Annual Reports

CVS Group plc Annual Report for the year ended 30 June 2018

Chairman’s statement

Like-for-like sales grew by 4.9% (2017: 6.3%) with growth in all areas, in particular Animed Direct which continued to perform exceptionally.

 

Highlights

  • The Group continued to build its coverage in the Netherlands and acquired its first practices in the Republic of Ireland.
  • We acquired 52 surgeries during the year.
  • Subsequent to the year end we acquired Slate Hall, one of the largest and most respected poultry vets in England.

Results

I am delighted to report a strong performance by CVS with another record year for revenue and operating profits across the Group. Strong like-for-like growth of 4.9% was enhanced by further acquisitions in our Veterinary Practices Division. We continued to increase our investment in equipment, premises, our services and our staff.

Revenue grew by 20.4% to £327.3m (2017: £271.8m). Adjusted EBITDA increased by 13.3% to £47.6m (2017: £42.1m). Adjusted EPS fell slightly to 42.4p (2017: 42.8p) as a consequence of the placing in February, as the timing of acquisitions has not yet fully offset the increase in shares from the placing in February.

Operating profit rose by 2.8% to £17.7m (2017: £17.2m), cash generated from operations increased 30.4% to £46.7m (2017: £37.2m) and profit before tax fell by 3.2% to £14.1m (2017: £14.5m). Basic EPS fell by 13.5% to 16.0p (2017: 18.5p) in part due to the slight fall in profit before tax but primarily as a consequence of the placing.

Business initiatives

In 2018 we acquired 52 surgeries, following on from the 62 acquired in 2017. In total these businesses are expected to generate revenue of over £40.0m per annum. Subsequent to the year end a further 16 surgeries have been acquired.

Of particular note are the acquisitions of Troytown GreyAbbey Equine Veterinary Services and Gilabbey Veterinary Hospital, our first acquisitions in the Republic of Ireland. Troytown GreyAbbey is one of the largest and most renowned equine practices in Ireland. Together with the other equine acquisitions this will significantly develop our equine business.

Subsequent to the year end we acquired Slate Hall, one of the largest and most respected poultry vets in England. This acquisition adds significant credibility to our farm business and should assist in its further expansion. We also acquired Vet Direct, which provides veterinary supplies other than medicines. This acquisition will allow us to further consolidate our buying and reduce costs.

Our referrals business strategy progressed further with the acquisition of Weighbridge Referrals and Lumbry Park now being cash generative, less than three years after opening.

Like-for-like sales grew by 4.9% (2017: 6.3%) with growth in all areas, in particular Animed Direct, which continued to perform exceptionally. Like-for-like sales were adversely impacted by about 0.3% due to the harsher than usual snow at the start of March and this reduced sales by an estimated £1.0m.

Our Healthy Pet Club scheme continued its strong growth with a membership increase of 56,000 (+18.3%) members over the year.

The Laboratories Division again grew very strongly with revenue increasing by 10.2% to £17.9m (2017: £16.3m). The Crematoria Division increased revenue by 4.7% to £6.6m (2017: £6.3m) and Animed Direct by almost 45% to £18.8m (2017: £13.0m).

In August 2017, we launched our own brand pet insurance under the name of MiPet Cover. This is the only pet insurance in the UK that is designed by vets. It provides top of the range cover at a competitive price. Reaction from customers and our own staff, who were involved in its design, has been very positive. Sales have been promising but it is expected to be a couple of years before the business is profitable.

In February 2018 we raised £58.9m in net proceeds through the placing of shares to fund future acquisitions. Since then we have spent £55.0m on acquisitions, but most of this was subsequent to the year end and only a small benefit from these acquisitions is reflected in the results for the year ended 30 June 2018. As a consequence, the placing has had a dilutive impact on earnings per share in 2018; however, we expect substantial benefit from these and further acquisitions to flow into the results in the year ending 30 June 2019.

On 21 September 2018 the Group increased its facility with the existing banking syndicate to £190.0m comprising a £95.0m loan and a revolving credit facility of £95.0m. This increase will  provide further funds for acquisitions and general business development.

Our people

The Group now employs over 6,150 staff (2017: 5,150), including 1,570 vets (2017: 1,270). Our staff have continued to develop the business at the same time as meeting the challenge of integrating the high volume of acquisitions. I would like to thank them all, including those new to CVS, for their efforts and 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. In January we increased the salaries of some vets and nurses by substantially more than inflation in order to improve retention and recruitment. Since then there has been a noticeable improvement in vacancy rates, in particular for nurses. We continue to develop our internal training programmes, both clinical and managerial, and believe that this benefits our customers, our staff and the business.

Richard Fairman joined the Board on 1 August 2018. His wealth of experience in multi-site, consumer-facing, acquisitive organisations will bring significant benefit to the Group and we look forward to working with him going forward. Richard will replace Nick Perrin as Group Finance Director following the announcement of these results. I would like to thank Nick for his invaluable contribution to the Company over the past five and a half years. Nick has played an important part in driving the business forward and we wish him well in the future.

Dividends

It is proposed to pay a dividend of 5.0p per share in December 2018, a 11.1% increase on the 4.5p per share paid in 2017. 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 7 December 2018 to shareholders on the register on 23 November 2018. The ex-dividend date will be 22 November 2018.

Outlook

The Group’s exposure to the potential impacts of Brexit appears to be limited. The greatest impact could be in the employment of European vets. We have not seen any significant impact on employment so far but, together with other major employers in the industry and the Royal College of Veterinary Surgeons, we are lobbying the UK Government to mitigate against any such potential adverse impacts. Clearly, Brexit issues create some uncertainty for the pace of growth in the UK economy over the next couple of years, but the Board believes that the characteristics of our business make it relatively resilient.

Like-for-like sales growth has remained robust since the year end. The acquisition pipeline remains strong and the recent acquisitions in the Republic of Ireland and in our farm business provide further avenues for development.

Initiatives such as the introduction of own brand products, the expansion of dedicated out-of-hours sites and the development of our referrals business are expected to continue to deliver benefits in 2019. We expect our Healthy Pet Club to continue to increase its membership and our MiPet Cover business to grow steadily. We will continue to launch a small number of greenfield sites and expect those recently opened to move towards profitability. Our laboratories will continue to expand their services through the increased sales of analysers and related consumables as well as growing the farm and equine testing. Animed Direct is expected to grow further.

The Board therefore believes that the outlook for CVS remains very promising.

 

Richard Connell

Non-Executive Chairman

27 September 2018

 

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