REG - CVS Group plc - Trading Statement

CVSAnnouncement

25/07/2024 07:00

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RNS Number : 7373X  CVS Group plc  25 July 2024

25 July 2024

 

CVS Group plc

("CVS" or the "Company" and, together with its subsidiaries, the "Group")

 

Full year trading update, business developments and Board changes

 

CVS, the UK listed veterinary group and a leading provider of veterinary
services is pleased to issue the following update on trading for the financial
year ended 30 June 2024 ("FY24")(1), other business developments and Board
changes. The Group expects to announce its FY24 preliminary results on 26
September 2024.

 

FY24 Highlights (2)

·    Full year revenue growth for its continuing operations of c.10% with
like-for-like(3) sales increasing by 2.9% (FY23: 7.3%)

·    Revenue growth and like-for-like(3) sales impacted by: the transitory
effect of the cyber incident announced on 8 April 2024 and the resulting
decision to accelerate the cloud migration across the majority of the Group's
companion animal practices in the UK; and softer demand given wider publicity
around the veterinary sector and the continued cost of living pressures

·    When adjusted for the estimated impact of the cyber incident and
subsequent cloud migration at the Group's practices, underlying like-for-like
sales growth would have been c.4.1%

·    Adjusted EBITDA(4) margin for continuing operations is expected to be
at the lower end of our stated range of 19% to 23%

·    As such the Group expects to report FY24 Adjusted EBITDA(4 ) of
c.£127m (unaudited)

·    Roll out of Australia acquisitions continues with 22 practice
acquisitions (comprising 28 practice sites) for aggregate initial
consideration of A$157.6m / £82.4m made in the year, and one further two
site practice acquisition post year end

·    Leverage(6) expected to be c.1.5x as at 30 June 2024 (31 December
2023: 1.15x, 30 June 2023: 0.73x) as the Group continues to maintain
significant headroom with committed undrawn bank facilities of over £165m.
Leverage remains well below the stated target of less than 2.0x

·    Membership of the Group's Healthy Pet Club preventative healthcare
scheme has increased to 503,000 members, an increase of 14,000 (2.9%) in the
year (30 June 2023: 489,000 members)

·    After the year end, Paul Higgs (Chief Veterinary Officer) joined the
Board as an executive director and Joanne Shaw (non-executive director)
succeeded David Wilton as chair of the audit committee.

 

Updated Capital Allocation Policy

The Group set out a clear capital allocation strategy at its Capital Markets
Day in November 2022, and today reaffirms this strategy as follows:

 

·    Maintaining operation cash conversion of c.70%

·    Investment in overseas acquisition of >£50m per annum

·    Investment in capital expenditure of £30m - £50m per annum

·    Maintaining leverage <2.0x

 

In FY25 the Group expects to continue to focus its capital allocation towards
its Australia opportunity, building on its existing platform to drive
long-term sustainable growth.

 

In FY24, CVS continued to invest in practice facilities, clinical equipment
and technology with total capital expenditure of c.£42.0m, including bringing
forward capital expenditure of c.£4.3m for IT and related infrastructure due
to the rollout of the new practice management system (PMS) (FY23: total
capital expenditure £45.7m).

 

This investment was funded from a combination of cash generated from
operations and additional drawing under the Group's bank facilities.  Net
bank borrowings(5) as at 30 June 2024 were £168.0m (31 December 2023:
£129.2m, 30 June 2023: £74.0m).

 

Acquisitions:

Australia

The Group has significantly increased its presence in Australia, successfully
completing a further ten acquisitions of small animal first opinion practices
bringing the total to 23 acquisitions, comprising 30 practice sites. Of these,
22 acquisitions (comprising 28 practice sites) were completed within FY24. The
aggregate initial consideration, net of cash acquired, for these 22
acquisitions was A$157.6m / £82.4m.  The Board is pleased with the
performance in Australia with the acquisitions collectively performing in line
with the Group's business plans.

 

 Practice acquired                                                        % acquired  Date of acquisition
 Walkerville Vet                                                          100%        25 March 2024
 Selwood House Vets Pty Ltd                                               80%         09 April 2024
 GVHCO Pty Ltd T/A Gordon Veterinary Hospital                             100%        11 April 2024
 Mayfield Veterinary Hospital, Georgetown Veterinary Clinic and Stockton  100%        16 May 2024
 Veterinary Clinic
 Grantham Street Veterinary Clinic and Dalkeith Veterinary Clinic         100%        22 May 2024
 North Perth Veterinary Centre                                            100%        22 May 2024
 Northam Veterinary Centre                                                100%        22 May 2024
 The Gap Veterinary Surgery                                               100%        28 May 2024
 Mossman Park Veterinary Hospital                                         100%        29 May 2024
 Pet Universe                                                             100%        2 July 2024

 

 

The Group has established a significant platform in Australia and has expanded
its local management team to support the continuing acquisition strategy. The
Group assumed no synergies in its business cases but is increasingly confident
that purchasing synergies can be secured. The Group has a strong pipeline of
potential acquisition opportunities and is confident that it will complete a
number of further small animal practice acquisitions in FY25.

 

United Kingdom

The Group completed a total of five acquisitions of small animal practices in
the UK in FY24 comprising six practice sites, for aggregate initial
consideration net of cash acquired of £12.7m. These acquisitions were made
following the submission of briefing papers to the Competition and Markets
Authority (CMA) and four were completed in H1, with a further two site
practice acquisition of Ark Animal Services Limited on 12 February 2024. The
Group has paused acquisition activity in the UK pending the outcome of the CMA
market investigation.

 

Cyber Incident & Investment in IT Infrastructure

As previously announced, on 8 April 2024, CVS detected and intercepted a cyber
incident which involved unauthorised external access to a limited number of
the Group's IT servers. CVS immediately took a number of actions to limit the
impact of this incident and notified all appropriate regulatory authorities
alongside impacted colleagues.

 

Whilst this incident is now fully resolved, CVS expects to incur exceptional
costs of approximately £4m to £5m comprising specialist professional fees;
cyber security related one-off costs; and non-capital costs in relation to its
modernisation programme and migration to its Cloud based PMS Provet Cloud.
Over 375 of the Group's UK companion animal first opinion practices were fully
migrated to the new PMS by 30 June 2024.

 

Whilst CVS continued to focus on providing high levels of clinical care to
clients and patients, the cyber incident and resulting migration to the new
PMS systems impacted trading in the final quarter with an adverse revenue
impact of approximately £7.0m.

 

Strategic disposals: Netherlands and Republic of Ireland

As announced on 21 May 2024, CVS undertook the strategic decision to divest of
its loss-making Netherlands and Republic of Ireland operations given their
sub-scale nature and the particular challenges within these veterinary
markets.

 

This completed on 29 May 2024 and CVS will make a non-cash write-down in its
FY24 accounts in relation to the disposals.

 

Competition and Markets Authority

The Group, continues to support the CMA with their market investigation and
has responded to a number of detailed information requests.  The Group also
held a "teach-in" session with the CMA on 24 June 2024 and has arranged site
visits for 31 July 2024. The market investigation is expected to conclude by
November 2025 with an interim update expected from the CMA in April or May
2025.

 

Outlook

CVS has strong long-term prospects and great people. The Group is facing
short-term headwinds with the recent cyber incident and modernisation,
softening demand and the ongoing process with the CMA. The fundamentals of the
sector remain very strong with an increased population of pets, pet life
expectancy increasing and continued advancements in the provision of clinical
care.

 

The Board would like to acknowledge and thank all CVS colleagues for their
continued dedication and commitment in delivering the best possible care to
animals.

 

Board changes

Following David Wilton's appointment as Non-executive Chair on 1 May 2024, the
Board is pleased to announce that Joanne Shaw, who was appointed as a
non-executive director on 1 July 2023, will succeed David as Chair of the
Group's Audit Committee on 25 July 2024.  Joanne, a chartered accountant, has
significant healthcare and non-executive audit chair experience from her roles
at Cancer Research UK, the Royal College of Paediatrics and Child Health,
Vitality UK, NHS England and the National Audit Office.  The audit committee
now consists of Joanne Shaw (Chair), David Wilton, Deborah Kemp and Richard
Gray.

 

The Board is also delighted to announce the appointment of our Chief
Veterinary Officer Paul Higgs to the board on 25 July 2024.  Paul is a
European Small Animal Internal Medicine Specialist and will provide
appropriate clinical advice to the board.  He joined CVS in 2018 and was
appointed as Chief Veterinary Officer in September 2022 and joined the
executive committee at that date. In his role as Chief Veterinary Officer,
Paul oversees the Group's clinical governance across the UK and Australia and
the training and development of clinical colleagues.

 

 

Chair David Wilton commented:

"On behalf of the Board I am delighted to welcome Paul Higgs. Paul's
commitment to advancing clinical quality, his passion for the development of
the Group's clinicians and his engagement with the veterinary professional
bodies will support the Board and the wider Group in delivering its purpose to
give the best possible care to animals."

Notes:

(1    Numbers included are unaudited.)

(2    Numbers are shown for continuing operations only and exclude the
Netherlands and Republic of Ireland operations which were sold on 29 May 2024,
as announced on 21 May 2024, FY23 comparators where indicated are adjusted to
remove these discontinued operations)

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

(4    Adjusted EBITDA (earnings before interest, tax, depreciation and
amortisation) is profit before tax for continuing operations adjusted for
interest (net finance expense), depreciation, amortisation, costs relating to
business combinations and exceptional items. Adjusted EBITDA is an alternative
performance measure and is defined in note 1 of the 2022 Annual Report.)

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

(6    Leverage on a bank test basis is net bank borrowings divided by
'Adjusted EBITDA', annualised for the effect of acquisitions, deducting
acquisition fees and adding back share option costs, on an accounting basis
prior to the adoption of IFRS 16.)

 

 

 

 

 

CVS Group
plc
        via Camarco

Richard Fairman, CEO

Robin Alfonso, CFO

 

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

Christopher Golden / James Steel / Andrew Clark / Lalit Bose

 

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

Toby Flaux / Ben Wright / James Thompson / Milo Bonser

 

Camarco (Financial
PR)

Ginny Pulbrook
                                            +44 (0)7961
315 138

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

 

 

 

 

Additional Disclosures under the AIM Rules for Companies:

 

 

In relation to the appointment of Paul Stephen Higgs, aged 42:

 

Current directorships/partnerships

CVS (Australia) Holdings Proprietary Limited and the following subsidiary
companies:

CVS Vets (Australia) Proprietary Limited

Vetright Pty Ltd

McDowall Veterinary Hospital Pty. Ltd

Cattle Dog Health Pty Ltd

Vet Referral Pty Ltd

GVHCO Pty Ltd

Biome Vet Pty Ltd

Southside Animal Hospital Pty Ltd

Brunker Road Veterinary Centre Pty Limited

Selwood House Vets Pty Ltd

 

At the date of this announcement Paul holds 6,364 ordinary shares in the
Company and has options over a total of 10,944 shares granted under the CVS
Group plc Long Term Incentive Plan 2022-2025 and the CVS Group plc Long Term
Incentive Plan 2023-2026. Such options have an exercise price of 0.2p and are
subject to vesting and performance criteria being satisfied, further details
of which are set out in the Company's annual report.

 

Save for the above, there are no further disclosures to be made in accordance
with Rule 17 and Schedule 2 paragraph (g) of the AIM Rules for Companies.

 

 

 

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

 

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

 

The Group now operates c.460 veterinary practices across its two territories,
including specialist referral hospitals and 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 an online retail business ("Animed Direct").

 

The Group employs c.9,000 personnel, including c.2,400 veterinary surgeons and
c.3,300 nurses.

 

 

 

 

 

 

 

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