REG - CVS Group plc - Trading update, AU expansion and UK acquisitions

CVSAnnouncement

27/07/2023 07:15

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RNS Number : 3337H  CVS Group plc  27 July 2023

27 July 2023

 

CVS Group plc

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

 

Full year Trading Update, Expansion into Australia and UK acquisitions

 

CVS, the UK quoted veterinary group and a leading provider of integrated
veterinary services, is pleased to issue the following update on trading for
the financial year ended 30 June 2023 ("FY23")(1).  The Group expects to
announce its FY23 preliminary results on 21 September 2023.

 

The Group is also pleased to announce its entry into the Australian veterinary
services market.  CVS's expansion into Australia is in accordance with its
growth objectives, outlined in the five-year plan at the Group's Capital
Markets Day in November 2022, to execute on scalable international
consolidation opportunities, subject to maintaining its disciplined
acquisition criteria. Having explored a number of new potential markets, the
Board has identified Australia as particularly attractive given the relatively
low levels of corporate consolidation, favourable market dynamics and strong
similarities with the UK, including highly trained veterinary surgeons, shared
language and culture, and the Group's experience with UK vets working between
Australia and the UK.

 

FY23 Financial Highlights

 

·    Continued organic revenue growth with a 7.3% increase in
like-for-like sales(2) (FY22: 8.0%), consistent with the Group's organic
revenue growth ambition of between 4% and 8%;

·    Adjusted EBITDA(3) margins also expected to be within our stated
ambition of margins between 19% to 23%;

·    FY23 adjusted EBITDA(3) expected to be comfortably in line with
market expectations;

·    Continued investment in our facilities and equipment to support
growth, with total capital expenditure of c.£46m (FY22: £24.5m), within the
Group's capital expenditure ambition of £30m to £50m investment per annum;

·    Investment of c.£55m in 11 practice acquisitions (comprising 16
practice sites) (FY22: £8.4m in three practice acquisitions (comprising three
practice sites)), in line with the guidance of £50m+ investment per annum;

·    Leverage(5) comfortably less than 1.0x at 30 June 2023 (30 June
2022: 0.40x) well below our stated target of less than 2.0x leverage.  This
reflects strong EBITDA growth and continued operating cash conversion, partly
offset by an increase in drawn debt to fund growth investment in capital
expenditure and acquisitions;

·    Further increase in membership of our preventative healthcare scheme,
Healthy Pet Club to 489,000 members (30 June 2022: 470,000);

·    6.5% increase in the average number of vets employed in FY23
reflecting a further reduction in attrition and a record graduate vet intake.

 

FY23 Performance

The Board is pleased to report the Group delivered strong high single-digit
revenue growth for the full year.  Like-for-like(2) sales for the financial
year increased by 7.3% (FY22: 8.0%), at the upper end of the Group's ambition
of like-for-like growth between 4% and 8%.  We continue to see resilience in
the veterinary sector, with membership of our Healthy Pet Club preventative
healthcare scheme increasing in the year by 19,000 members (an increase of
4.0%) to 489,000 (30 June 2022: 470,000 members).

 

The Group expects to report adjusted EBITDA(3) for FY23 comfortably in line
with market expectations, notwithstanding increased utility costs and other
inflationary pressures.

 

Adjusted EBITDA(3) margin is expected to be within the range of 19% to 23%,
reflecting our continued focus on the provision of high quality clinical care
across our integrated veterinary services platform.

 

In accordance with our five-year plan, we have increased investment in our
practice facilities, clinical equipment and technology in support of future
growth.  Total capital expenditure was c.£46m (FY22: £24.5m), in line with
the £30m to £50m per annum ambition.  We completed 21 practice
refurbishment and projects in the financial year and our new practice
management system is now being trialled in the UK.

 

This investment was funded from a combination of cash generated from our
operations and additional drawing under our bank facilities which were
successfully refinanced in February 2023, with margins on these facilities
remaining unchanged.  Net bank borrowings(4) increased as at 30 June 2023 to
£74.1m (31 December 2022: £57.6m, 30 June 2022: £36.0m). The Group expects
to report leverage(5) comfortably below 1.0x as at 30 June 2023 (30 June 2022:
0.40x).

 

We continue to focus on the recruitment, retention and development of our
highly skilled and dedicated colleagues.  We employed an average of 6.5% more
vets in FY23 vs FY22 reflecting a further reduction in attrition and a record
graduate vet intake.

 

Australian acquisitions

On 10 July 2023, the Group signed four separate sale and purchase agreements
for the conditional acquisitions of four independent small animal first
opinion veterinary practices in Australia (comprising six sites) namely:

 

·    McDowall Veterinary Practice, a nine-vet single site practice in
McDowall, Brisbane, Queensland;

·    Northgate Veterinary Surgery and St Vincents Vets, a five vet two
site practice in Brisbane, Queensland;

·    Warner Vet, a four-vet single site practice in Cashmere, Queensland;
and

·    Southside Animal Hospital, a six vet two site practice in Sydney, New
South Wales.

On 26 July 2023, the Group completed the acquisitions of McDowall Veterinary
and Warner Vet Practices with the remaining two acquisitions expected to be
completed shortly.

Combined initial consideration for the completed acquisitions and the two
pending acquisitions is A$31.9m (c.£16.8m) settled / to be settled in cash.
In addition, each acquisition is also subject to market-standard performance
based contingent consideration, which will (if achieved) be settled in cash.

 

These four acquisitions are the first of a number of planned Australian
practice acquisitions which CVS expects to announce in the coming months. The
Group has identified a strong pipeline of opportunities and a number of
non-binding indicative offers have been accepted for further practice
acquisitions.  The Group's focus will be on acquisition opportunities in
major urban conurbations, including Sydney, Melbourne, Brisbane, Perth,
Canberra, Newcastle and Adelaide.

 

The Group has established an Australian-based senior management team to
support acquired practices and continue to develop the pipeline of new
acquisition opportunities.  This team includes a highly experienced
operations director with seven years' service at CVS on secondment from our UK
veterinary practice division, and an acquisitions director with extensive
experience of the Australian veterinary market.  Members of the CVS executive
committee will continue to spend appropriate time in Australia to support the
establishment of our new operations.

 

The Group expects gradually to benefit from additional advantages of scale as
it further expands in Australia, including improved drug purchasing terms,
revenue growth and margin enhancement with a focus on high quality clinical
care and developing a market leading employee experience.

 

Additional UK acquisitions

The Group is also pleased to announce the acquisition of a further three
veterinary practices (comprising five practice sites) in the UK in the
financial year to 30 June 2023 for combined consideration of c.£20m, namely:

 

·    East of England Veterinary Specialists, a single site small animal
specialist referral practice in Wimpole, Cambridgeshire;

·    Brunswick Place Veterinary Clinic, a single site small animal first
opinion practice in Basingstoke, Hampshire; and

·    Riverside Veterinary Practice, a three-site small animal first
opinion practice near Edinburgh in West Lothian, Scotland.

 

Including these acquisitions, the Group completed 11 practice acquisitions
(comprising 16 practice sites) in the financial year to 30 June 2023 for
combined consideration of c.£55m.

 

The consideration for the completed acquisitions was fully satisfied in cash
from the Group's existing funding resources, with the Group's leverage(5)
remaining below 1.0x post these acquisitions, retaining significant headroom
for further growth.

 

Outlook

Whilst the Board remains mindful of the uncertain economic outlook, the
veterinary market continues to show resilience with ongoing demand for the
Group's services.  With the growth delivered in the financial year to 30 June
2023, ongoing investment in delivering further organic growth and recent
acquisitions in the UK and Australia, the Group remains well placed to deliver
further increases in shareholder value.

 

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.

 

The Group expects to announce its preliminary results on Thursday, 21
September 2023.

 

 

Richard Fairman, CEO commented;

"I am delighted to announce the continued growth of CVS in the financial year
ended 30 June 2023 and our entry into the Australian veterinary services
market.  At our Capital Markets Day in November 2022, we set out our plans
and ambition to double Adjusted EBITDA over the next five years through a
continued focus on organic growth and through acquisitions in the UK and
overseas.  Our entry into the Australian market is consistent with these
plans and we are excited by the opportunity.  I am delighted to welcome the
teams at McDowall Vets, Northgate Veterinary Surgery & St Vincent Vets,
Warner Vet and Southside Animal Hospital in Australia, and those of East of
England Veterinary Specialists, Brunswick Place Veterinary Clinic and
Riverside Veterinary Practice in the UK to the CVS Group."

 

 

Ben Jacklin, Deputy CEO stated;

"The announcement of this strong trading update, and our entry into the
Australia market represents more good news for CVS. Having worked as a vet in
Australia earlier in my career, I know well their high standards of clinical
care, and the dedication of highly talented veterinary professionals that work
there.  As a company dedicated to giving the best possible care to animals, I
see a fantastic opportunity for us to enter this growing market, with low
levels of corporate consolidation, and execute our vision of being the
veterinary company people most want to work for.  I have spent time in
Australia over the last 12 months, including meeting some fantastic veterinary
practices, and it is clear we have a significant opportunity.  With the four
outstanding practices that are joining us, and a strong pipeline of further
acquisition opportunities, I am excited to build a significant CVS business in
Australia with the same culture and values that have brought us success in the
UK."

 

 

Notes

1           Numbers included are unaudited.

2           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.

3           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 is an alternative
performance measure and is defined in note 1 of the 2022 Annual Report.

4           Net bank borrowings is drawn bank debt less cash and
cash equivalents.

5           Leverage on a bank test basis is net bank borrowings
divided by 'Adjusted EBITDA', annualised for the effect of acquisitions,
deducting costs relating to business combinations 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

Ben Jacklin, Deputy CEO

Robin Alfonso, CFO

 

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

Adrian Trimmings / Michael Burke / Andrew Clark / Lalit Bose

 

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

Toby Flaux / Ben Wright / James Thompson / Milo Bonser

 

Camarco (Financial
PR)

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

Ginny Pulbrook
 
      +44 (0)7961 315 138

 

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

CVS Group is an AIM-quoted fully-integrated provider of veterinary services in
the UK, with practices in Australia, 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 four markets, including
nine specialist referral hospitals and 39 dedicated out-of-hours sites.
Alongside the core Veterinary Practices division, CVS operates Laboratories
(providing diagnostic services to CVS and third-parties), Crematoria
(providing pet cremation and clinical waste disposal for CVS and third-party
practices), Buying Groups and the Group's online retail business ("Animed
Direct").

The Group employs c.8,700 personnel, including c.2,250 veterinary surgeons
and c.3,200 nurses.

 

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