CVS Group plc Annual Report for the year ended 30 June 2016
An outstanding Group performance
I am delighted to report an outstanding performance by CVS with a record year for revenue and operating profits across the Group. Organic growth was enhanced by further acquisitions in our Veterinary Practice and Crematoria Divisions. We increased investment in the development of our services, our staff and our premises, and further improved our customer service in all areas.
Revenue grew by 30.4% to £218.1m (2015: £167.3m). Adjusted EBITDA increased by 42.5% to £32.8m (2015: £23.0m) and adjusted EPS grew by 31.2% to 32.4p (2015: 24.7p).
Operating profit rose by 20.0% to £11.8m (2015: £9.8m), cash generated from operations increased 51.1% to £33.6m (2015: £22.2m) and profit before tax increased by 6.0% to £9.1m (2015: £8.5m). Basic EPS was unchanged at 11.6p (2015: 11.6p) due to the increase in the number of Ordinary shares in issue.
In 2016 we acquired 67 surgeries, three crematoria, the VetShare buying group and the VETisco instrumentation business. This is much more than we have ever completed in a year before. In total these businesses are expected to generate revenue of approximately £50.0m per annum. The acquisitions included the Highcroft business, which includes a strong and rapidly developing referrals business in Bristol and the Dovecote referral centre in Castle Donington. These, together with the opening of our state-of-the-art Lumbry Park referral centre in October 2015, moved our referral strategy forward significantly.
Subsequent to the year end a further three surgeries have been acquired. Like-for-like sales grew by 4.8% (2015: 6.8%) with growth in all areas except Animed Direct, which had a difficult year.
Our “MiPet” own brand label is unique in the veterinary industry and, as well as giving us a pricing advantage, it helps to bond our customers to our practices. The launch of our own brand flea and worming treatments in the spring of 2015 significantly improved our margins in the Veterinary Practice Division. Further products have been added under the MiPet name including pet food and waiting room retail accessories. These additional products are lower volume than the flea and worming treatments and so will not improve the margin to the same extent.
Our Healthy Pet Club scheme continued its strong growth with an additional 40,000 (18.8%) members over the year.
The Laboratory Division grew very strongly for a second consecutive year with revenue increasing by 12.8% to £14.8m (2015: £13.1m).
The acquisition of three crematoria in Larkhall, Durham and Scunthorpe has improved our geographic coverage greatly. This will allow us to improve the service to customers and to achieve greater benefits of scale.
The Group remains the largest employer in the UK’s veterinary profession with approximately 4,300 staff as at today (2015: 3,400), including around 1,040 vets (2015: 822). It is a credit to all of our people that they have delivered the increased scale of acquisitions and, at the same time, continued to develop the like-for-like business. I would like to thank them all, including those new to CVS, for their expertise and professionalism in providing the best possible care and service to all our customers and their animals.
The development of our staff and of our clinical and non-clinical training continues to be a priority. No other veterinary group has the knowledge, expertise and ability to provide so much training internally and this is an area where CVS distinguishes itself from our competition.
It is proposed to pay a dividend of 3.5p per share in December 2016, a 16.7% increase on the 3.0p per share paid in 2015. Our pipeline of acquisitions remains strong and the Board believes that there remain significant opportunities for organic growth. The increased scale and growth of our business can support a meaningful increase in the level of dividend whilst retaining sufficient funds to continue to grow the business.
If approved at the Annual General Meeting, the dividend will be paid on 9 December 2016 to shareholders on the register on 25 November 2016. The ex-dividend date will be 24 November 2016.
The Group’s exposure to the potential impacts of “Brexit” appears to be limited and, whilst the referendum vote to leave the EU creates some uncertainty for the pace of growth in the UK economy over the next couple of years, the Board believes that the characteristics of our business make it relatively resilient.
Investment in a number of longer-term initiatives will have a slightly negative impact on our profits in the short term before generating positive returns. These include the development of a small number of greenfield sites, the introduction of our own brand insurance and the introduction of an additional layer of management in the Veterinary Practice Division in order to enhance the support of the practices and maximise their potential.
Like-for-like sales growth in the second half of the year ending 30 June 2016 was strong and pleasingly this has continued into the early part of 2017. Initiatives such as the benefits arising from the introduction of our own brand products, the expansion of out-of-hours sites and the development of Lumbry Park will continue to deliver benefits in 2017. In addition the acquisition pipeline remains buoyant.
The Board therefore believes that the outlook for CVS remains very promising.
23 September 2016
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