REG - CVS Group plc - Interim Results
24/02/2023 07:00
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RNS Number : 9179Q CVS Group plc 24 February 2023
CVS Group plc
Interim report for the six months ended 31 December 2022
For Immediate Release 24 February 2023
CVS Group plc
("CVS", the "Company" or the "Group")
Interim results for the six months ended 31 December 2022
Robust results and current trading in line with full year expectations
CVS, 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 2022 ("H1 2023") and provide an update on year-to-date trading.
Comparative data is provided for the six months ended 31 December 2021 ("H1
2022"), unless otherwise stated.
Financial Highlights
£m except where stated H1 2023 (unaudited) H1 2022 (unaudited) Change %(6) FY 2022 (audited)
Revenue 296.3 273.7 8.2% 554.2
Like-for-like sales(1) growth (%) 7.5% 9.6% -2.1ppts 8.0%
Adjusted EBITDA(2) 57.8 52.0 11.2% 107.4
Adjusted EBITDA(2) margin (%)
Adjusted EBITDA(2) margin (%) 19.5% 19.0% 0.5ppts 19.4%
Adjusted profit before tax(3) 41.1 36.2 13.5% 75.5
Adjusted earnings per share(4) (p) 45.6 41.5 9.9% 85.8
Operating profit 31.5 26.3 19.7% 42.8
Profit before tax 28.0 22.9 22.1% 36.0
Basic earnings per share (p) 29.6 24.7 19.8% 36.2
Net bank borrowings(5) 57.6 63.2 -9.0% 36.0
Notes
1( ) Like-for-like sales shows revenue generated from like-for-like
operations compared to the prior year, adjusted for the number of working
days. For example, for a practice acquired in September 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.
Alternative performance measures are described in note 2.
( )3( ) Adjusted profit before tax is calculated as profit before
amortisation, taxation, costs relating to business combinations, and
exceptional items. Alternative performance measures are described in note 2.
4 Adjusted earnings per share is calculated as adjusted profit
before tax, less applicable taxation, divided by the weighted average number
of Ordinary shares in issue in the period. Alternative performance measures
are described in note 2.
5 Net bank borrowings is drawn bank debt less cash and cash
equivalents.
6 Percentage increases and decreases are calculated based on the
underlying values throughout this document.
Financial Highlights
· Organic growth has continued with 7.5% like-for-like sales(1) growth,
within the Group's organic revenue growth ambition of between 4% and 8%
· Increase in Adjusted EBITDA(2) margin to 19.5%, a like-for-like
improvement of 0.5 percentage points, within our stated ambition of margins
between 19% and 23%
· Membership of our preventative healthcare scheme, Healthy Pet Club
(HPC), has increased to 481,000, up 4.3% vs. 31 December 2021 (+2.3% vs. 30
June 2022)
· Leverage of 0.60x as at 31 December 2022 (31 December 2021: 0.76x; 30
June 2022: 0.40x) reflecting strong EBITDA growth and operating cash
conversion, offset by an increase in net debt due to continued execution of
our M&A and capital investment strategy
Operational & Strategic Highlights
· Renewed focus on capital investment to drive further growth
o Increased investment in our facilities and equipment to support growth,
with total capital expenditure of £19.9m (H1 2022: £10.6m, FY 2022: £24.5m)
o State-of-the art companion animal greenfield site opened in Southport in
December 2022, and work has progressed on our flagship referral hospital,
Bristol Vet Specialists, which is due to open in Spring 2023
· Continued execution of M&A strategy
o Completed five practice acquisitions (eight practice sites) in the UK in
H1 2023 for £24.4m (eight acquisitions (eleven practice sites) year to date
for £35.3m)
· Long-term strategic vision of being the veterinary company people
most want to work for
o 5.0% more vets employed on average in calendar year 2022 vs 2021 as we
strive to be an employer of choice
o Employee net promotor score significantly increased to 18.6 (31 December
2021: 3.7, 30 June 2022: 4.8), reflecting our investment in our highly skilled
and dedicated team including the introduction of a range of new benefits and
our expanding EDI and wellbeing programmes. Whilst this is a significant
improvement we expect it to stabilise over the next six months
Current trading and outlook: confident of continued growth and delivery of our
strategic goals
· Whilst we are mindful of the wider macroeconomic backdrop and
inflationary pressures, demand for our high-quality veterinary services
remains robust and the positive performance of H1 2023 has continued into the
first month of the second half
· The Board remains confident that full year results will be in
line with market expectations
· In February 2023, CVS re-financed its debt facility, at the same
margin and on improved commercial terms, increasing the total facility from
£170.0m to £350.0m, to support the Group's five year growth ambition as set
out at the Capital Markets Day
· We continue to focus on investment in our people, technology and
clinical facilities in order to support further organic growth
· We remain confident that we can continue to execute on our
exciting pipeline of selective acquisitions and development of Greenfield
sites
Richard Fairman, Chief Executive Officer, commented:
"These results reflect the continued professionalism and dedication of our
colleagues in providing high-quality care to our clients and their animals and
I would like to take this opportunity to thank them for their contribution.
At our Capital Markets Day in November 2022, we announced six key elements
underpinning our ambition to double Adjusted EBITDA over the next five years.
Demand for our services remains strong, notwithstanding a challenging
macroeconomic environment and I am pleased to report H1 2023 results are in
line with expectations and we are on track to deliver continued growth. In
February 2023 we re-financed our debt facility, increasing the total facility
to £350.0m, with funding now in place to support our five year growth
ambition.
Our purpose is to give the best possible care to animals and we are increasing
our investment in our practice facilities, clinical equipment and technology
to ensure we can provide a comfortable environment with great facilities for
our colleagues, patients and clients.
I am also pleased to report that we have welcomed eight practices (comprising
eleven sites) into the Group in the financial year to date, with a strong
pipeline of further opportunities.
The robust performance in H1 2023 has continued into the second half of the
year and we look forward to reporting further growth in the future."
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 register at
https://stream.brrmedia.co.uk/broadcast/63bd291ddd6e715032016056
(https://stream.brrmedia.co.uk/broadcast/63bd291ddd6e715032016056) . 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, COO
Robin Alfonso, CFO
Peel Hunt LLP (Nominated Adviser & Broker)
+44 (0)20 7418 8900
Adrian Trimmings / Michael Burke / Andrew Clarke / Lalit Bose
Berenberg (Joint
Broker)
+44 (0)20 3207 7800
Toby Flaux / Ben Wright / James Thompson / Milo Bonser
Camarco (Financial PR)
Geoffrey
Pelham-Lane
+44 (0)7733 124 226
Ginny
Pulbrook
+44 (0)7961 315 138
Toby
Strong
+44 (0)7789 151 644
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 37 dedicated out-of-hours sites.
Alongside the core Veterinary Practices division, CVS operates Laboratories
(providing diagnostic services to CVS and third-parties), Crematoria
(providing pet cremation and clinical waste disposal for CVS and third-party
practices) and the Group's online retail business ("Animed Direct").
The Group employs c.8,500 personnel, including c.2,200 veterinary surgeons and
c.3,100 nurses.
Introduction
The Board is pleased to report that the Group has delivered continued growth
in both revenue and adjusted EBITDA, as demand for its fully integrated
veterinary services remains strong.
We are pleased that our H1 2023 results take a positive step towards our
stated five year ambition to double Adjusted EBITDA by focusing on:
· Organic revenue growth of 4% - 8% per annum;
· Adjusted EBITDA margin ambition between 19% to 23%;
· Investment in practice facilities and technology to deliver
additional organic growth;
· Investment in selective acquisitions subject to disciplined
criteria for returns and earnings accretion;
· Operating cash conversion greater than 70%; and
· Maintaining leverage (net debt to EBITDA ratio) below 2.0x.
Our highly skilled colleagues have continued to deliver exceptional clinical
care, which has driven our first-half performance. This focus on delivering
evidence-based clinical care in well-equipped facilities has contributed to
like-for-like sales(1) growth in H1 2023 of 7.5%, and Adjusted EBITDA margin
improvement of 0.5 percentage points, to 19.5%.
Market trends: CVS benefits from a growing market with consistent consumer
demand
The veterinary market remains robust, and both consumer insights and consumer
patterns over the past six months indicate that pet owners remain willing to
spend on high-quality veterinary care and products for their animals,
particularly as a result of the increased humanisation of pets during the
COVID-19 pandemic. The number of active patients in our Veterinary Practices
division remains consistent with the prior period.
We have seen a further increase in membership of our popular preventative
healthcare scheme Healthy Pet Club to 481,000 members, which enables pet
owners to spread the cost of their pets' vaccinations and flea and worming
treatments and save money on a range of services and products.
With the pet population increasing during 2020 and 2021, we saw an increase in
busyness in our practices as our clinicians provided puppies and kittens with
their first vaccinations, check-ups and other early-in-life procedures. We
expect to see the full benefit of this increased population over the next five
to ten years as these animals reach maturity and may require more frequent and
complex veterinary interventions. The Group is well-placed to provide this
care through our fully-integrated veterinary services model, starting with our
first-opinion practices which are supported by our specialist-led
multi-disciplinary hospitals, our out-of-hours centres and our diagnostic
laboratories. Our crematoria provide clinical waste disposal and, at the end
of a pet's life, compassionate cremation services.
We are highly aware of the ongoing challenges in the macroeconomic
environment, however the Group's ability to provide joined-up care throughout
a pet's life provides consistent revenue streams. Our focus on high-quality
clinical care positions us well to remain resilient to the economic
challenges, as tested and proven during the COVID-19 pandemic.
Capital allocation: our plan to deliver sustainable future growth
CVS has placed particular emphasis in recent years on developing strong
foundations upon which to generate positive and sustainable organic growth.
Having announced our ambition to double Adjusted EBITDA over the next five
years, we have begun implementing our selective capital allocation programme.
This involves increasing investment in our existing facilities and equipment.
In H1 2023, we invested £19.9m in capital projects, completing 13
refurbishments and relocations.
Alongside investment in improving and developing our existing practices, we
are excited to be investing in Greenfield sites, which provide opportunities
and support for clinicians to establish new veterinary practices and hospitals
in state-of-the-art facilities. In December 2022, we opened our Greenfield
companion animal veterinary practice in Southport, a superior quality facility
housing a spacious operating theatre, dental suite, in-house laboratory and
x-ray facilities. We hope to open two further Greenfield sites during FY23.
Our flagship multidisciplinary referral centre, Bristol Vet Specialists, is
set to open in April 2023 in Avonmouth. The new hospital, which covers over
30,000 square feet, is being custom built with uniquely designed facilities,
the latest cutting-edge equipment and specialists in a range of disciplines.
M&A strategy - continued opportunities for selective acquisitions
We have continued our efforts to identify selective acquisitions which
complement our existing network of veterinary practices and enhance the
breadth of skills and expertise in the Group. In H1 2023, we completed five
acquisitions (eight practice sites) for an aggregate initial consideration of
£24.4m. A further three acquisitions (three practice sites) have been
completed in the second half to date, and we have an exciting pipeline of
future acquisitions. We are delighted to welcome these colleagues, clients and
patients into the Group.
We are carefully considering targeted entry into new geographical markets both
in Europe and in English-speaking geographies further afield, where there are
similar cultures to the UK and with currently less corporate consolidation.
Our leverage (net debt / adjusted annualised EBITDA) remains comfortably below
1.0x. In February 2023, CVS re-financed its debt facility, on the same
commercial terms, increasing the total facility from £170.0m to £350.0m, to
support the Group's five year growth ambition as set out at the Capital
Markets Day.
People: Our vision is to be the veterinary company people most want to work
for
Our people remain at the core of our business, and we continue to seek ways to
support them. This includes creating great places to work as well as providing
our colleagues with the support required to not only give exceptional care to
patients but also to achieve their career goals. As a result of our strategic
focus on our people, our employee NPS score, a standardised measure of
employee satisfaction where 100 is the maximum and -100 is the minimum, has
increased to 18.6 from 4.8 at June 2022.
During the period, we conducted a full review of our employment policies and
benefits and launched a range of new benefits. These new benefits are in
addition to our existing range which includes, among others, enhanced
maternity pay, additional annual leave for up to five years of service
alongside the option to buy/sell further annual leave, and annual
Save-As-You-Earn schemes, of which the latest scheme saw a 38.9% increase in
uptake in the current year.
Our new benefits includes a health cash plan enabling colleagues to opt in to
reclaim the cost of a range of medical services, including mental health
services. We have also added policies to:
· support our colleagues through fertility investigations and
treatments, including supporting their partner in these treatments;
· provide additional compassionate leave in the event of pregnancy
loss; and
· offer additional paid leave for significant health-related life
events including major surgery, hospitalisation, and procedures related to
gender transition.
During 2022, we implemented two salary reviews: a 3.0% out-of-cycle "cost of
living" increase in May 2022 to support our colleagues with increasing
inflationary pressures, alongside our annual salary review in July 2022.
CVS promoting Equity, Diversity and Inclusion
The Group has a clearly-stated equity, diversity and inclusion (EDI) strategy
which was introduced in our 2022 Sustainability Report. We have been primarily
focusing on ensuring foundational understanding of EDI, which includes
understanding the diversity of our current workforce by collecting workforce
diversity data. The proportion of our colleagues having submitted this data
increased to over 60% by the end of the period, which will support us to
promote and maintain equal opportunities, and understand how we can best
support our colleagues to feel a sense of inclusion and belonging at work.
As well as crucial revised policies covering EDI and bullying, harassment and
incivility, we introduced an original 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 December 2022 85%
of colleagues responded positively.
Providing skills enhancement and training
In addition to supporting our existing colleagues, we are looking towards the
next generation of skilled veterinary workers and have a range of programmes
including our New Graduate Programme, Graduate summer school, and our esteemed
ChesterGates Veterinary Nurse Training Centre. We have developed a leading
induction programme for practices to on-board and support new graduates
joining the practice and ensure they have the resources they need to start a
successful and fulfilling veterinary career.
Clinical developments: Our purpose is to provide the best possible care to
animals
We are striving to have a positive impact on the veterinary care sector as a
whole, through investing in research projects designed to better understand
and improve veterinary care. Through our Clinical Research Awards we have
committed £0.5m across 16 projects, 11 of which are led by CVS colleagues.
These projects are studying topics relating to animal health, clinical
practices and the environment.
In September 2022, Paul Higgs was appointed to the role of Chief Veterinary
Officer. In this role, Paul will oversee all clinical quality improvement work
in our first-opinion and referrals divisions to help us enhance the care we
provide to animals. Prior to his current role, Paul was Clinical Director at
CVS' Highcroft Referrals Hospital in Bristol, where he still practices as a
European Veterinary Specialist in internal medicine.
In August 2022, we published our fourth annual Quality Improvement report.
Angela Rayner, Director of Quality Improvement, commented, "In quality
improvement the work is never done, but celebrating what we achieve keeps us
going. This report is a celebration of CVS teams, whose care and passion for
what they do never ceases to be inspiring. I am grateful to all the wonderful
colleagues at CVS for making this report possible."
Care at our Heart: embedding our Environmental, Social and Governance (ESG)
strategy
We are delighted to have published our first standalone Sustainability Report
in August 2022. We are committed to our ESG strategy, placing care at the
heart of our operations to ensure we do the right thing, in the right way. Our
seven working groups across the business have focused on analysing and
understanding our impact on Energy and carbon, Waste, One Health, Wellbeing,
People development, EDI and Community.
For the 2023 financial year we have linked Executive Committee remuneration to
the delivery of five non-financial targets, with 20% of bonus potential linked
to reducing clinical waste, improving patient care index (our measure of
quality in practices), improving employee and client net promoter scores, and
reducing colleague attrition.
We have been engaging with suppliers to reduce the environmental impact of our
supply chain, including minimising emissions by combining orders into fewer
deliveries and utilising low-emissions delivery vehicles, and promoting the
use of recycled and recyclable packaging.
As we have been investing in capital projects across our estate we have
implemented energy and carbon saving methods, such as passive-infrared
switches on lighting, use of sustainable materials, and "green" clauses in
lease agreements. We are partnering with our new facilities management
provider to promote energy saving measures in our facilities.
Our colleague charity of the year in 2022 was the Pet Blood Bank and we raised
£20,000 through a variety of local initiatives, which was matched by CVS with
a £20,000 donation to Vetlife, the charity that provides emotional, financial
and mental health support to the veterinary community.
Financial review: robust foundations from which to deliver continued growth
CVS delivered a resilient performance for H1 2023, delivering continued
organic growth and investing in our existing veterinary practice portfolio in
support of our purpose to give the best possible care to animals.
Group revenue was £296.3m in the period, an increase of 8.2% over the prior
year (H1 2022: £273.7m). Like-for-like sales(1), grew 7.5% (H1 2022: 9.6%).
Gross margin before clinical staff costs increased slightly to 77.5% (H1 2022:
77.1%). Employment costs as a percentage of revenue increased to 51.9% (H1
2022: 50.4%) as a result of additional investment in our people and increased
headcount in revenue-generating and support roles. We continue to increase our
headcount, with a 7.2% increase in the average number of clinical colleagues
employed during H1 2023 versus H1 2022.
Adjusted EBITDA for the half-year was £57.8m, an increase of 11.2% (H1 2022:
£52.0m). This is primarily due to the increase in top line revenue.
Operating profit increased to £31.5m (H1 2022: £26.3m) after depreciation of
property, plant and equipment of £6.1m (H1 2022: £5.7m), depreciation of
right-of-use assets of £7.1m (H1 2022: £6.7m), amortisation of £11.3m (H1
2022: £11.3m) and costs relating to business combinations of £1.8m (H1 2022:
£2.0m).
Adjusted profit before tax, which excludes amortisation, costs relating to
business combinations and exceptional items, increased to £41.1m (H1 2022:
£36.2m).
Adjusted earnings per share increased to 45.6p (H1 2022: 41.5p). Basic
earnings per share for the period increased to 29.6p (H1 2022: 24.7p).
Cash generated from operations was £45.5m (H1 2022: £37.9m) with the
increase driven mainly from increased EBITDA. Operating cash conversion of
58.9% (H1 2022: 54.0%) is in line with management expectations and the full
year is expected to be in excess of 70%, with the first half impacted by prior
year bonus payments.
Net bank borrowings increased to £57.6m (30 June 2022: £36.0m) after funding
£24.4m of acquisitions (net of cash acquired), along with £19.9m of capital
expenditure, up from £10.6m in the comparative period. This increase reflects
the implementation of our capital allocation programme for future growth.
Operating segment performance
Veterinary Practices division
Our Veterinary Practices division comprises c.500 veterinary practices across
three markets, including eight specialist referral hospitals and 37 dedicated
out-of-hours sites, as well as our buying groups, Vet Direct and MiPet
insurance. The Veterinary Practice division generated revenues of £263.4m in
H1 2023, an increase of 8.2% on the £243.3m achieved in the prior period.
Like-for-like sales growth, adjusted for the number of working days in the
period, was 7.3% (H1 2022: 9.4%), demonstrating our continued ability to
generate organic growth within our veterinary practices. Our companion animal
and referrals practices generated the greatest growth in the division,
demonstrating the benefits of our focus on providing high-quality clinical
care and the resilience of our core business units.
Gross margin before clinical staff costs in the Veterinary Practices Division
improved to 80.3% (H1 2022: 79.8%).
Adjusted EBITDA for the Veterinary Practices division increased to £55.4m (H1
2022: £52.1m). Adjusted EBITDA margin was down slightly at 21.0% (H1 2022:
21.4%), reflecting increased investment in our people and inflationary costs
increases.
Laboratories division
Our Laboratories division provides diagnostic services and in-practice
laboratory analysers to CVS practices and third-party owned veterinary
surgeries. Diagnostic services are offered via post and courier allowing
complete coverage of the UK. Revenue of £14.2m was generated in the period,
reflecting strong growth of 7.2% from the £13.3m generated in H1 2022.
Adjusted EBITDA increased to £4.4m (H1 2022: £4.0m), with adjusted EBITDA
margin increasing by 1.2 percentage points, to 31.2%.
Crematoria division
Our Crematoria division provides pet cremation and clinical waste disposal for
CVS and third-party practices. Revenue was £5.3m in the period (H1 2022:
£4.8m) reflecting the success of the Direct Pet Cremation project which is
now in operation in all our Crematoria, offering a more compassionate
aftercare service and increased options for pet owners. Adjusted EBITDA was
£1.6m (H1 2022: £1.7m) reflecting increased costs of fuel used to run our
cremators.
Online retail business
We have continued to improve our Online retail business, Animed Direct, with
revenue increasing to £24.5m (H1 2022: £22.7m), benefitting from increased
transaction values. Adjusted EBITDA was flat at £1.7m (H1 2022: £1.7m) as we
continue to invest in marketing and improved systems and processes to offer
enhanced customer experience.
Central administration
Central administration costs were £5.3m (H1 2022: £7.5m) Expressed as a
percentage of Group revenue, excluding RDEC and associated costs, these costs
remained consistent at 3.5% (H1 2022: 3.5%).
Cash flow and funding position
CVS had borrowings of £85.0m at 31 December 2022 with cash and cash
equivalents of £27.4m, equating to net bank borrowings of £57.6m (H1 2022:
£63.2m). The Group had leverage (net debt / adjusted annualised EBITDA) of
0.60x as of 31 December 2022 (30 June 2022: 0.40x).
Following the completion of a re-financing of the Group's debt facility on 22
February 2023, the Group has total facilities of £350.0m to 21 February 2027,
with an optional 1 year extension, 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.
We retain our £5.0m overdraft facility, renewable annually.
The Group is subject to two financial covenants associated with these
facilities which are based on the ratios of net debt to EBITDA 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 are unchanged following the re-financing and allow a
maximum Group net debt to EBITDA leverage ratio of 3.25x, although it is not
the Group's intention to operate at this level. Leverage has increased during
H1 2023, to 0.60x (30 June 2022: 0.40x). 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 (unchanged as part of the
re-financing). As of 31 December 2022, the ratio was 42.16x (30 June 2022:
41.00x).
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 2022.
Dividends
A dividend of 7.0p (December 2021: 6.5p) per share was paid in December 2022
in respect of the financial year ended 30 June 2022. 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 2023. In line with our
customary practice, the amount of this dividend will be dependent on the
outcome of the full year results and the growth capital needs of the business.
Current trading & Outlook: we remain confident of continued growth and
delivery of our strategic goals
The veterinary market remains resilient, with strong demand for excellent
clinical care. Our preventative healthcare scheme, The Healthy Pet Club,
provides the opportunity for clients to spread the cost of veterinary care. We
will continue to provide a wide range of evidence-based clinical services to
meet our clients' needs and support their animals to live healthy and full
lives.
We will continue our investment in our people, technology and our clinical
facilities in order to support further organic growth. This will be augmented
by investment in our exciting pipeline of selective acquisitions and
development of exceptional Greenfield sites.
Following strong H1 2023 results, the Board remains confident that the full
year results will be in line with expectations.
The Board would like to acknowledge and thank all members of the CVS team for
their efforts to provide the very best care for animals, and with their
support, we look forward to sharing continued success in the future.
Richard Connell
Chair
24 February 2023
Condensed consolidated income statement for the six-month period ended 31 December 2022 (unaudited)
Note Six months ended 31 December 2022 (Unaudited) Six months ended 31 December 2021 (Unaudited) £m Year ended 30 June 2022 (Audited) £m
£m
Revenue 296.3 273.7 554.2
Cost of sales (169.6) (159.3) (315.1)
Gross profit 126.7 114.4 239.1
Administrative expenses (95.2) (88.1) (196.3)
Operating profit 31.5 26.3 42.8
Finance expense 5 (3.5) (3.4) (6.8)
Profit before tax 28.0 22.9 36.0
Tax expense 8 (6.9) (5.4) (10.3)
Profit for the period 21.1 17.5 25.7
Earnings per Ordinary share (EPS)
Basic 6 29.6p 24.7p 36.2p
Diluted 6 29.4p 24.5p 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
KPIs. These measures are not defined by IFRS and therefore may not be directly
comparable with other companies' adjusted measures.
Adjusted EBITDA is calculated by reference to profit before tax, adjusted for
interest (net finance expense), depreciation, amortisation, costs relating to
business combinations and exceptional items. The following table provides the
calculation of adjusted EBITDA.
Alternative performance measure: adjusted EBITDA Note Six months ended 31 December 2022 (Unaudited) Six months ended 31 December 2021 (Unaudited) Year ended 30 June 2022 (Audited) £m
£m
£m
Profit before tax 28.0 22.9 36.0
Adjustments for:
Finance expense 5 3.5 3.4 6.8
Amortisation of intangible assets 9 11.3 11.3 22.2
Depreciation of property, plant and equipment 9 6.1 5.7 11.3
Profit on disposal of property, plant and equipment and right-of-use - - (0.3)
assets
Depreciation and impairment of right-of-use assets 10 7.1 6.7 14.1
Costs relating to business combinations(1) 1.8 2.0 4.9
Exceptional items(2) - - 12.4
Adjusted EBITDA 57.8 52.0 107.4
Adjusted earnings per share (EPS):
Adjusted EPS 6 45.6p 41.5p 85.8p
Diluted adjusted EPS 6 45.2p 41.1p 85.0p
(1) Includes amounts paid in respect of acquisitions in prior years expensed to the income statement.
(2) Exceptional items in the prior year relate to impairment in relation to Quality Pet Care Ltd.
Condensed consolidated statement of comprehensive income for the six-month period ended 31 December 2022 (unaudited)
Year ended 30 June 2022 (Audited)
Six months ended 31 December 2022 (Unaudited) Six months ended 31 December 2021 (Unaudited)£m £m
£m
Profit for the period 21.1 17.5 25.7
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 0.5 1.0 2.8
Cost of hedging reserve - (0.1) (0.1)
Deferred tax on cash flow hedge and available-for-sale financial assets (0.1) (0.2) (0.7)
Exchange differences on translation of foreign operations - (0.5) (0.1)
Other comprehensive income for the period, net of tax 0.4 0.2 1.9
Total comprehensive income for the period attributable to owners of the parent 21.5 17.7 27.6
Condensed consolidated statement of financial position as at 31 December 2022 (unaudited)
Note 31 December 31 December 30 June 2022
(Audited)
2022 2021
£m
(Unaudited) (Unaudited)
£m £m
Non-current assets
Intangible assets 9 234.4 217.2 216.5
Property, plant and equipment 9 82.7 61.9 69.7
Right-of-use assets 10 99.4 98.9 101.7
Investments 11 0.1 17.1 0.1
Derivative financial instruments 2.8 0.5 2.3
419.4 395.6 390.3
Current assets
Inventories 28.7 22.6 26.2
Trade and other receivables 49.4 49.5 52.7
Current tax receivable 8 2.8 2.4 -
Cash and cash equivalents 27.4 21.8 49.0
108.3 96.3 127.9
Total assets 527.7 491.9 518.2
Current liabilities
Trade and other payables 13 (83.3) (77.4) (86.6)
Provisions 14 (0.9) (3.0) (2.1)
Lease liabilities 15 (9.5) (8.6) (9.4)
Current tax liabilities 8 - - (3.3)
(93.7) (89.0) (101.4)
Non-current liabilities
Borrowings 17 (84.5) (84.1) (84.3)
Lease liabilities 15 (93.4) (92.4) (95.1)
Deferred tax liabilities (22.2) (21.1) (20.0)
(200.1) (197.6) (199.4)
Total liabilities (293.8) (286.6) (300.8)
Net assets 233.9 205.3 217.4
Condensed consolidated statement of financial position as at 31 December 2022 (unaudited)
31 December 2022 31 December 2021
(Unaudited) (Unaudited) 30 June 2022
£m £m (Audited)
£m
Shareholders' equity
Share capital 0.1 0.1 0.1
Share premium 105.7 103.3 105.4
Capital redemption reserve 0.6 0.6 0.6
Treasury reserve (1.2) - -
Cash flow hedge reserve 2.0 0.5 1.6
Merger reserve (61.4) (61.4) (61.4)
Retained earnings 188.1 162.2 171.1
Total equity 233.9 205.3 217.4
The interim financial information above is reproduced from that on pages 9 to 29 of the Group's Interim Report which was approved by the Board of Directors on 24 February 2023.
Condensed consolidated statement of changes in equity for the six-month period ended 31 December 2022 (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 2022 0.1 105.4 0.6 - 1.6 - (61.4) 171.1 217.4
Profit for the period - - - - - - - 21.1 21.1
Other comprehensive income and losses
Cash flow hedges: Fair value income - - - - 0.5 - - - 0.5
Exchange differences on translation of foreign operations - - - - - - - - -
Deferred tax on cash flow hedge and available-for-sale financial assets - - - - (0.1) - - - (0.1)
Total other comprehensive income - - - - 0.4 - - - 0.4
Total comprehensive income - - - - 0.4 - - 21.1 21.5
Transactions with owners:
Issue of Ordinary shares - 0.3 - - - - - - 0.3
Credit to reserves for share-based payments - - - - - - - 1.2 1.2
Deferred tax relating to share-based payments - - - - - - - (0.3) (0.3)
Purchase of Treasury shares - - - (1.2) - - - - (1.2)
Dividends to equity holders of the Company - - - - - - - (5.0) (5.0)
Transactions with owners - 0.3 - (1.2) - - - (4.1) (5.0)
At 31 December 2022 0.1 105.7 0.6 (1.2) 2.0 - (61.4) 188.1 233.9
Condensed consolidated statement of changes in equity for the six-month period ended 31 December 2022 (unaudited)
Condensed consolidated statement of changes in equity for the six-month period ended 31 December 2022 (unaudited)
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 and losses
Cash flow hedges: Fair value income/(loss) - - - - 1.0 (0.1) - - 0.9
Exchange differences on translation of foreign operations - - - - - - - (0.5) (0.5)
Deferred tax on cash flow hedge and available-for-sale financial assets - - - - - - - (0.2) (0.2)
Total other comprehensive income/(loss) - - - - 1.0 (0.1) - (0.7) 0.2
Total comprehensive income/(loss) - - - - 1.0 (0.1) - 16.8 17.7
Transactions with owners:
Issue of Ordinary shares - 0.2 - - - - - - 0.2
Credit to reserves for share-based payments - - - - - - - 1.3 1.3
Deferred tax relating to share-based payments - - - - - - - (0.4) (0.4)
Purchase of Treasury shares - - - - - - - - -
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
Condensed consolidated statement of cash flows for the six-month period ended 31 December 2022 (unaudited)
Note Six months ended 31 December 2022 Six months ended 31 December 2021 Year ended 30 June 2022
(Unaudited) (Unaudited) (Audited)
£m
£m
£m
Cash flows from operating activities
Cash generated from operations 16 45.5 37.9 93.1
Taxation paid (7.2) (5.5) (11.2)
Interest paid (3.3) (3.2) (6.4)
Net cash generated from operating activities 35.0 29.2 75.5
Cash flows from investing activities
Business combinations (net of cash acquired) (24.4) (0.4) (8.4)
Purchase of property, plant and equipment 9 (18.0) (10.3) (23.0)
Proceeds from sale of property, plant and equipment 0.1 0.1 0.2
Purchase of intangible assets 9 (1.9) (0.3) (1.5)
Purchase of other investments - (19.7) (21.4)
Proceeds from sale of other investments - - 9.0
Net cash used in investing activities (44.2) (30.6) (45.1)
Cash flows from financing activities
Dividends paid (5.0) (4.6) (4.6)
Proceeds from issue of Ordinary shares 0.3 0.2 2.3
Purchase of Treasury shares (1.2) - -
Repayment of obligation under right-of-use asset (6.5) (6.1) (12.7)
Repayment of borrowings 17 - - (0.1)
) )
Net cash used in financing activities (12.4) (10.5) (15.1)
Net (decrease)/increase in cash and cash equivalents (21.6) (11.9) 15.3
Cash and cash equivalents at the beginning of period 49.0 33.7 33.7
Cash and cash equivalents at end of the period 27.4 21.8 49.0
Notes to the interim consolidated financial information
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.
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 ("CVSG"). Its company registration number
is 06312831 and registered office is CVS House, Owen Road, Diss, IP22 4ER.
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 2022
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 2022. 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 2022, 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 alternative performance measures
Adjusted EBITDA (Earnings Before Interest, Tax, Depreciation and
Amortisation), adjusted profit before tax (adjusted PBT) and adjusted earnings
per share (adjusted EPS)
The Directors believe that adjusted measures, being adjusted EBITDA, adjusted
PBT and adjusted EPS, provide additional useful information for shareholders.
These measures are used by the Board and management for planning, internal
reporting and setting Director and management remuneration. In addition, they
are used by the investor analyst community and are aligned to our strategy and
KPIs. These measures are not defined by International Financial Reporting
Standards (IFRS) and therefore may not be directly comparable with other
companies' adjusted measures. They are not intended to be a substitute for, or
superior to, IFRS measurements of profit or earnings per share.
Adjusted EBITDA is calculated by reference to profit before tax, adjusted for
interest (net finance expense), depreciation, amortisation, costs relating to
business combinations and exceptional items.
Adjusted PBT is calculated as profit before tax, amortisation, costs relating
to business combinations and exceptional items.
Adjusted EPS is calculated as adjusted profit before tax, less applicable tax,
divided by the weighted average number of Ordinary shares in issue during the
period.
The following table provides the calculation of adjusted EBITDA as defined
above:
Alternative performance measure: adjusted EBITDA Note Six months ended 31 December 2022 (Unaudited) £m Six months ended 31 December 2021 (Unaudited) £m Year ended 30 June 2022 (Audited) £m
Profit before tax 28.0 22.9 36.0
Adjustments for:
Finance expense 5 3.5 3.4 6.8
Amortisation of intangible assets 9 11.3 11.3 22.2
Depreciation of property, plant and equipment 9 6.1 5.7 11.3
Profit on disposal of property, plant and equipment and right-of-use - - (0.3)
assets
Depreciation and impairment of right-of-use assets 10 7.1 6.7 14.1
Costs relating to business combinations(1) 1.8 2.0 4.9
Exceptional items(2) - - 12.4
Adjusted EBITDA 57.8 52.0 107.4
Adjusted earnings per share (EPS):
Adjusted EPS 6 45.6p 41.5p 85.8p
Diluted adjusted EPS 6 45.2p 41.1p 85.0p
(1) Includes amounts paid in respect of acquisitions in prior years expensed to the income statement.
(2) Exceptional items in the prior year relate to impairment in relation to Quality Pet Care Ltd.
Net debt
Net debt is calculated as bank borrowings less gross cash and cash equivalents
and unamortised borrowing costs.
Six months ended 31 December 2022 (Unaudited) Six months ended 31 December 2021 (Unaudited) £m Year ended 30 June 2022 (Audited)
£m
£m
Borrowings repayable after more than one year
Loan facility 85.0 85.0 85.0
Unamortised borrowing costs (0.5) (0.9) (0.7)
Total borrowings 84.5 84.1 84.3
Cash and cash equivalents (27.4) (21.8) (49.0)
Net debt 57.1 62.3 35.3
Net bank borrowings
Net bank borrowings is drawn bank debt less cash and cash equivalents.
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 sales calculation.
3. Summary of significant accounting policies
The accounting policies adopted are consistent with those set out on pages 115
to 124 of the consolidated financial statements of CVS Group plc for the year
ended 30 June 2022 (which are available upon request from the Company's
registered office or on the Company's website).
The policy for recognising and measuring taxation 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.
4. 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 (CODM).
Segment results, assets and liabilities include items directly attributable to
a segment as well as those that can be allocated on a reasonable basis.
Unallocated items comprise mainly interest-bearing borrowings and associated
costs, tax-related assets and liabilities, costs relating to business
combinations, and Head Office salary and premises costs.
Revenue comprises £214.4m of fees and £81.9m of goods (31 December 2021:
£195.5m and £78.2m respectively).
Operating segments
The Group is split into four operating segments (Veterinary Practices,
Laboratories, Crematoria and Online Retail Business) and a centralised support
function (Head Office) for business segment analysis. In identifying these
operating segments, management generally follows the Group's service lines
representing its main products and services.
Each of these operating segments is managed separately as each segment
requires different specialisms, marketing approaches and resources.
Intra-group sales eliminations are included within the Head Office segment.
Head Office includes costs relating to the employees, property and other
overhead costs associated with the centralised support function, together with
finance costs arising on the Group's borrowings.
Veterinary Practices Laboratories Crematoria Online Retail Business Head Group £m
Six-months ended £m £m £m £m Office
31 December 2022 £m
Revenue 263.4 14.2 5.3 24.5 (11.1) 296.3
Adjusted EBITDA 55.4 4.4 1.6 1.7 (5.3) 57.8
Profit/(loss) before tax 32.5 4.0 1.4 1.6 (11.5) 28.0
Total assets 436.2 39.4 21.6 27.6 2.9 527.7
Total liabilities (166.8) (1.7) (1.6) (17.0) (106.7) (293.8)
Reconciliation of adjusted EBITDA
Profit/(loss) before tax 32.5 4.0 1.4 1.6 (11.5) 28.0
Finance expense 2.0 - - - 1.5 3.5
Depreciation of property, plant and equipment 5.4 0.4 0.2 - 0.1 6.1
Depreciation and impairment of right-of-use assets 6.8 - - - 0.3 7.1
Amortisation of intangible assets 7.8 - - 0.1 3.4 11.3
Costs relating to business combinations 0.9 - - - 0.9 1.8
Adjusted EBITDA 55.4 4.4 1.6 1.7 (5.3) 57.8
Veterinary Practices Laboratories Crematoria £m Online Retail Business Head Group £m
Six-month period ended £m £m £m Office
31 December 2021 £m
Revenue 243.3 13.3 4.8 22.7 (10.4) 273.7
Adjusted EBITDA 52.1 4.0 1.7 1.7 (7.5) 52.0
Profit/(loss) before tax 30.2 3.6 1.5 1.6 (14.0) 22.9
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 tax 30.2 3.6 1.5 1.6 (14.0) 22.9
Finance expense 2.1 - - - 1.3 3.4
Depreciation of property, plant and equipment 5.0 0.3 0.2 - 0.2 5.7
Depreciation and impairment of right-of-use assets 6.6 0.1 - - - 6.7
Amortisation of intangible assets 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
Laboratories Crematoria £m Online Retail Business Head Group £m
Veterinary Practices £m £m Office
Year ended 30 June 2022 £m £m
Revenue 492.1 27.2 9.5 46.6 (21.2) 554.2
Adjusted EBITDA 108.8 8.3 3.4 3.5 (16.6) 107.4
Profit/(loss) before tax 64.8 7.6 2.9 3.4 (42.7) 36.0
Total assets 426.0 38.6 20.1 27.9 5.6 518.2
Total liabilities (170.6) (5.1) (2.2) (18.6) (104.3) (300.8)
Reconciliation of adjusted EBITDA
Profit/(loss) before tax 64.8 7.6 2.9 3.4 (42.7) 36.0
Finance expense 4.1 - - - 2.7 6.8
Depreciation of property, plant and equipment 9.9 0.6 0.5 - 0.3 11.3
Depreciation and impairment of right-of-use assets 13.7 0.1 - - 0.3 14.1
Profit on disposal of property, plant and equipment and right-of-use assets (0.3) - - - - (0.3)
Amortisation of intangible assets 14.6 - - 0.1 7.5 22.2
Costs relating to business combinations 2.0 - - - 2.9 4.9
Exceptional items - - - - 12.4 12.4
Adjusted EBITDA 108.8 8.3 3.4 3.5 (16.6) 107.4
Geographical segments
The business operates predominantly in the UK. As at 31 December 2022, it has
27 veterinary practices in the Netherlands and four in the Republic of
Ireland. It performs a small amount of laboratory work and teleradiology work
for Europe-based clients, and a small amount of teleradiology work for clients
based in the rest of the world. In accordance with IFRS 8, 'Operating
segments', no segment results are presented for trade with clients in Europe
or the rest of the world as these are not reported separately for management
reporting purposes, and are not considered material for separate disclosure.
5. Finance expense
Six months ended 31 December 2022 Six months ended 31 December 2021 Year ended
(Unaudited) (Unaudited) 30 June
£m £m 2022
(Audited)
£m
Interest expense on bank loans and overdraft 1.2 1.1 2.2
Interest expense on lease liabilities 2.1 2.1 4.2
Amortisation of debt arrangement fees 0.2 0.2 0.4
Net finance expense 3.5 3.4 6.8
6. Earnings per Ordinary share
(a) Basic
Basic earnings per 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 2022 Six months ended 31 December 2021 Year ended
(Unaudited) (Unaudited) 30 June
2022
(Audited)
Profit for the year (£m) 21.1 17.5 25.7
Weighted average number of Ordinary shares in issue 71,215,385 70,839,356 70,926,977
Basic earnings per share (pence) 29.6 24.7 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 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 2022 Six months ended 31 December 2021 Year ended
(Unaudited) (Unaudited) 30 June
2022
(Audited)
Profit for the year (£m) 21.1 17.5 25.7
Weighted average number of Ordinary shares in issue 71,215,385 70,839,356 70,926,977
Adjustment for contingently issuable shares - LTIPs 277,538 249,944 248,506
Adjustment for contingently issuable shares - SAYE schemes 232,314 494,778 377,056
Weighted average number of Ordinary shares for diluted earnings per share 71,725,237 71,584,078 71,552,539
Diluted earnings per share (pence) 29.4 24.5 35.9
Alternative performance measure: adjusted earnings per share
Six months ended 31 December 2022 Six months ended 31 December 2021 Year ended
(Unaudited) (Unaudited) 30 June
£m £m 2022
(Audited)
£m
Profit before tax 28.0 22.9 36.0
Adjustments for:
Amortisation of intangible assets 11.3 11.3 22.2
Costs relating to business combinations 1.8 2.0 4.9
Exceptional items - - 12.4
Adjusted profit before tax 41.1 36.2 75.5
Tax expense amended for the above adjustments (8.6) (6.8) (14.6)
Adjusted profit after tax 32.5 29.4 60.9
Weighted average number of Ordinary shares in issue 71,215,385 70,839,356 70,926,977
Weighted average number of Ordinary shares for diluted earnings per share 71,725,237 71,584,078 71,552,539
Adjusted earnings per share (pence) 45.6p 41.5p 85.8p
Diluted adjusted earnings per share (pence) 45.2p 41.1p 85.0p
7. Share-based payments
Long-Term Incentive Plans
The Group operates incentive schemes for certain senior executives and others,
the CVS Group Long-Term Incentive Plan (LTIP).
Under the LTIP schemes, awards are made at an effective nil cost. Executive
schemes vest over a three-year performance period conditional upon the Group's
adjusted earnings per share growth and Total Shareholder Return (TSR). Schemes
for others vest over a three-year period but are not conditional on
performance. The LTIP scheme arrangements are a mixture of equity-settled and
cash-settled. Cash-settled LTIP schemes are linked to a number of shares, the
value of which is settled in cash upon exercise.
The following LTIP schemes were issued in H1 2023:
LTIP 16 LTIP 16(b) LTIP 16(c)
Issue date 30 September 2022 30 September 2022 12 October 2022
Option life 3 years 3 years 3 years
Number of shares 119,639 5,915 5,915
Share price at grant date £16.90 £16.90 £17.60
Exercise price 0.2p 0.2p 0.2p
Settlement Equity-settled Equity-settled Cash-settled
During the six months to 31 December 2022, Directors and employees exercised
115,280 share options (31 December 2021: 97,491) with a weighted average share
price at the date of exercise of £20.01 (31 December 2021: £24.22) in
respect of the LTIP13 (31 December 2021: LTIP12) scheme.
Options were valued using the Monte-Carlo option pricing model and the
share-based payment charge for the period in respect of the options issued
under the LTIP schemes amounted to £0.6m (31 December 2021: £0.8m), which
has been charged to administrative expenses. National Insurance contributions
amounting to £0.1m (31 December 2021: £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 incentive scheme for all employees, the CVS Group SAYE
plan, an HM Revenue & Customs-approved scheme. Under the new SAYE15
scheme, awards were made at a 20.0% discount (SAYE14 and SAYE13 were made at a
20.0% discount and 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.
SAYE15 was opened for subscription in November 2022 with 381,689 options
granted and a contract start date of 1 January 2023. The exercise price was
£15.15, 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 £0.6m (31 December 2021: £0.5m), which
has been charged to administrative expenses.
8. Tax expense
The tax charge for the six months ended 31 December 2022 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 2022 is 22.8% (31 December 2021:
21.8%).
The reported effective tax rate for the six months ended 31 December 2022 is
24.6% (31 December 2021: 23.8%). The reported effective tax rate has increased
from the previous period by 0.8%. This is predominantly due to an increase in
the standard rate of UK corporation tax rate to 25.0% from April 2023,
resulting in UK corporation tax being calculated at a blended rate of 20.5%
(31 December 2021: 19.0%), offset in part by a decrease in expenses not
deductible for tax purposes, mainly in respect of business acquisitions.
9. Intangible assets and property, plant and equipment
Intangible assets Property, plant and equipment
£m £m
Six months ended 31 December 2022
Opening net book value at 1 July 2022 216.5 69.7
Foreign currency translation 0.5 -
Additions 1.9 18.0
Other additions 0.2 -
Additions arising through business combinations 26.6 1.1
Disposals - -
Amortisation and depreciation (11.3) (6.1)
Closing net book value at 31 December 2022 234.4 82.7
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
10. Right-of-use assets
Right-of-use assets
£m
Six months ended 31 December 2022
At 1 July 2022 101.7
Foreign currency translation 0.2
Remeasurement of lease term 0.7
Additions 2.2
Acquired through business combinations 2.5
Disposals (0.8)
Depreciation (7.1)
Closing net book value at 31 December 2022 99.4
Six months ended 31 December 2021
At 1 July 2021 97.2
Foreign currency translation (0.3)
Remeasurement of lease term 4.0
Additions 4.9
Disposals (0.2)
Depreciation (6.7)
Closing net book value at 31 December 2021 98.9
11. Investments
31 December 2022 31 December 2021 30 June 2022
(Audited)
(Unaudited) £m (Unaudited) £m
£m
Investments in equity instruments designated as fair value through other - 17.0 -
comprehensive income
Other investments 0.1 0.1 0.1
Total 0.1 17.1 0.1
12. Business Combinations
Details of business combinations in the six months ended 31 December 2022 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 9 November 2022
The Harrogate Vet Limited 24 November 2022
All businesses were acquired via 100.0% share purchase agreement.
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 period as though the acquisition
date for all business combinations during the year had been at the beginning
of that period.
The table below summarises the total assets acquired through business
combinations in the six months ended 31 December 2022:
Note Book value of
acquired Fair value
assets adjustments Fair value
£m £m £m
Property, plant and equipment 9 1.1 - 1.1
Patient data records 9 - 7.2 7.2
Right-of-use assets 10 2.5 - 2.5
Inventories 0.2 - 0.2
Deferred tax liability (0.2) (1.8) (2.0)
Trade and other receivables 2.0 - 2.0
Trade and other payables (1.3) - (1.3)
Right-of-use liabilities (2.5) - (2.5)
Total identifiable assets 1.8 5.4 7.2
Goodwill 9 19.4
Total consideration (net of cash acquired of £2.3m) 26.6
Initial consideration paid (net of cash acquired of £2.3m) 24.4
Deferred consideration payable 0.7
Contingent consideration payable 1.5
Total consideration (net of cash acquired of £2.3m) 26.6
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 £2.2m and
£0.6m respectively. The post-acquisition period is from the date of
acquisition to 31 December 2022. Post-acquisition EBITDA represents the direct
operating result of practices from the date of acquisition to 31 December 2022
prior to the allocation of central overheads, on the basis that it is not
practicable to allocate these.
Goodwill and intangible assets recognised in the year relating to business
combinations are not expected to be deductible for tax purposes.
Acquisition costs of £1.8m (31 December 2021: £2.0m) are included within
other expenses in note 4 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.
The acquisition of The Harrogate Vet Limited is a related party transaction
and further details can be found in note 20.
Subsequent to the period end, the Group has made three acquisitions:
- 100% of the share capital of AT Animal Care Limited, a single
site companion animal veterinary practice in the UK on 24 January 2023
- 100% of the share capital of Matt Smith Pet Care Limited, a
single site companion animal veterinary practice in the UK on 26 January 2023
- The trade and assets of Macqueen Vets, a single site companion
animal veterinary practice in the UK on 26 January 2023
13. Trade and other payables
31 December 2022 31 December 2021 30 June
(Unaudited) £m (Unaudited) 2022
(Audited)
£m
£m
Trade payables 35.7 35.2 40.4
Social security and other taxes 19.9 16.7 18.4
Other payables 5.4 5.5 6.0
Deferred income(1) 2.2 2.3 2.2
Accruals 20.1 17.7 19.6
Total 83.3 77.4 86.6
(1) Deferred income relates to the contract liability relating to the Healthy
Pet Club (HPC) contract.
14. Provisions
31 December 2022 31 December 2021 30 June 2022
(Audited) £m
(Unaudited) £m (Unaudited)
£m
At the beginning of the period 2.1 3.9 3.9
Charged to the income statement within administration expenses - - 1.2
Utilised in the period (1.2) (0.9) (3.0)
At the end of the period 0.9 3.0 2.1
Provisions relate to costs set aside for properties including site closures and other property maintenance obligations. It is anticipated these will be utilised in the next twelve months.
15. Lease liabilities
31 December 2022 31 December 2021 30 June
(Unaudited) £m (Unaudited) 2022
(Audited)
£m
£m
Current 9.5 8.6 9.4
Non-current 93.4 92.4 95.1
Total discounted lease liabilities 102.9 101.0 104.5
Maturity analysis - contractual undiscounted cash flows
Less than one year 13.4 12.4 13.2
Between one and five years 56.1 52.7 56.2
More than five years 53.3 57.7 56.6
Total 122.8 122.8 126.0
16. Cash flow generated from operations
Six months ended 31 December 2022 Six months ended 31 December 2021 (Unaudited) £m Year ended 30 June
(Unaudited) £m 2022
(Audited)
£m
Profit for the period 21.1 17.5 25.7
Tax expense 6.9 5.4 10.3
Finance expense 3.5 3.4 6.8
Amortisation of intangible assets 11.3 11.3 22.2
Depreciation of property, plant and equipment 6.1 5.7 11.3
Depreciation and impairment of right-of-use assets 7.1 6.7 14.1
Profit on sale of property, plant and equipment and right-of-use assets - - (0.3)
Increase in inventories (2.3) (3.1) (6.6)
(Increase)/decrease in trade and other receivables (1.2) 2.0 (3.2)
Decrease in trade and other payables (7.0) (11.4) (0.1)
Decrease in provisions (1.2) (0.9) (1.8)
Share option expense 1.2 1.3 2.3
Exceptional items - - 12.4
Total net cash flow generated from operations 45.5 37.9 93.1
17. Analysis of movement in liabilities from financing activities
At 1 July 2022 Cash flow New leases £m Liabilities on disposed leases Non-cash movement £m At 31 December 2022
£m £m £m £m
Lease liabilities (104.5) 8.6 (5.4) 0.8 (2.4) (102.9)
Bank loans (84.3) - - - (0.2) (84.5)
Total liabilities from financing activities (188.8) 8.6 (5.4) 0.8 (2.6) (187.4)
At 1 July Cash flow New leases £m Liabilities on disposed leases Non-cash movement £m At 31 December 2021
2021 £m £m £m
£m
Lease liabilities (98.8) 8.2 (8.9) 0.2 (1.7) (101.0)
Bank loans (83.9) - - - (0.2) (84.1)
Total liabilities from financing activities (182.7) 8.2 (8.9) 0.2 (1.9) (185.1)
Non-cash movements on right-of-use lease liabilities mainly comprise interest.
Non-cash movements on borrowings and bank loans mainly include amortisation of
issue costs on bank loans and bank debt acquired.
18. Dividends
The dividends paid in December 2022, representing the final dividend payable
for the year ended 30 June 2022, amounted to £5.0m (7.0 pence per share) (31
December 2021: £4.6m (6.5 pence per share)).
19. Events after the reporting period
On 24 January 2023, the Group completed the purchase of 100.0% of the share
capital of AT Animal Care Limited, a company registered in England and Wales.
On 26 January 2023, the Group completed the purchase of 100.0% of the share
capital of Matt Smith Pet Care Limited, a company registered in England and
Wales. On 26 January 2023, the Group completed the purchase of the trade and
assets of Macqueen Vets. These businesses each comprise one companion animal
veterinary practice site in the UK, aligned with the Group's strategic goals.
Initial cash consideration for these acquisitions was £10.9m.
On 22 February 2023, the Group completed a re-finance of the debt facility,
increasing the total facility from £170.0m to £350.0m, which 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, that runs to
21 February 2027.
In addition the Group has a £5.0m overdraft facility, renewable annually.
20. Related party transactions
During the period, on 23 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 initial consideration of £2.6m, plus deferred
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 £1.5m remains payable to the related party, contingent on
fixed EBITDA targets within the practice acquired.
The related party remained in employment within the Group, and will receive an
annual salary in FY23.
Directors and advisers
Directors R Connell (Chair)
D Kemp (Non-Executive Director)
R Gray (Non-Executive Director)
D Wilton (Non-Executive Director)
R Fairman (Chief Executive Officer)
B Jacklin (Chief Operating Officer)
R Alfonso (Chief Financial Officer)
Company Secretary J Farrer
Company number 06312831
Registered office CVS House
Owen Road
Diss
Norfolk
IP22 4ER
Independent auditor Deloitte LLP
1 Station Square
Cambridge
CB1 2GA
Bankers NatWest Bank Plc
Gentleman's Walk
Norwich
NR2 1NA
HSBC Bank plc
8 Canada Square
London
E14 5HQ
AIB Group (UK) plc
St Helen's
1 Undershaft
London
EC3A 8AB
Barclays Bank plc
1 Churchhill Place
London
E14 5HP
Virgin Money
15(th) Floor
The Leadenhall Building
122 Leadenhall Street
London
EC3V 4AB
JPMorgan Chase Bank
25 Bank Street
Canary Wharf
London
E14 5JP
Lloyds Bank plc
25 Gresham Street
London
EC2V 7HN
Danske Bank UK
75 King William Street
London
EC4N 7DT
Rabobank
Willemskade 1
8011 AC Zwolle
Netherlands
Ulster Bank Limited
33 Eyre Square
Galway
H91 HY96
Republic of Ireland
Legal advisors Leathes Prior
74 The Close
Norwich
NR1 4DR
DLA Piper UK LLP
Victoria Square House
Victoria Square
Birmingham
B2 4DL
Eversheds Sutherland
115 Colmore Row
Birmingham
B3 3AL
Nominated advisor and broker Peel Hunt LLP
7(th) Floor
100 Liverpool Street
London
EC2M 2AT
Joint broker Berenberg
60 Threadneedle Street
London
EC2R 8HP
Financial Public Relations Camarco
3rd Floor
Cannongate House
62-64 Cannon Street
London
EC4N 6AE
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