2021 (H1 2021: 1.3).
3. We provide great facilities and equipment
Providing superior quality facilities and state-of-the-art equipment supports
our colleagues to deliver the best clinical care, as well as providing our
clients and patients with a high-quality, comfortable and enjoyable experience
when visiting our veterinary practices. Having resumed face-to-face
consultations, we take pride in welcoming our clients and their pets into our
practices.
All our practices participate in the voluntary RCVS Practice Standards Scheme
("PSS"), because we are keen to support improvement in standards across the
veterinary profession. Updates to PSS awards, which were delayed during the
COVID-19 pandemic, have now resumed; we currently hold 159 PSS awards and we
look forward to the result of the upcoming reviews.
During the period, we invested £10.6m in facilities, equipment and software,
an increase of £4.4m versus H1 2021, including 14 refurbishments and 5
relocations. We are encouraged by the returns being seen from this investment.
We plan to ramp up this investment with approximately half of our UK practices
representing clear opportunities for enhanced growth through further
investment and we currently have 54 sites in which we are at the design,
planning, tender or construction stage, with some of these developments due to
complete in H2 2022. We have a number of other sites where we can improve
clinical services and drive increased revenue through better facilities, and
hence we plan to invest additional capital over the next five years to support
quality enhancements and further growth.
4. We take our responsibilities seriously
Our responsibilities span more than just legal and regulatory requirements as
we aim to create value for all of our stakeholders, from our colleagues, to
our local communities, to our investors.
In an industry first, we have partnered with the British Small Animal
Veterinary Association ("BSAVA") to provide all CVS colleagues with access to
a range of the latest BSAVA Library online resources. This gives our
colleagues even better support, with up-to-date resources to ensure they can
provide the right advice and treatment.
We continue to train mental health first aiders throughout our business, who
champion and promote positive mental health within their teams, and provide an
essential resource for peers. Our employee assistance programme provides
additional support for those who need it, and we continue to work with and
provide funding to Vetlife, a charity providing support to the veterinary
community, to ensure all our veterinary colleagues and their families have
24/7 access to support.
We acknowledge the opportunity to innovate and boost clinical knowledge, and
are pleased to be the first corporate to earmark a fund for both CVS and
non-CVS clinicians to apply for Clinical Research Awards, designed to fund
clinical research and quality improvement projects in collaboration with
academics from universities in the United Kingdom, Republic of Ireland and the
Netherlands. We made our first awards under this scheme in March 2022.
We are delighted to announce that our Vet Oracle Clinical Director, Laurent
Garosi, has been awarded the prestigious BSAVA 'Bourgelat Award' for truly
outstanding international contributions to the field of small animal practice.
Laurent's work on both cerebrovascular disease, and phenotypic classification
and clinical characteristics of movement disorders in dogs, has progressed the
respective fields immeasurably, and this award is recognition of that
extraordinary contribution.
Environmental, Social and Governance ("ESG")
We frame our approach to ESG around the concept of having Care at our Heart,
because our commitment to doing the right thing, in the right way, is at the
very core of our business. For ESG to be fully embedded, we have integrated
sustainability analysis, priority setting and data collection into seven
working groups across our business. They are responsible for setting their own
terms of reference, timelines and targets, to avoid a top-down approach and to
allow them to propose and deliver genuinely impactful work.
We are in the process of taking advice on remuneration linked to ESG targets,
and have started to engage with suppliers around the impact of our wider value
chain. Our work with them could include digital-only purchasing and fewer
deliveries to practices.
We are expanding our KPIs and have a new workstream devoted to how best to
report our data and our progress, and are analysing how we report against
global standards such as SASB. We will be launching our first stand-alone ESG
report this summer, and look forward to sharing more news with you at that
point.
In the first half of FY22 we have continued to implement measures designed to
reduce the environmental impact of our activities. We planted over 4,000m(2)
of native British woodland through our National Trust initiative, to plant one
square metre for every pet received directly for individual cremation
throughout 2021. In addition, Vet Direct has vastly reduced its printing of
catalogues and, by carbon balancing the paper used, helped protect almost
5,000m(2) of critically threatened tropical forest.
Future acquisition strategy
Whilst we are naturally disappointed with the recent CMA decision following
their investigation into our August 2021 acquisition of Quality Pet Care Ltd,
(trading as 'The Vet'), we have offered undertakings to dispose of Quality Pet
Care Ltd and all eight of its sites in order to resolve any potential
competition concerns. The CMA announced on 4 March 2022 their provisional
acceptance of these undertakings and we will continue to work with the CMA in
securing an appropriate buyer to the CMA's satisfaction. The financial
statements of Quality Pet Care Ltd, filed at Companies House for its
financial year ended 31 March 2021, show that these eight practices generated
combined revenue of £11.3m for that financial year. Quality Pet Care Ltd is
treated as an investment as described in note 11, and is not included in the
consolidated figures throughout this document.
The CMA decision outlined how they assessed local competition among first
opinion small animal practices based on the customer catchment area and
resulting drive time surrounding the relevant practice (reflecting 80% of the
practices' customers) and the share of full time equivalent ("FTE") vets on a
combined post-acquisition basis. The CMA's decision was that a share of more
than 30% of vet FTE in this catchment area gives rise to the possibility of a
substantial lessening of competition.
Whilst we do not fully agree with the CMA's approach, their decision is
helpful in our assessment of a number of future acquisition opportunities in
the UK. There are c.5,300 veterinary practices in the UK of which it is
estimated c.55% are in corporate ownership and therefore there remains a
runway for consolidation. There are considerable parts of the UK where we
have no existing practices or limited existing presence and synergies remain
accessible regardless of location. Hence, our ability to make further
acquisitions in these areas should not be impacted. Furthermore, there are
other practice acquisition opportunities where, even if the target practice is
close to our existing sites, we will not reach the 30% vet FTE threshold.
Our strategic focus over the past three years has been to drive organic growth
through a focus on our people and the provision of high quality clinical care,
augmented by selective acquisitions. We are confident in our ability to
continue this approach with further UK acquisitions supporting continued
organic growth.
We also operate practices in Europe, with 26 practices in the Netherlands and
six in Ireland. We recognise an opportunity to further expand our business in
mainland Europe and have previously appointed advisers to review European
markets and to help us assess their attractiveness. We continue to monitor
markets such as Germany, France and Spain which are opening up to
consolidation and we are confident these markets will present opportunities
for CVS in due course.
Capital allocation
We continue to generate strong operating cash flows and our leverage (net debt
/ adjusted annualised EBITDA) remains comfortably below 1.0x as a result. We
have substantial committed but undrawn bank facilities and hence are well
placed to increase organic and inorganic investment in support of future
growth.
Our capital allocation priorities include the following:
· Continued investment in our people through appropriate training,
support and career development opportunities;
· Increased investment in our practice facilities to support
exceptional standards of clinical care with 54 capital projects in our current
pipeline;
· Increased investment in our clinical equipment, for example we
are investing £1.2m in a state-of-the-art stereotactic linear accelerator in
our new Bristol Veterinary Specialists referral hospital, which will be the
first of its kind in the UK veterinary sector and will support advanced
treatment of cancer in pets;
· Increased investment in technology in support of our colleagues
and the clinical care we can provide;
· Continued investment in acquisitions; and
· Investment in greenfield sites to support growth across our
practice division.
Notwithstanding the significant investment opportunities outlined above, we
also recognise the opportunity to develop a more efficient capital structure
through a selective share buy-back programme. Some major shareholders have
expressed their support for selective share buy-back programmes, which we will
keep under consideration.
Financial Review
CVS delivered a robust performance for H1 2022, continuing to deliver organic
growth across all business areas, whilst investing in our existing veterinary
practice portfolio in support of our strategic priority to provide the best
clinical care for animals.
Group revenue was £273.7m in the period, an increase of 11.4% over the prior
year (H1 2021: £245.6m). Like-for-like(1) ("LFL") sales grew by 9.6%
(adjusted for the number of trading days in the period) (H1 2021: 7.8%) with
underlying LFL sales increasing by 11.3% (adjusted for the prior period
benefits of £3.0m of HPC revenue deferred from FY20 and £0.9m of revenue
from COVID-19 testing).
Gross margin before clinical staff costs increased to 77.1% (H1 2021:
75.8%). Employment costs as a percentage of sales increased to 50.4% (H1
2021: 48.9%) as we invested in our people in support of organic growth. With
our continued focus on clinical staff retention, our vet vacancy rate remains
stable at 10.3%, reflecting the increased number of roles being advertised to
meet client demand (H1 2021: 7.4%, prior to new roles being advertised).
Adjusted EBITDA for the half-year was £52.0m, an increase of 15.5% (H1 2021:
£45.1m). This is primarily due to the increase in top line revenue, but is
also supported by the recognition of £2.0m Research and Development
Expenditure Tax Credits.
Operating profit increased to £26.3m (H1 2021: £18.4m) after depreciation of
tangible and right-of-use assets of £12.4m (H1 2021: £11.8m), amortisation
of £11.3m (H1 2021: £10.6m) and costs relating to business combinations of
£2.0m (H1 2021: £4.3m).
Adjusted profit before income tax, which excludes amortisation, costs relating
to business combinations and exceptional items, increased to £36.2m (H1 2021:
£29.7m). Adjusted earnings per share increased to 41.5p (H1 2021: 33.3p).
Basic earnings per share for the period increased to 24.7p (H1 2021: 16.0p).
Cash generated from operations was £37.9m (H1 2021: £52.3m) with the
reduction reflecting bonus payments of c.£10m and the prior year having
benefitted from a working capital uplift from Q4 FY20 (severely impacted by
COVID-19 restrictive measures) into Q1 FY21.
Net bank borrowings increased to £63.2m (30 June 2021: £51.3m) after funding
£0.4m of acquisitions (net of cash acquired) and £19.7m of other investments
in the period (reflecting our acquisition of The Vet), along with £10.6m of
capital expenditure, up from £6.2m in the comparative period. This increase
reflects our continuing focus on investment in our practice portfolio to drive
organic growth through high quality clinical care.
Divisional performance
Veterinary Practices division
Our Veterinary Practices division comprises c.500 veterinary practices across
three markets, including eight specialist referral hospitals and 35 dedicated
out-of-hours sites, as well as our buying groups, Vet Direct and MiPet
insurance. Veterinary Practice division revenues of £243.3m were generated in
the six-month period to 31 December 2021, an increase of 11.5% on the £218.2m
achieved in the prior period (underlying revenue growth 13.1%). Like-for-like
sales growth was 9.4% in the period (H1 2021: 5.5%), reflecting the ongoing
success of our focus on organic growth within our veterinary practices.
Gross margin before clinical staff costs in the Veterinary Practice Division
improved slightly to 79.8% (H1 2021: 78.2%).
Adjusted EBITDA for the Veterinary Practice division increased to £52.1m (H1
2021: £45.8m). Adjusted EBITDA margin was stable at 21.4% (H1 2021: 21.0%).
This improved EBITDA margin reflects our improved gross margin, whereas the
prior period benefitted from net £3.0m of HPC income delayed from the
previous year.
Laboratories division
Our Laboratories division provides diagnostic services and in-practice
laboratory analysers to CVS practices and third-party owned veterinary
surgeries. Diagnostic services are offered via post and courier allowing
complete coverage of the UK. Revenue of £13.3m was generated in the period
(H1 2021: £13.9m). This 4.3% decrease is as a result of the one-off COVID-19
testing for CVS and third-parties in the prior period. On an underlying basis,
revenue grew 2.4%. Adjusted EBITDA was stable at £4.0m (H1 2021: £4.1m) with
underlying EBITDA increasing 3.9%.
Crematoria division
Our Crematoria division provides pet cremation and clinical waste disposal for
CVS and third-party practices. Revenue was £4.8m in the period (H1 2021:
£3.9m) reflecting the success of the Direct Pet Cremation project and the
National Trust native woodland programme. Adjusted EBITDA increased to £1.7m
(H1 2021: £1.4m).
Online retail business
We have continued to expand our Online retail business, Animed Direct, with
revenue increasing to £22.7m (H1 2021: £19.7m), benefitting from increased
product lines. Adjusted EBITDA was £1.7m (H1 2021: £1.4m).
Central administration
Central administration costs were £7.5m (H1 2021: £7.6m) after the
recognition of £2.0m of Research and Development Expenditure Tax Credits
("RDEC"). Expressed as a percentage of Group revenue, excluding RDEC, these
costs increased to 3.5% (H1 2021: 3.1%). The increase primarily relates to
salary costs for new roles to support the continued growth of the Group.
Cash flow and funding position
CVS had borrowings of £85.0m at 31 December 2021 with cash on the balance
sheet of £21.8m, bringing net bank borrowings to £63.2m (H1 2021: £44.4m).
The Group had leverage (net debt / adjusted annualised EBITDA) of 0.76x as of
31 December 2021 (30 June 2021: 0.68x), comfortably below 1.0x and providing
considerable headroom to support organic investment and targeted acquisitions.
The Group has total facilities of £175.0m to 31 January 2024, provided by a
syndicate of four banks: NatWest, HSBC, Bank of Ireland and Allied Irish
Banks, and comprising the following elements:
· a fixed term loan of £85.0m, repayable on 31 January 2024 via a
single bullet repayment;
· a four-year Revolving Credit Facility of £85.0m, that runs to 31
January 2024;
· a £5.0m overdraft facility, renewable annually; and
· an envisaged, but not committed, accordion facility of up to
£100.0m, that runs to 31 January 2024.
The Group is subject to two financial covenants associated with its existing
facilities which are based on the ratios of net debt to EBITDA and EBITDA to
interest. EBITDA for this purpose is based on adjusted EBITDA annualised for
the effect of acquisitions, including costs relating to business combinations
and excluding share option costs, prior to the adoption of IFRS 16.
The covenant levels allow a maximum Group net debt to EBITDA ratio ("gearing")
of 3.25x, although it is not the Group's intention to operate at this level.
The gearing ratio has increased during H1 2022, to 0.76x (30 June 2021:
0.68x). This increase is primarily due to an increase in net debt following
increased investment for future growth. The EBITDA to interest ratio must not
be less than 4.5x. As of 31 December 2021, the ratio was 38.2x.
Bank covenants are tested quarterly and the Group has considerable headroom in
both financial covenants and in its undrawn but committed facilities as at 31
December 2021.
Dividends
A dividend of 6.5p (December 2020: £nil) per share was paid in December 2021
in respect of the year ended 30 June 2021. The Board will continue to review
its dividend policy and anticipates the payment of a final dividend in respect
of the current financial year in December 2022. In line with our customary
practice, the amount of this dividend will be dependent on the outcome of the
full year and the growth capital needs of the business.
Current trading & outlook
The Board is pleased to report that the demand for our high-quality veterinary
services remains strong and the positive performance of H1 2022 has continued
into the first two months of the second half. Like-for-like sales(1) growth in
the eight-month (year-to-date) period is 10.0% for the Group, 11.4% on an
underlying basis. Our veterinary surgeon vacancy rate has remained stable at
10.3%, with the success of our recruitment and retention initiatives.
We completed the acquisition of Dierenkliniek Leloup Olst-Wijhe on 1 February
2022, a single site companion animal practice based in the Netherlands,
increasing the number of our practices in the Netherlands to 26.
The Group continues to generate underlying cash flows and leverage reduced to
0.60x as at 28 February 2022 (31 December 2021: 0.76x; 30 June 2021: 0.68x).
Outlook
The veterinary market continues to grow, with an increasing demand for
exceptional quality clinical care, including preventative healthcare. We
continue to provide the highest standards of end-to-end clinical care and a
broad range of services to meet our clients' needs throughout their animals'
lives.
We will continue our investment in organic growth through investment in our
people, technology, our existing facilities and our clinical facilities in
order to drive continued organic growth. This will be supplemented by
investment in further acquisitions and greenfield sites in order to augment
this organic growth.
The Board remains confident that the full year results will be in line with
management expectations. We look forward to welcoming investors and analysts
to our planned capital markets day in June 2022.
The Board would like to acknowledge and thank all members of the CVS team for
their continued dedication and professionalism. With their continuing support
and commitment, we look forward to sharing further success in the future.
Richard Connell
Chairman
24 March 2022
Condensed consolidated income statement for the six-month period ended 31 December 2021 (unaudited)
Note Six months ended 31 December 2021 (Unaudited) Six months ended 31 December 2020 (Unaudited) £m Year ended 30 June 2021 (Audited) £m
£m
Revenue 273.7 245.6 510.1
Cost of sales (159.3) (140.2) (288.2)
Gross profit 114.4 105.4 221.9
Administrative expenses (88.1) (87.0) (181.8)
Operating profit 26.3 18.4 40.1
Finance expense 5 (3.4) (3.6) (7.0)
Profit before income tax 22.9 14.8 33.1
Income tax expense 8 (5.4) (3.5) (13.8)
Profit for the period attributable to owners of the Parent Company 17.5 11.3 19.3
Earnings per Ordinary share (expressed in pence per share) ("EPS")
Basic 24.7p 16.0p 27.3p
Diluted 24.5p 15.9p 27.1p
All activities derive from continuing operations.
Reconciliation of adjusted financial measures
The Directors believe that an adjusted profit measure, being adjusted Earnings
Before Interest, Tax, Depreciation and Amortisation ("EBITDA"), provides
additional useful information for shareholders on performance. This is used
for internal performance analysis. This measure is not defined by IFRS and is
not intended to be a substitute for, or superior to, IFRS measurements of
profit. The following table is provided to show the comparative EBITDA after
adjusting for costs relating to business combinations, impairment and
exceptional items.
Non-GAAP measure: Adjusted EBITDA Note £m £m £m
Profit before income tax 22.9 14.8 33.1
Adjustments for:
Finance expense 5 3.4 3.6 7.0
Depreciation and impairment of tangible and right-of-use assets 9,10 12.4 11.8 24.3
Amortisation 9 11.3 10.6 23.8
Costs relating to business combinations* 2.0 4.3 9.3
Adjusted EBITDA 52.0 45.1 97.5
* Includes amounts paid in respect of acquisitions in prior years expensed to the income statement.
Condensed consolidated statement of comprehensive income for the six-month period ended 31 December 2021 (unaudited)
Year ended 30 June 2021 (Audited)
Six months ended 31 December 2021 (Unaudited) Six months ended 31 December 2020 (Unaudited)£m £m
£m
Profit for the period 17.5 11.3 19.3
Other comprehensive income - items that will or may be reclassified to profit or loss in future periods
Cash flow hedges:
Net movement on cash flow hedge 1.0 0.1 0.9
Cost of hedging reserve (0.1) (0.1) (0.4)
Deferred tax on cash flow hedge and available-for-sale financial assets (0.2) - (0.1)
Exchange differences on translation of foreign operations (0.5) 0.1 (0.7)
Other comprehensive income/(loss) for the period, net of tax 0.2 0.1 (0.3)
Total comprehensive income for the period attributable to owners of the parent 17.7 11.4 19.0
Condensed consolidated statement of financial position as at 31 December 2021 (unaudited)
Note 31 December 31 December 30 June 2021
(Audited)
2021 2020
£m
(Unaudited) (Unaudited)
£m £m
Non-current assets
Intangible assets 9 217.2 231.1 228.4
Property, plant and equipment 9 61.9 53.0 57.4
Right-of-use assets 10 98.9 98.5 97.2
Investments 11 17.1 0.1 0.1
Derivative financial instruments 0.5 - -
Deferred income tax assets 8 - 2.2 -
395.6 384.9 383.1
Current assets
Inventories 22.6 19.6 19.5
Trade and other receivables 49.5 44.2 48.1
Current income tax receivable 8 2.4 0.3 0.1
Cash and cash equivalents 21.8 40.6 33.7
96.3 104.7 101.4
Total assets 491.9 489.6 484.5
Current liabilities
Trade and other payables 12 (77.4) (100.8) (86.0)
Provisions 13 (3.0) (4.5) (3.9)
Lease liabilities 14 (8.6) (9.0) (8.6)
(89.0) (114.3) (98.5)
Non-current liabilities
Borrowings 16 (84.1) (83.7) (83.9)
Lease liabilities 14 (92.4) (90.4) (90.2)
Derivative financial instruments - (0.9) (0.4)
Deferred income tax liabilities (21.1) (20.9) (20.4)
(197.6) (195.9) (194.9)
Total liabilities (286.6) (310.2) (293.4)
Net assets 205.3 179.4 191.1
Condensed consolidated statement of financial position as at 31 December 2021 (unaudited)
31 December 2021 31 December 2020
(Unaudited) (Unaudited) 30 June 2021
£m £m (Audited)
£m
Shareholders' equity
Share capital 0.1 0.1 0.1
Share premium 103.3 101.9 103.1
Capital redemption reserve 0.6 0.6 0.6
Treasury reserve - (0.2) -
Cash flow hedge reserve 0.5 (1.3) (0.5)
Cost of hedging reserve - 0.4 0.1
Merger reserve (61.4) (61.4) (61.4)
Retained earnings 162.2 139.3 149.1
Total equity 205.3 179.4 191.1
The interim financial information above is reproduced from that on pages 11 to 28 of the Group's Interim Report which was approved by the Board of Directors on 24 March 2022.
Condensed consolidated statement of changes in equity for the six-month period ended 31 December 2021 (unaudited)
Share premium Capital redemption reserve Treasury reserve Cash flow hedge reserve Cost of hedging reserve Merger reserve Retained earnings Total equity
Share capital
£m £m £m £m £m £m £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 period - - - - - - - 17.5 17.5
Other comprehensive income:
Cash flow hedges: Fair value gains/(losses) - - - - 1.0 (0.1) - - 0.9
Exchange differences on translation of foreign operations - - - - - - - (0.5) (0.5)
Deferred tax on cash flow hedge - - - - - - - (0.2) (0.2)
Total other comprehensive income - - - - 1.0 (0.1) - (0.7) 0.2
Total comprehensive income - - - - 1.0 (0.1) - 16.8 17.7
Transactions with owners:
Credit to reserves for share-based payments - - - - - - - 1.3 1.3
Deferred tax relating to share-based payments - - - - - - - (0.4) (0.4)
Issue of ordinary shares - 0.2 - - - - - - 0.2
Dividends to equity holders of the Company - - - - - - - (4.6) (4.6)
Transactions with owners - 0.2 - - - - - (3.7) (3.5)
At 31 December 2021 0.1 103.3 0.6 - 0.5 - (61.4) 162.2 205.3
At 1 July 2020 0.1 101.9 0.6 (0.3) (1.4) 0.5 (61.4) 126.6 166.6
Profit for the period - - - - - - - 11.3 11.3
Other comprehensive income:
Cash flow hedges: Fair value gains/(losses) - - - - 0.1 (0.1) - - -
Exchange differences on translation of foreign operations - - - - - - - 0.1 0.1
Total other comprehensive income - - - - 0.1 (0.1) - 0.1 0.1
Total comprehensive income - - - - 0.1 (0.1) - 11.4 11.4
Transactions with owners:
Credit to reserves for share-based payments - - - - - - - 1.0 1.0
Deferred tax relating to share-based payments - - - - - - - 0.3 0.3
Disposal of treasury reserve - - - 0.1 - - - - 0.1
Transactions with owners - - - 0.1 - - - 1.3 1.4
At 31 December 2020 0.1 101.9 0.6 (0.2) (1.3) 0.4 (61.4) 139.3 179.4
Condensed consolidated statement of cash flows for the six-month period ended 31 December 2021 (unaudited)
Note Six months ended 31 December 2021 Six months ended 31 December 2020 Year ended 30 June
(Unaudited) £m (Unaudited) 2021
£m
(Audited)
£m
Cash flows from operating activities
Cash generated from operations 15 37.9 52.3 80.3
Taxation paid (5.5) (6.3) (13.0)
Interest paid (3.2) (3.9) (7.1)
Net cash generated from operating activities 29.2 42.1 60.2
Cash flows from investing activities
Business combinations (net of cash acquired) (0.4) (10.6) (19.4)
Purchase of other investments 11 (19.7) - -
Purchase of property, plant and equipment 9 (10.3) (6.0) (16.1)
Proceeds from sale of property, plant and equipment 0.1 - 0.6
Purchase of intangible assets 9 (0.3) (0.2) (0.5)
Net cash used in investing activities (30.6) (16.8) (35.4)
Cash flows from financing activities
Dividends paid (4.6) - -
Proceeds from issue of Ordinary shares 0.2 - 1.2
Proceeds from sale of Treasury shares - 0.1 0.3
Repayment of obligation under right-of-use asset (6.1) (6.2) (13.0)
Repayment of borrowings 16 - (0.1) (1.1)
) )
Net cash used in financing activities (10.5) (6.2) (12.6)
Net (decrease)/increase in cash and cash equivalents (11.9) 19.1 12.2
Cash and cash equivalents at the beginning of period 33.7 21.5 21.5
Cash and cash equivalents at end of the period 21.8 40.6 33.7
Notes to the interim consolidated financial information
1. General information
The principal activity of the Group is to operate veterinary practices,
complementary veterinary diagnostic businesses, pet crematoria and an online
retail business.
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 the AIM
Market of the London Stock Exchange.
The address of the registered office is CVS House, Owen Road, Diss, Norfolk,
IP22 4ER and the registered number of the Company is 06312831.
This interim consolidated financial information does not constitute statutory
accounts within the meaning of Section 434 of the Companies Act 2006. The
statutory accounts of CVS Group plc in respect of the year ended 30 June 2021
have been delivered to the Registrar of Companies, upon which the Company's
auditors have given a report which was unqualified and did not contain any
statement under Section 498 of the Companies Act 2006.
Forward looking statements
Certain statements in this interim report are forward-looking. Although the
Group believes that the expectations reflected in these forward-looking
statements are reasonable, we can give no assurance that these expectations
will prove to have been correct. Because these statements involve risks and
uncertainties, actual results may differ materially from those expressed or
implied by these forward-looking statements. Save as required by regulation or
law, we undertake no obligation to update any forward-looking statements
whether as a result of new information, future events or otherwise.
2. Basis of preparation
The interim consolidated financial information of CVS Group plc is for the six
months ended 31 December 2021. It is unaudited and has been prepared in
accordance with the AIM Rules for Companies and with IAS 34, 'Interim
Financial Reporting'. The interim consolidated financial information should be
read in conjunction with the annual financial statements for the year ended 30
June 2021, which have been prepared in accordance with international
accounting standards and in conformity with the requirements of the Companies
Act 2006.
The interim consolidated financial information has been prepared on a going
concern basis.
Use of non-GAAP measures
Adjusted EBITDA, adjusted profit before income tax ("adjusted PBT") and
adjusted earnings per share ("adjusted EPS")
The Directors believe that adjusted EBITDA, adjusted PBT and adjusted EPS
provide additional useful information for shareholders on the Group's
underlying performance. These measures are used by the Board and management
for planning and internal reporting and are aligned to our strategy and KPIs.
A subset is also used by management in setting Director and management
remuneration. The measures are also used in discussions with the investment
analyst community. These measures are not defined by 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 profit before income tax adjusted for interest (net finance
expense), depreciation, amortisation, costs relating to business combinations,
and exceptional items.
Adjusted PBT is calculated as profit before amortisation, taxation, costs
relating to business combinations and exceptional items.
Adjusted EPS is calculated as adjusted profit before income tax less
applicable taxation divided by the weighted average number of Ordinary shares
in issue during the period.
Like-for-like sales
Like-for-like sales comprise the revenue generated from all operations
compared to the prior year. Revenue is included in the like-for-like
calculation with effect from the month in which it was acquired in the
previous year adjusted for the number of working days; for example, for a
practice acquired in September 2020, revenue is included from September 2021
in the like-for-like sales calculation.
Net bank borrowings
Net bank borrowings is calculated as bank borrowings less gross cash and
unamortised borrowing costs.
3. Summary of significant accounting policies
The accounting policies adopted are consistent with those set out on pages 100
to 109 of the consolidated financial statements of CVS Group plc for the year
ended 30 June 2021 (which are available upon request from the Company's
registered office or on the Company's website).
The policy for recognising and measuring income taxes in the interim period is
described in note 8.
Critical accounting estimates and judgements
The preparation of financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities, income
and expenses. The significant judgements made by management in applying the
Group's accounting policies, and the key sources of estimation uncertainty,
were the same as those described in the last annual financial statements,
except for as set out below.
Accounting estimate: fair value measurement of investment in Quality Pet Care
Ltd
The Group has recognised an equity investment in relation to the 100%
ownership of Quality Pet Care Ltd, in line with IFRS 9, 'Financial
instruments', because the Group does not have control over the entity. Fair
value has been measured in accordance with IFRS 9 and IFRS 13, 'Fair value
measurement'. As a result of the ongoing CMA investigation, there are
information barriers in place preventing management from performing a detailed
fair value measurement. Management has therefore concluded that cost is an
appropriate estimate of fair value, as there are no indications that fair
value may be different to cost.
4. Segment reporting
Operating segments are reported in a manner consistent with the internal
reporting to the Chief Operating Decision Maker ("CODM"). The CODM has been
determined to be the Board of Directors, as it is primarily responsible for
the allocation of resources to segments and the assessment of the performance
of segments.
Segment information is presented in respect of the Group's business and
geographical segments. The primary format, operating segments, is based on the
Group's management and internal reporting structure and monitored by the
Group's CODM. Inter-segment pricing is determined on an arm's length basis.
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, taxation-related assets and liabilities, costs relating to business
combinations and Head office salary and premises costs.
Geographical segments
The business operates predominantly in the UK. As at 31 December 2021, it has
25 veterinary practices in the Netherlands and six in the Republic of Ireland.
It performs a small amount of laboratory 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.
Revenue comprises £195.5m of fees and £78.2m of goods (31 December 2020:
£172.7m and £72.9m respectively). Revenue from contracts totalled £33.0m in
the period (31 December 2020: £31.0m).
Operating segments
The Group is split into four operating segments (Veterinary Practices,
Laboratories, Crematoria and Online Retail Business) and a centralised support
function (Head Office) for business segment analysis. In identifying these
operating segments, management generally follows the Group's service lines
representing its main products and services.
Each of these operating segments is managed separately as each segment
requires different specialisms, marketing approaches and resources.
Intra-group sales eliminations are included within the Head Office segment.
Head Office includes costs relating to the employees, property and other
overhead costs associated with the centralised support function, together with
finance costs arising on the Group's borrowings.
Veterinary Practices Laboratories Crematoria Online Retail Business Head Group £m
Six-months ended £m £m £m £m Office
31 December 2021 £m
Revenue 243.3 13.3 4.8 22.7 (10.4) 273.7
Profit/(loss) before income tax 30.2 3.6 1.5 1.6 (14.0) 22.9
Adjusted EBITDA 52.1 4.0 1.7 1.7 (7.5) 52.0
Total assets 428.2 32.3 17.7 10.9 2.8 491.9
Total liabilities (163.0) (2.2) (1.1) (14.8) (105.5) (286.6)
Reconciliation of adjusted EBITDA
Profit/(loss) before income tax 30.2 3.6 1.5 1.6 (14.0) 22.9
Finance expense 2.1 - - - 1.3 3.4
Depreciation and impairment of tangible and right-of-use assets 11.6 0.4 0.2 - 0.2 12.4
Amortisation 7.2 - - 0.1 4.0 11.3
Costs relating to business combinations 1.0 - - - 1.0 2.0
Adjusted EBITDA 52.1 4.0 1.7 1.7 (7.5) 52.0
Veterinary Practices Laboratories Crematoria £m Online Retail Business Head Group £m
Six-month period ended 31 December 2020 £m £m £m Office
£m
Revenue 218.2 13.9 3.9 19.7 (10.1) 245.6
Profit/(loss) before income tax 22.2 3.7 1.2 1.4 (13.7) 14.8
Adjusted EBITDA 45.8 4.1 1.4 1.4 (7.6) 45.1
Total assets 434.1 27.4 15.5 10.4 2.2 489.6
Total liabilities (203.1) (3.6) (1.4) (4.4) (97.7) (310.2)
Reconciliation of adjusted EBITDA
Profit/(loss) before income tax 22.2 3.7 1.2 1.4 (13.7) 14.8
Finance expense 2.0 - - - 1.6 3.6
Depreciation and impairment of tangible and right-of-use assets 10.9 0.4 0.2 - 0.3 11.8
Amortisation 6.9 - - - 3.7 10.6
Costs relating to business combinations 3.8 - - - 0.5 4.3
Adjusted EBITDA 45.8 4.1 1.4 1.4 (7.6) 45.1
Laboratories Crematoria £m Online Retail Business Head Group £m
Veterinary Practices £m £m Office
Year ended 30 June 2021 £m £m
Revenue 453.4 28.0 8.0 41.7 (21.0) 510.1
Profit/(loss) before income tax 49.5 8.4 2.4 2.7 (29.9) 33.1
Adjusted EBITDA 98.4 9.1 2.8 2.9 (15.7) 97.5
Total assets 422.4 32.7 16.9 10.9 1.6 484.5
Total liabilities (179.8) (4.0) (1.4) (3.4) (104.8) (293.4)
Reconciliation of adjusted EBITDA
Profit/(loss) before income tax 49.5 8.4 2.4 2.7 (29.9) 33.1
Finance expense 4.1 - - - 2.9 7.0
Depreciation and impairment of tangible and right-of-use assets 22.7 0.7 0.4 - 0.5 24.3
Amortisation 14.0 - - 0.2 9.6 23.8
Costs relating to business combinations 8.1 - - - 1.2 9.3
Adjusted EBITDA 98.4 9.1 2.8 2.9 (15.7) 97.5
5. Finance expense
Six months ended 31 December 2021 Six months ended 31 December 2020 Year ended
(Unaudited) (Unaudited) 30 June
£m £m 2021
(Audited)
£m
Interest expense on bank loans and overdraft 1.1 1.4 2.5
Interest expense on IFRS 16 lease liabilities 2.1 2.0 4.1
Amortisation of debt arrangement fees 0.2 0.2 0.4
Net finance expense 3.4 3.6 7.0
6. Earnings per Ordinary share
(a) Basic
Basic earnings per Ordinary share is calculated by dividing the profit after
taxation by the weighted average number of shares in issue during the period.
Six months ended 31 December 2021 Six months ended 31 December 2020 Year ended
(Unaudited) (Unaudited) 30 June
£m £m 2021
(Audited)
£m
Earnings attributable to Ordinary shareholders (£m) 17.5 11.3 19.3
Weighted average number of Ordinary shares in issue 70,839,356 70,654,959 70,685,939
Basic earnings per share (pence per share) 24.7 16.0 27.3
(b) Diluted
Diluted earnings per Ordinary 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
Long-Term Incentive Plan ("LTIP") schemes and Save-As-You-Earn ("SAYE")
schemes. For share options, a calculation is undertaken to determine the
number of shares that could have been acquired at fair value (determined as
the average annual market share price of the Company's shares) based on the
monetary value of the subscription rights attached to outstanding share
options. The number of shares calculated as above is compared with the number
of shares that would have been issued assuming the exercise of the share
options.
Six months ended 31 December 2021 Six months ended 31 December 2020 Year ended
(Unaudited) (Unaudited) 30 June
£m £m 2021
(Audited)
£m
Earnings attributable to Ordinary shareholders (£m) 17.5 11.3 19.3
Weighted average number of Ordinary shares in issue 70,839,356 70,654,959 70,685,939
Adjustment for contingently issuable shares - LTIP 249,944 180,786 237,307
Adjustment for contingently issuable shares - SAYE 494,778 118,729 246,533
Weighted average number of Ordinary shares for diluted earnings per share 71,584,078 70,954,474 71,169,779
Diluted earnings per share (pence per share) 24.5 15.9 27.1
Non-GAAP measure: Adjusted earnings per share
Adjusted earnings per Ordinary share is calculated as adjusted profit before
income tax less applicable taxation divided by the weighted average number of
Ordinary shares in issue in the period.
Six months ended 31 December 2021 Six months ended 31 December 2020 Year ended
(Unaudited) (Unaudited) 30 June
£m £m 2021
(Audited)
£m
Earnings attributable to Ordinary shareholders 17.5 11.3 19.3
Add back taxation 5.4 3.5 13.8
Profit before income tax 22.9 14.8 33.1
Adjustments for:
Amortisation 11.3 10.6 23.8
Costs relating to business combinations 2.0 4.3 9.3
Adjusted profit before income tax 36.2 29.7 66.2
Tax charge amended for the above adjustments (6.8) (6.2) (13.1)
Adjusted profit after income tax and earnings attributable to owners of the 29.4 23.5 53.1
parent
Weighted average number of Ordinary shares in issue 70,839,356 70,654,959 70,685,939
Weighted average number of Ordinary shares for diluted earnings per share 71,584,078 70,954,474 71,169,779
Adjusted earnings per share (pence per share) 41.5p 33.3p 75.1p
Diluted adjusted earnings per share (pence per share) 41.1p 33.1p 74.6p
7. Share-based payments
Long-Term Incentive Plans ("LTIPs")
The Group operates an incentive scheme for certain senior executives, the CVS
Group Long-Term Incentive Plan ("LTIP").
Under the LTIP schemes, awards are made at an effective nil cost, vesting over
a three-year performance period conditional upon the Group's adjusted earnings
per share growth and Total Shareholder Return ("TSR"). The LTIP scheme
arrangements are equity-settled.
On 6 October 2021, LTIP15 was issued with an option life of 3 years over
74,174 shares. The share price at the grant date was £24.45 with an
exercise price of 0.2p. On 17 December 2021, LTIP15b was issued with an option
life of 3 years over 451 shares. The share price at the grant date was £22.85
with an exercise price of 0.2p.
During the six months to 31 December 2021, directors and employees exercised
97,491 share options (31 December 2020: nil) with a weighted average share
price at the date of exercise being £24.22 (31 December 2020: £nil), in
respect of the LTIP12 (31 December 2020: LTIP11) scheme.
The share-based payment charge for the period in respect of the options issued
under the LTIP schemes amounted to £0.8m (31 December 2020: £0.8m) and has
been charged to administrative expenses. National Insurance contributions
amounting to £0.2m (31 December 2020: £0.2m) have been accrued in respect of
the LTIP scheme transactions and are treated as cash-settled transactions.
Save-As-You-Earn ("SAYE")
The Group operates an equity incentive scheme for all UK employees, the CVS
Group SAYE plan, an HM Revenue & Customs-approved scheme. Under the new
SAYE14 scheme awards were made at a 20.0% discount (SAYE13 was made at a 20.0%
discount and SAYE10, SAYE11 and SAYE12 scheme awards were made at a 10.0%
discount) of the closing mid-market price on date of invitation, vesting over
a three-year period. There are no performance conditions attached to the SAYE
schemes.
SAYE14 scheme was opened for subscription in November 2021. 215,022 options
were granted in November 2021, with the first salary deductions taking place
in December 2021 and a contract start date of 1 January 2022. The exercise
price was £19.74, a 20.0% discount to the closing mid-market price on the
date of invitation.
Options were valued using the Black-Scholes option pricing model and the
share-based payment charge for the period in respect of the options issued
under the SAYE schemes amounted to £0.5m (31 December 2020: £0.2m) and has
been charged to administrative expenses.
8. Income tax expense
The tax charge for the six months ended 31 December 2021 is recognised based
on management's estimate of the weighted average annual effective tax rate
expected for the full financial year, adjusted for the tax impact of any
discrete items arising in the period. The estimated average annual tax rate
used for the six months ended 31 December 2021 is 21.8% (31 December 2020:
23.2%).
The reported effective tax rate for the six months ended 31 December 2021 is
23.8% (31 December 2020: 23.5%). The reported effective tax rate has increased
from the previous period by 0.3%; this is affected by a decrease in expenses
not deductible for tax purposes, predominantly in respect of business
acquisitions. In addition, as a result of the announced increase in the UK
corporation tax rate to 25%, deferred tax balances were remeasured in the
previous period.
9. Intangible assets and property, plant and equipment
Intangible assets Property, plant and equipment
£m £m
Six months ended 31 December 2021
Opening net book value at 1 July 2021 228.4 57.4
Foreign currency translation (0.2) -
Additions 0.3 10.3
Disposals - (0.1)
Amortisation and depreciation (11.3) (5.7)
Closing net book value at 31 December 2021 217.2 61.9
Six months ended 31 December 2020
Opening net book value at 1 July 2020 229.8 51.6
Foreign currency translation (0.1) -
Additions arising through business combinations 11.8 0.6
Additions 0.2 6.0
Amortisation and depreciation (10.6) (5.2)
Closing net book value at 31 December 2020 231.1 53.0
10. Right-of-use assets
Right-of-use assets
£m
Six months ended 31 December 2021
At 1 July 2021 97.2
Foreign currency translation (0.3)
Remeasurement of leases 4.0
Additions 4.9
Disposals (0.2)
Depreciation (6.7)
Closing net book value at 31 December 2021 98.9
Six months ended 31 December 2020
At 1 July 2020 98.1
Foreign currency translation (0.1)
Acquired through business combination 3.3
Remeasurement of leases 3.4
Additions 0.9
Disposals (0.5)
Depreciation (6.6)
Closing net book value at 31 December 2020 98.5
11. Investments
31 December 2021 31 December 2020 30 June 2021
(Audited) £m
(Unaudited) £m (Unaudited) £m
Investments in equity instruments designated as fair value through other 17.0 - -
comprehensive income
Other investments 0.1 0.1 0.1
Total 17.1 0.1 0.1
The Group holds 100% of the ordinary share capital of Quality Pet Care Ltd,
trading as "The Vet", an entity whose principal activity is the operation of
veterinary clinics. The Group acquired Quality Pet Care Ltd on 19 August 2021,
for total cash consideration of £20.4m, including £3.4m to settle associated
liabilities, of which £0.7m was unpaid at the balance sheet date.
The Competition and Markets Authority ("CMA") served an initial enforcement
order in relation to the acquisition in September 2021. Following the
conclusion of their phase one review, the CMA announced on 18 February 2022
that they consider the acquisition may result in a substantial lessening of
competition at five of the eight practice sites. CVS subsequently offered
undertakings to divest The Vet, as it considers this the most effective way to
address the CMA's concerns. The CMA provisionally accepted these
undertakings on 4 March 2022. The Group has appointed an adviser to support
this divestment in order to fully satisfy the CMA's concerns. A further update
will be provided in due course.
The Directors do not consider that the Group is able to exercise control nor
significant influence over Quality Pet Care Ltd given the entity is subject to
an Initial Enforcement Order as noted above. The investment has been
recognised at cost due to restriction of information available to perform a
valuation during the CMA's investigation.
12. Trade and other payables
31 December 2021 31 December 2020 30 June
(Unaudited) £m (Unaudited) £m 2021
(Audited)
£m
Trade payables 35.2 42.9 40.3
Social security and other taxes 16.7 29.5 16.9
Other payables 5.5 5.9 12.7
Deferred income(1) 2.3 1.3 2.8
Accruals 17.7 21.2 13.3
Total 77.4 100.8 86.0
(1) Deferred income relates to the contract liability relating to the Healthy
Pet Club ("HPC") contract.
13. Provisions
31 December 2021 31 December 2020 30 June 2021
(Audited) £m
(Unaudited) £m (Unaudited)
£m
At the beginning of the period 3.9 5.0 5.0
Charged to the income statement within administration expenses - - 0.9
Utilised in the period (0.9) (0.5) (2.0)
At the end of the period 3.0 4.5 3.9
Provisions charged to the income statement relate to announced site closures and costs set aside for properties during previous financial years and satisfy the recognition criteria under IAS 37. Amounts utilised in the period include costs associated with announced site closures of £0.2m (31 December 2020: £0.2m) and costs set aside for properties of £0.7m (31 December 2020: £0.3m).
14. Lease liabilities
31 December 2021 31 December 2020 30 June 2021
(Audited) £m
(Unaudited) £m (Unaudited) £m
Current 8.6 9.0 8.6
Non-current 92.4 90.4 90.2
Total discounted lease liabilities 101.0 99.4 98.8
Maturity analysis - contractual undiscounted cash flows
Less than one year 12.4 12.8 12.4
Between one and five years 52.7 50.0 51.1
More than five years 57.7 58.3 57.2
Total 122.8 121.1 120.7
15. Cash generated from operations
Six months ended 31 December 2021 Six months ended 31 December 2020 (Unaudited) £m Year ended 30 June 2021
(Audited) £m
(Unaudited) £m
Profit for the period 17.5 11.3 19.3
Taxation 5.4 3.5 13.8
Total finance costs 3.4 3.6 7.0
Amortisation 11.3 10.6 23.8
Depreciation and impairment of property, plant and equipment and right-of-use 12.4 11.8 24.3
assets
Share option expense 1.3 1.0 2.2
Increase in inventories (3.1) (0.6) (0.4)
Decrease/(increase) in trade and other receivables 2.0 (0.3) (3.4)
(Decrease)/increase in trade and other payables (11.4) 11.9 (5.2)
(Decrease)/increase in provisions (0.9) (0.5) (1.1)
Total cash flows from operating activities 37.9 52.3 80.3
16. Analysis of movement in liabilities from financing activities
1 July 2021 Cash flow New leases £m Liabilities on disposed items Non cash movement £m 31 December 2021
£m £m £m £m
Right-of-use lease liabilities (98.8) 8.2 (8.9) 0.2 (1.7) (101.0)
Borrowings (83.9) - - - (0.2) (84.1)
Total liabilities from financing activities (182.7) 8.2 (8.9) 0.2 (1.9) (185.1)
1 July Cash flow New leases £m Liabilities on disposed items Non cash movement £m 31 December 2020
2020 £m £m £m
£m
Right-of-use lease liabilities (98.6) 8.2 - - (9.0) (99.4)
Borrowings (83.6) 0.1 - - (0.2) (83.7)
Total liabilities from financing activities (182.2) 8.3 - - (9.2) (183.1)
Non-cash movements on right-of-use lease liabilities mainly comprise interest.
Non-cash movements on borrowings mainly include amortisation of issue costs
and bank debt acquired.
17. Dividends
The dividends paid in December 2021, representing the final dividend payable
for the year ended 30 June 2021, amounted to £4.6m (6.5 pence per share) (31
December 2020: no dividends were proposed or paid).
18. Events after the reporting period
On 18 February 2022, the Competition and Markets Authority ("CMA") announced
the results of its phase one investigation into the Group's acquisition of
Quality Pet Care Ltd. Following this announcement, CVS offered to divest the
entire Quality Pet Care Ltd business and the CMA provisionally accepted this
undertaking on 4 March 2022. Therefore, as at the date when this interim
report was authorised the investment was available for sale. Due to
information barriers in place during the ongoing CMA investigation, a reliable
estimate of the financial impact of this cannot be made at this time.
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