We generated revenue for the year of £406.5m, a 24.2% increase over the prior year (2018: £327.3m). This increase reflected a number of acquisitions in the first half of the financial year coupled with robust like-for-like sales growth of 5.2% for the Group as a whole (2018: 4.9%) and 4.3% in our veterinary Practices (2018: 3.0%).
Adjusted EBITDA increased by 14.5% to £54.5m (2018: £47.6m) reflecting a stronger second half of the year. Adjusted EPS increased by 10.1% to 46.7p (2018: 42.4p).
Cash generated from operations increased by 11.6% to £52.1m (2018: £46.7m). Profit before tax decreased by 17.0% to £11.7m (2018: £14.1m) due to increased amortisation. Basic EPS decreased by 27.5% to 11.6p (2018: 16.0p).
CVS finished the year with net debt of £102.0m (2018: £69.0m) and leverage of 2.08x (2018: 1.44x).
We have a number of opportunities to develop the business and generate enhanced shareholder value as set out on pages 12 and 13 ‘Our market’, pages 14 and 15 ‘Our business model’ and pages 16 and 17 ‘Our strategic priorities’. Risks which we have identified and our approach to mitigating these are set out on pages 32 to 36.
The Board remains confident that our business model is resilient and sustainable.
Our integrated veterinary platform gives CVS a strong base from which to deliver future growth. Our core first opinion and referrals practices enable us to provide the highest levels of end to end clinical care. We have seen significant growth in the financial year from our Referrals business with revenues increasing by 21.6% to £22.5m (2018: £18.5m). This reflects our success in recruiting a number of additional specialists and in increasing the number of referral cases. We are focused on delivering further growth in our referrals business in the coming year. We have launched a new referrals website to make it easier for first opinion veterinary surgeons to refer cases by putting them in touch with our growing list of specialists and allowing them access the most appropriate specialist care.
We will continue to promote our Healthy Pet Club as a means to providing the highest levels of preventative medicine. We had 401,000 members at 30 June 2019 an increase of 10.8% in the year (2018: 362,000). We have also launched a Healthy Horse Programme which had 7,000 members at 30 June 2019 (2018: 3,000).
Through the above focus in both our first opinion and referrals practices we are able to offer our clients and patients an increasing level of clinical care. This naturally results in advanced clinical procedures, better outcomes for our patients and a resulting increase in average transaction values.
We have 22 specialist out-of-hours centres in operation following the opening of three new sites in the financial year. We have plans in place to open a further eight sites in the next twelve months to provide dedicated round the clock care to both CVS and private practices.
We launched our own brand MiPet medicines for small animal practices in 2013 and these now account for 25% of our small animal drug sales. We also launched our first own label Equine product in July 2019. We are investing in a new warehouse management system at our Diss offices which will go live in the second half of the new financial year. This will facilitate a further increase in our ability to undertake direct supply of drugs to our practices and will allow us to further expand our own brand drug range.
Revenue from Animed Direct, our on-line dispensary and retailer, increased by 24.3% in the year to £23.3m (2018: £18.8m). The new warehouse management system will also support the further expansion of our product range in Animed Direct and help deliver improvements in margins.
Our Laboratory division continues to focus on the provision of in-house analysers and re-agents to CVS and private practices and in the provision of a full range of pathology tests on samples taken from patients. New equine and farm tests are being developed in support of our first opinion practices. We continue to invest in our pet Crematoria division with a new Equine cremator being installed in our Whitley Brook crematorium and a planned redevelopment of our Greenacres crematorium in order to increase capacity. We will continue to seek opportunities to acquire further laboratory and crematoria businesses in support of our non-UK businesses in Ireland and the Netherlands.
In August 2018 we acquired Vet Direct, an equipment and co sumables supply business which provides a one-stop shop for CVS and private practices. We will seek to expand the Vet Direct product range and have now folded our existing Vetisco instruments business into Vet Direct.
Organic growth from our existing businesses will be supported by selective acquisitions where the Board is confident that appropriate returns can be achieved. We continue to maintain a pipeline of acquisition opportunities.
CVS now employs 6,548 staff (2018: 6,150) including 75 specialists (2018: 57), 1,829 veterinary surgeons (2018: 1,460) and 2,376 nurses (2018: 2,041).
Our staff are at the heart of our business and we are committed to investing in their continued development and well being. Our culture and values drive our business and success through our people is a core value. Further details on our culture and values are set out on page 30.
We recruited Professor Renate Weller in October 2018 to lead our learning, education and development programme with our goal being to ensure that all staff have access to the clinical and non-clinical training and support they need. We are committed to providing all staff with opportunities to progress, whether in advancing their clinical education and experience, or in developing leadership opportunities within the business.
We have launched a new wellbeing and mental health awareness programme in support of our staff with on-site support provided through trained mental health workplace champions.
One of the key structural issues facing the veterinary profession in the UK has been the shortage of vets and nurses, as illustrated with CVS vet vacancy rates peaking at 12.5% in the previous financial year. We are pleased that the Home Office has accepted the Migration Advisory Committee’s proposal to reinstate the veterinary surgeon on the UK’s Shortage Occupation List and this should in time improve the supply of overseas vets in the UK. CVS has taken a number of actions to improve its own vacancy rate and we are encouraged by the improvement seen in the second half of the financial year with vet vacancy rates averaging 8.4% in that period. We will continue to invest in our people and our existing practices in order to position CVS as the veterinary employer of choice.
We review the Board composition and effectiveness regularly and are committed to ensuring we have the right balance of skills and experience within the Board.
During the year we made one change with Richard Fairman joining the Board in August 2018 and replacing Nick Perrin as Chief Financial Officer at the end of September 2018.
In September 2018 we adopted the FRC’s UK Corporate Governance Code and will continue to promote best practice.
The Board as a whole, and the Chairs of the Audit and Remuneration Committees continue to consult with shareholders on key matters. We were delighted to host a number of our major shareholders at our Lumbry Park referral hospital in July 2019.
It is proposed to pay a dividend of 5.5p per share in December 2019, a 10.0% increase on the 5.0p per share paid in 2018. The financial performance of the business and its strong cash generation support an increase in dividends whilst enabling the Group to retain sufficient funds for further investment in the business.
CVS operates in a sector with favourable market and consumer trends, with pet owners increasingly willing to spend money on their pets and medical enhancements increasing the range of services we can offer.
Despite continued uncertainty over Brexit with the potential for a “hard” Brexit increasingly likely, the Board is confident that CVS is well positioned to avoid significant adverse impacts from the UK’s decision to exit the EU. Pharmaceutical manufacturers and wholesalers are increasing their stock levels in order to reduce the risk of supply shortages and following the acquisition of Vet Direct, CVS now controls more of its equipment and consumables supplies.
The pace of growth in the UK economy may be impacted by Brexit uncertainty, but the veterinary sector has proven to be resilient in past periods of economic downturn and the Board believes CVS is sufficiently resilient to withstand any potential future downturn.
The performance of the business was considerably improved in the second half of the financial year and the Board is confident that the Group is well placed to deliver further enhancement in shareholder value in the forthcoming financial year.
I would like to thank all of our colleagues for their contribution to the past financial year. Their professionalism, dedication and commitment to providing the highest levels of clinical care to our customers and their animals forms the heart of our business. I look forward to working with them to continue the successful growth of CVS in the future.
Non-Executive Chairman
27 September 2019
