Interim Results
CVS Group plc
18 March 2008
For Immediate Release 18 March 2008
CVS Group plc
INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2007
CVS, one of the UK's leading providers of veterinary services, is pleased to
announce maiden interim results since its AIM flotation in October 2007.
KEY POINTS
Six months ended % Change
31.12.07 31.12.06
£'000 £'000
Revenue 28,542 16,349 +74.6
Adjusted EBITDA** 4,404 2,152 +104.6
EBITDA 2,640 2,152 +22.7
Adjusted profit before tax** 2,449 867 +182.5
(Loss)/profit before tax (1,587) 312 n/a
Earnings per share
Adjusted** 4.3p 1.3p +230.8
Basic and diluted (3.5p) 0.2p n/a
For ease of comparison the figures above are shown on an underlying basis as
well as an actual basis.
** Adjusted figures are before IPO costs, one-off finance expenses (including
fair value adjustments on hedge instruments) and amortisation.
• Revenue growth of 74.6% with like for like revenue growth of 5.4%
• Significant EBITDA growth £2.25m - increase of 104.6%
• Strong cash generation of £3.96m in the period (2006/7: £2.02m) -
increase of 96.4%
• Continued acquisition growth - 134 surgeries at period end - increase of 54%
- 12 surgeries post period end and one major
laboratory acquisition more than doubling
revenue of laboratory division
• Bank funding secured including acquisition facility of £12.0m
• Successful AIM flotation in October 2007
Commenting on the outlook, Chairman Richard Connell said:
'The focus on delivering growth both organically and through acquisition and, in
particular, cash and profit generation, is expected to continue. The recently
announced acquisitions provide a good platform for second half performance,
which has started well, and discussions are ongoing in relation to other
prospective acquisitions'.
Contacts:
CVS Group plc
Simon Innes, Chief Executive
Paul Coxon, Finance Director 01379 644 288
Buchanan Communications
Richard Oldworth/Suzanne Brocks 020 7466 5000
Chairman's statement
Introduction
I am pleased to announce the maiden interim results of CVS Group plc ('CVS',
'the group', or 'the company') for the six months ended 31 December 2007.
This has been both a very important and successful period for the group,
encompassing a change from private equity ownership following our admission to
the Alternative Investment Market ('AIM') on 10 October 2007.
CVS was formed in August 1999 to acquire and operate veterinary practices which
were well established within their local community and had a reputation for high
quality clinical care and service.
In line with that strategy, CVS acquired 13 surgeries in the six months ended 31
December 2007, and a further 12 surgeries and one diagnostic laboratory so far
in the second half.
Results
The group has grown significantly since the comparable half year. The number of
surgeries increased by 54.0% to 134 at 31 December 2007 compared to 87 a year
earlier. Reflecting the increased number of surgeries, revenue grew 74.6% from
£16.35m to £28.54m. Like for like revenue growth, which relates to sites that
have been owned by the group for the whole of the current and comparable
periods, was 5.4%.
The group considers that adjusted EBITDA and adjusted earnings per share (as
described in the financial summary) provide a more meaningful basis for
assessing the underlying performance of the group, albeit that these terms are
not defined by International Financial Reporting Standards and therefore may not
be directly comparable with other companies' adjusted profit measures.
The group recorded adjusted earnings before interest, tax, depreciation and
amortisation ('adjusted EBITDA') of £4.40m and a loss for the period after
taxation of £1.83m. A reconciliation of the two numbers is provided on page 4 of
the interim report.
Adjusted EBITDA has grown by 104.6% from £2.15m to £4.40m and has increased from
13.2% to 15.4% of revenue. This is due to a combination of factors including:
• acquisitions
• like for like revenue growth
• improved buying terms
• productivity improvements (as % of sales)
• central overhead cost reductions (as % of sales)
Cash generated from operations (before exceptional payments) increased by 96.4%
to £3.96m from £2.02m. Cash generated from operations (after exceptional
payments) increased to £2.81m, an increase of 39.5% over the comparable period.
The difference is due to payments of £1.15m (of the £1.76m charge) in relation
to non-recurring IPO related costs.
Adjusted earnings per share were 4.3p, up from 1.3p in the comparable period.
Basic and diluted loss per share after exceptional items were 3.5p per share. A
reconciliation of the two numbers is provided in note 6 to the interim
consolidated financial information.
Funding
On 4 October 2007 the group entered into a banking facility agreement with The
Royal Bank of Scotland plc and Barclays Bank plc comprising a £32.0m term loan,
an acquisition facility of £12.0m and a working capital facility of £2.0m.
The group used the £32.0m term loan to refinance its previous term loan of
£20.2m and repay the secured loan stock and redeemable preference shares
(together with the associated premiums) that were outstanding at the date of
flotation.
The group spent £5.0m on acquisitions in the first half, of which £2.5m was
funded from internally generated cash and the balance of £2.5m from the £12.0m
acquisition facility.
Chairman's statement (continued)
Hedging
In respect of the £32.0m term loan facility the group has entered into an
interest rate swap to hedge against interest rate volatility. This uses a cap
and collar to limit the group's exposure to rate increases whilst allowing it to
take advantage of potential interest rate reductions.
The group previously partially hedged its exposure to interest rate movements in
respect of the previous term loan. Movements in interest rates in the period
resulted in a fair value charge to the income statement of £0.64m in the period.
Acquisitions
The pipeline of potential acquisitions remains strong. In the six months to 31
December 2007, 13 new surgeries were acquired. A further 12 surgeries, together
with a strategically important laboratory (Axiom Veterinary Laboratories Limited
('AVL')), were acquired since the period end.
The diagnostic services offered by AVL complement the existing diagnostic
services of the group. The enhanced laboratory division consisting of 7 sites
will more than double the number of existing sites and will be able to offer a
broader range of diagnostic services to clients. The acquisition will increase
laboratory turnover by c. 140% (annualised).
Staff
Our people continue to be key to the group in delivering its strategy. I would
like to thank each of them for their co-operation and devotion in giving our
clients the best possible clinical care and service.
The group continues to be the largest employer in the veterinary profession with
1,516 staff. The group currently employs an estimated 2.6% of practising vets in
the UK, which gives some indication of the significant scope left for expansion
in the UK market.
Business environment
The group is a market leader in acquiring and managing veterinary practices
within the UK. The directors believe that CVS has 6.4% of the UK small animal
veterinary market measured by number of surgeries, which demonstrates the
significant further consolidation opportunity.
Strategy
We will continue our strategy of growth through acquisition in the fragmented UK
veterinary market combined with organic growth of existing practices. We aim to
deliver continuing improved returns post acquisition of veterinary practices by
growing and managing those practices more efficiently, centralising
administration and leveraging the buying power of the augmented group.
Future outlook
The focus on delivering growth both organically and through acquisition and, in
particular, cash and profit generation, is expected to continue. The recently
announced acquisitions provide a good platform for second half performance,
which has started well, and discussions are ongoing in relation to other
prospective acquisitions.
Richard Connell
Chairman
Consolidated income statement for the six month period ended 31 December 2007
(unaudited)
Note Six months Six months Year ended 30
ended 31 ended 31 June 2007
December 2007 December 2006
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
-------------------- --------- -------- -------- --------
Revenue 4 28,542 16,349 38,972
Cost of sales (16,241) (9,688) (22,818)
-------------------- --------- -------- -------- --------
Gross profit 12,301 6,661 16,154
-------------------- --------- -------- -------- --------
Exceptional
administrative
expenses 3 (1,764) - -
Other
administrative
expenses (9,701) (5,351) (13,260)
-------------------- --------- -------- -------- --------
Total
administrative
expenses (11,465) (5,351) (13,260)
-------------------- --------- -------- -------- --------
Operating
profit 836 1,310 2,894
-------------------- --------- -------- -------- --------
Fair value
adjustments in
respect of
financial
assets and
liabilities 5 (642) 44 351
Exceptional
finance
expense 5 (287) - -
Other finance
expense 5 (1,598) (1,115) (2,682)
Finance income 5 104 73 210
-------------------- --------- -------- -------- --------
Net finance
expense (2,423) (998) (2,121)
-------------------- --------- -------- -------- --------
(Loss)/profit
before income
tax 4 (1,587) 312 773
Income tax
expense 7 (243) (213) (427)
-------------------- --------- -------- -------- --------
(Loss)/profit
for the period
attributable
to equity
shareholders (1,830) 99 346
-------------------- --------- -------- -------- --------
(Loss)/earnings per ordinary share for (loss)/profit attributable to the equity
holders of the company (expressed in pence per share) ('EPS')
Basic and
diluted 6 (3.5p) 0.2p 0.7p
-------------------- --------- -------- -------- --------
The above results relate to continuing operations, including acquisitions
(further details of which are provided in note 11).
Non-GAAP measure: Adjusted EBITDA* Note £'000 £'000 £'000
(Loss)/profit before income tax (1,587) 312 773
Adjustments for:
Exceptional administrative expenses 3 1,764 - -
Net finance expense 5 2,423 998 2,121
Depreciation 461 243 577
Amortisation 8 1,343 599 1,617
Adjusted EBITDA 2 4,404 2,152 5,088
*Adjusted EBITDA represents earnings before interest (net finance expense), tax,
depreciation, amortisation and exceptional administrative expenses.
Consolidated balance sheet as at 31 December 2007 (unaudited)
31 December 31 December 30 June
2007 2006 2007
(Unaudited) (Unaudited) (Audited)
Note £'000 £'000 £'000
--------------------- --------- -------- -------- --------
Non-current assets
Intangible assets 8 29,614 16,400 26,283
Property, plant and 5,156 2,818 4,245
equipment
Investments 23 23 23
Deferred income tax assets 513 439 578
Derivative financial - 66 373
instruments
--------------------- --------- -------- -------- --------
35,306 19,746 31,502
--------------------- --------- -------- -------- --------
Current assets
Inventories 1,452 771 1,226
Trade and other 3,697 2,237 2,904
receivables
Cash and cash equivalents 736 1,009 2,622
--------------------- --------- -------- -------- --------
5,885 4,017 6,752
--------------------- --------- -------- -------- --------
Total assets 4 41,191 23,763 38,254
--------------------- --------- -------- -------- --------
Current liabilities
Trade and other payables (8,736) (4,561) (7,380)
Current income tax (235) - (116)
liabilities
Borrowings 10 (30) (10,248) (11,119)
Derivative financial 11 (269) - -
instruments
--------------------- --------- -------- -------- --------
(9,270) (14,809) (18,615)
--------------------- --------- -------- -------- --------
Non-current liabilities
Borrowings 10 (33,912) (9,943) (20,028)
Deferred income tax (1,351) (802) (1,155)
liabilities
--------------------- --------- -------- -------- --------
(35,263) (10,745) (21,183)
--------------------- --------- -------- -------- --------
Total liabilities 4 (44,533) (25,554) (39,798)
--------------------- --------- -------- -------- --------
Net liabilities (3,342) (1,791) (1,544)
--------------------- --------- -------- -------- --------
Consolidated balance sheet as at 31 December 2007 (unaudited) (continued)
31 December 31 December 30 June
2007 2006 2007
(Unaudited) (Unaudited) (Audited)
Note £'000 £'000 £'000
--------------------- -------- -------- -------- --------
Capital and reserves
attributable to
equity holders of the
Company
Share capital 103 103 103
Revaluation reserve 125 125 125
Merger reserve (61,420) (61,420) (61,420)
Retained earnings 57,850 59,401 59,648
--------------------- -------- -------- -------- --------
Total equity (3,342) (1,791) (1,544)
--------------------- -------- -------- -------- --------
The interim financial information was approved by the board of directors on 17
March 2008.
Consolidated statement of changes in equity for the six month period ended 31
December 2007 (unaudited)
Share Revaluation Merger Retained Total
capital reserve reserve earnings equity
£'000 £'000 £'000 £'000 £'000
----------------- -------- -------- -------- --------- --------
At 1 July 2006
(audited) 103 125 (61,420) 59,302 (1,890)
Retained
profit for the
period - - - 99 99
----------------- -------- -------- -------- --------- --------
At 31 December
2006
(unaudited) 103 125 (61,420) 59,401 (1,791)
----------------- -------- -------- -------- --------- --------
Share Revaluation Merger reserve Retained Total equity
capital reserve earnings
£'000 £'000 £'000 £'000 £'000
----------------- -------- -------- -------- --------- --------
At 1 July 2006
(audited) 103 125 (61,420) 59,302 (1,890)
Retained
profit for the
year - - - 346 346
----------------- -------- -------- -------- --------- --------
At 30 June
2007 (audited) 103 125 (61,420) 59,648 (1,544)
----------------- -------- -------- -------- --------- --------
Share Revaluation Merger reserve Retained Total equity
capital reserve earnings
£'000 £'000 £'000 £'000 £'000
----------------- -------- -------- -------- --------- --------
At 1 July 2007
(audited) 103 125 (61,420) 59,648 (1,544)
Retained loss
for the period - - - (1,830) (1,830)
Employee share
option scheme:
- Value of
employee
services - - - 33 33
- Deferred tax
on share
options - - - (1) (1)
----------------- -------- -------- -------- --------- --------
At 31 December
2007
(unaudited) 103 125 (61,420) 57,850 (3,342)
----------------- -------- -------- -------- --------- --------
Revaluation reserve
The revaluation reserve is used to record any surplus following a revaluation of
property, plant and equipment. The revaluation reserve arose on the revaluation
of a property in the subsidiary undertaking Precision Histology International
Limited (the revalued amount was frozen as deemed cost on transition to IFRS).
The revaluation reserve is not a distributable reserve until realised.
Merger reserve
The merger reserve resulted from the acquisition of CVS (UK) Limited and
represents the difference between the value of the shares acquired (nominal
value plus related share premium) and the nominal value of the shares issued.
Consolidated cash flow statement for the six month period ended 31 December 2007
(unaudited)
Six months Six months Year ended 30
ended 31 ended 31 June
December 2007 December 2006 2007
Note (Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
---------------------- -------- -------- -------- --------
Cash flows from operating
activities
---------------------- -------- -------- -------- --------
Cash generated from
operations before
exceptional payments 3,959 2,016 6,509
Exceptional
administrative
expenses* (1,146) - -
---------------------- -------- -------- -------- --------
Cash generated
from operations 12 2,813 2,016 6,509
Interest received 104 73 210
Interest paid (1,003) (521) (1,227)
---------------------- -------- -------- -------- --------
Net cash generated
from operating
activities 1,914 1,568 5,492
---------------------- -------- -------- -------- --------
Cash flows from investing
activities
Acquisition of
businesses 9 (3,284) (4,730) (10,319)
Acquisition of
subsidiaries
(net of cash
acquired) 9 (1,752) - (5,843)
Purchase of property,
plant and equipment (642) (441) (1,349)
Purchase of intangible
assets (35) (73) (143)
Proceeds from
sale of property,
plant and equipment - - 4
---------------------- -------- -------- -------- --------
Net cash used in
investing activities (5,713) (5,244) (17,650)
---------------------- -------- -------- -------- --------
Cash flows from financing
activities
Finance lease principal
payments (4) (7) (9)
Repayment of loan stock,
preference shares and
associated redemption
premiums (11,714) - -
Repayment of bank loan (20,252) - -
Receipt of borrowings
(net of debt issue costs) 33,883 2,229 12,326
---------------------- -------- -------- -------- --------
Net cash from
financing
activities 1,913 2,222 12,317
---------------------- -------- -------- -------- --------
Net (decrease)/increase
in cash and cash
equivalents (1,886) (1,454) 159
Cash and cash
equivalents at
start of period 2,622 2,463 2,463
---------------------- -------- -------- -------- --------
Cash and cash
equivalents at
end of period 736 1,009 2,622
---------------------- -------- -------- -------- --------
*Cash paid in respect of exceptional administrative expenses incurred in
relation to the company's admission to the Alternative Investment Market - see
note 3 for further details.
Notes to the interim consolidated financial information
The notes below represent an extract from the Interim Financial Statements.
1. Basis of preparation
The interim consolidated financial information of CVS Group plc is for the six
months ended 31 December 2007 and is unaudited. The group has chosen not to
adopt the full disclosure requirements of IAS 34, 'Interim Financial Reporting'.
Therefore, this interim financial information is not fully in compliance with
International Financial Reporting Standards. However, the interim consolidated
financial information has been prepared in accordance with all other applicable
International Financial Reporting Standards that are expected to apply to the
group's financial statements for the year ended 30 June 2008.
These accounting policies are based on the EU-adopted International Financial
Reporting Standards ('IFRS') and International Financial Reporting
Interpretation Committee ('IFRIC') interpretations that the group expects to be
applicable at 30 June 2008. The IFRS and IFRIC interpretations that will be
applicable at 30 June 2008 including those that will be applicable on an
optional basis, are not known with certainty at the time of preparing the
interim financial information and therefore may change.
The interim consolidated financial information includes the financial
information of the company and its subsidiary undertakings, made up to 31
December 2007. A reconstruction of the CVS Group took place during the period,
as described below, in preparation for the admission of the company's shares to
the AIM market of the London Stock Exchange in October 2007.
The company was incorporated as CVS Group Limited on 13 July 2007. On 22 August
2007, the company acquired the entire issued share capital of CVS (UK) Limited
by way of a one-for-one share exchange. On 17 September 2007, the company was
re-registered as a public limited company and its name was changed to CVS Group
plc.
As a result of the above reconstruction, the results of CVS Group plc and its
subsidiary undertakings have been consolidated using the principles of merger
accounting. As such, although the consolidated interim financial information has
been prepared in the name of the legal parent, the company, they are in
substance a continuation of the consolidated financial statements of the legal
subsidiary, CVS (UK) Limited. The following accounting treatment has been
applied in respect of merger accounting:
• The assets and liabilities of the legal subsidiary, CVS (UK) Limited,
are recognised and measured in the consolidated interim financial information
without restatement to fair value; and
• The retained (loss)/earnings and other equity balances recognised in
the consolidated interim financial information reflects the retained earnings
and other equity balances of CVS (UK) Limited immediately before the group
reconstruction, and the results of the period from 1 July 2006 to the date of
the group reconstruction are those of CVS (UK) Limited as the company did not
trade prior to the group reconstruction. However, the equity structure appearing
in the consolidated interim financial information reflects the equity structure
of the legal parent, CVS Group plc, including the equity instruments issued to
effect the group reconstruction.
The statutory accounts of CVS (UK) Limited in respect of the year ended 30 June
2007 have been delivered to the Registrar of Companies, upon which the company's
auditors have given a report which was unqualified and did not contain a
statement under Section 237(2) or 237(3) of the Companies Act 1985.
The preparation of the interim report requires management to make estimates and
assumptions that affect the reported income and expense, assets and liabilities
and disclosure of contingencies at the date of the interim report. Although
these estimates and assumptions are based on management's best judgement at the
date of the interim report, actual results may differ from these estimates.
The group has net liabilities as at 31 December 2007. The group has traded
profitably since the balance sheet date with the profits generated contributing
to the funding of the group's working capital requirements. In addition, the
group has a £2m working capital facility, of which there had been no draw down
at the balance sheet date. On this basis the directors consider it appropriate
to prepare the interim consolidated financial information on the going concern
basis.
1. Basis of preparation (continued)
First time adoption of IFRS
For accounting periods up to 30 June 2006, the financial statements of CVS (UK)
Limited group were prepared under UK Generally Accepted Accounting Principles
('UK GAAP'). From 1 July 2006, CVS (UK) Limited
elected to prepare its annual financial statements in accordance with
International Financial Reporting Standards ('IFRS') as adopted by the European
Union (EU) and implemented in the UK. The group used 1 July 2004 as its
transition date to IFRS and translated its balance sheet at that date. In
addition results previously published under UK GAAP were re-stated under IFRS
for the years ending June 2005 and 2006. The reconciliation of net liabilities
and profit under UK GAAP to IFRS are set out in the consolidated financial
statements of CVS (UK) Limited for the year ended 30 June 2007, which are
available upon request from the company's registered office.
2. Summary of significant accounting policies
The accounting policies used are consistent with those set out on pages 19 to 26
of the consolidated financial statements of CVS (UK) Limited for the year ended
30 June 2007 (which are available upon request from the company's registered
office) with the exception of:
Share-based payments
Certain employees of the group receive part of their remuneration in the form of
share-based payment transactions, whereby employees render services in exchange
for shares or rights over shares (equity-settled transactions).
The fair values of equity-settled transactions are measured at the dates of
grant using option-pricing models, taking into account the terms and conditions
upon which the awards are granted. The fair value of share-based payments under
such schemes is expensed on a straight-line basis over the vesting period, based
on the group's estimate of shares that will eventually vest and adjusted for the
effect of non market-based vesting conditions.
Derivative financial instruments and hedging activities
The group uses derivative financial instruments to hedge its exposure to
interest rate risks arising from financing activities. The group does not hold
or issue derivative financial instruments for trading purposes, however if
derivatives do not qualify for hedge accounting they are accounted for as such.
Derivative financial instruments are recognised and stated at fair value. The
fair value of derivative financial instruments is determined by reference to
market values for similar financial instruments, by discounted cash flows, or by
the use of option valuation models. Where derivatives do not qualify for hedge
accounting, any gains or losses on re-measurement are immediately recognised in
the income statement. Where derivatives qualify for hedge accounting,
recognition of any resultant gain or loss depends on the nature of the hedge
relationship and the item being hedged.
The group documents at the inception of the transaction the relationship between
hedging instruments and hedged items, as well as its risk management objectives
and strategy for undertaking various hedging transactions. The group also
documents its assessment, both at hedge inception and on an ongoing basis, of
whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in cash flows of hedged items.
The full fair value of a hedging derivative is classified as a non-current asset
or liability when the remaining hedged item is more than twelve months and as a
current asset or liability when the remaining maturity of the hedged item is
less than twelve months.
Cash flow hedging
Derivative financial instruments are classified as cash flow hedges when they
hedge the group's exposure to variability in cash flows that are either
attributable to a particular risk associated with a recognised asset or
liability, or a highly probable forecasted transaction.
The effective portion of changes in the fair value of derivatives that are
designated and qualify as cash flow hedges is recognised in equity. The gain or
loss relating to the ineffective portion is recognised immediately in the income
statement.
2. Summary of significant accounting policies (continued)
Amounts accumulated in equity are recycled in the income statement in the
periods when the hedged item affects the income statement. The classification of
the effective portion when recognised in the income statement is the same as the
classification of the hedged transaction. Any element of the re-measurement of
the
derivative instrument which does not meet the criteria for an effective hedge is
recognised immediately in the income statement within finance costs.
When a hedging instrument expires or is sold, or when a hedge no longer meets
the criteria for hedge accounting, any cumulative gain or loss existing in
equity at that time remains in equity and is recognised in the income statement
when the forecast transaction is ultimately recognised in the income statement.
When a forecast transaction is no longer expected to occur, the cumulative gain
or loss that was reported in equity is immediately transferred to the income
statement.
Exceptional items
Exceptional items are those significant items which are separately disclosed by
virtue of their size or incidence to enable a full understanding of the group's
financial performance. Transactions which may give rise to exceptional costs are
principally financial restructuring costs, group re-organisation costs
(including AIM admission costs), and costs in respect of key management changes.
Use of non-GAAP profit measures
Adjusted EBITDA and adjusted earnings per share
The directors believe that adjusted EBITDA and adjusted earnings per share
measures provide additional useful information for shareholders on underlying
trends and performance. These measures are used for internal performance
analysis. Adjusted EBITDA is not defined by IFRS and therefore may not be
directly comparable with other companies' adjusted profit measures. It is not
intended to be a substitute for, or superior to, IFRS measurements of profit.
Adjusted EBITDA is calculated by reference to (loss)/profit before income tax,
adjusted for interest (net finance expense), depreciation, amortisation and
exceptional items (see below). Adjusted earnings per share, is calculated by
reference to (loss)/profit after income tax, adjusted for amortisation,
exceptional items (see below) and fair value adjustment required by IAS 32 and
IAS 39 (see below).
• IAS 32 and IAS 39 'Financial Instruments' - fair value re-measurements
- under IAS 32 and IAS 39, the group applies hedge accounting to its various
hedge relationships (principally interest rate swaps) when it is allowed under
the rules of IAS 39 and practical to do so. The group is not always able to
apply hedge accounting to the arrangements, but continues to enter into these
arrangements as they provide certainty or active management of the interest
rates applicable to the group. The group believes these arrangements remain
effective and economically and commercially viable hedges despite the inability
to apply hedge accounting.
Where hedge accounting is not applied to certain hedging arrangements, the
reported results reflect the movement in fair value of related derivatives due
to changes in interest rates. This may mean that the income statement charge is
highly volatile, whilst the resulting cash flows may not be as volatile. The
adjusted profit measure removes this volatility to help better identify
underlying business performance.
• Exceptional items - due to their significance and special nature,
certain other items which do not reflect the group's underlying performance are
excluded from adjusted profit. These gains or losses can have a significant
impact on both absolute profit and profit trends, consequently, they are
excluded from the adjusted EBITDA and earnings per share of the group.
3. Exceptional administrative expenses
Exceptional administrative expenses relate to legal and professional fees
incurred in relation to the company's admission to the Alternative Investment
Market on 10 October 2007.
4. Segmental reporting
Segment information is presented in respect of the group's business and
geographical segments. The primary format, business segments, is based on the
group's management and internal reporting structure.
Inter-segment pricing is determined on an arm's length basis.
Segment results, assets and liabilities include items directly attributable to a
segment as well as those that can be allocated on a reasonable basis.
Unallocated items comprise mainly interest-bearing borrowings and associated
costs, taxation related assets/liabilities, intangible assets and related
amortisation and head office salary and premises costs.
Segment capital expenditure is the total cost incurred during the period to
acquire segment assets that are expected to be used for more than one period,
including acquisitions through business combinations.
Geographical segments
The business operates predominantly in the UK. It performs a small amount of
laboratory work for European based clients. In accordance with IAS 14 'Segment
reporting' no segmental results are presented for trade with European clients as
the geographical location of the assets generating the revenue is the UK.
Business segments
The group is split into veterinary practices and laboratories for business
segment analysis:
Six month period ended 31 Veterinary Laboratories Head office Group
December 2007 practices
£'000 £'000 £'000 £'000
------------------- --------- --------- --------- ---------
Revenue1 27,103 1,439 - 28,542
Amortisation - - 1,343 1,343
Depreciation 395 36 30 461
Profit/(loss)
before income
tax 3,108 243 (4,938) (1,587)
Total assets 9,343 1,698 30,150 41,191
Total
liabilities (7,429) (1,307) (35,797) (44,533)
Capital
expenditure 1,347 25 4,674 6,046
------------------- --------- --------- --------- ---------
1Inter-segment revenue of £453,000, representing laboratory sales to veterinary
practices, has been eliminated on consolidation.
------------------- --------- --------- --------- ---------
Six month period ended 31 Veterinary Laboratories Head office Group
December 2006 practices
£'000 £'000 £'000 £'000
------------------- --------- --------- --------- ---------
Revenue1 13,143 3,206 - 16,349
Amortisation - - 599 599
Depreciation 176 53 14 243
Profit/(loss)
before income
tax 1725 97 (1,510) 312
4. Segmental
reporting
(continued) 15,884 1,592 6,287 23,763
Total assets
Total
liabilities (12,481) (1,270) (11,803) (25,554)
Capital
expenditure 700 45 4,501 5,246
------------------- --------- --------- --------- ---------
1Inter-segment revenue of £218,000, representing laboratory sales to veterinary
practices, has been eliminated on consolidation.
Year ended 30 June 2007 Veterinary Laboratories Head office Group
practices
£'000 £'000 £'000 £'000
------------------- --------- --------- --------- ---------
Revenue1 36,316 2,656 - 38,972
Amortisation - - 1,617 1,617
Depreciation 440 84 53 577
Profit/(loss)
before income
tax 6,690 299 (6,216) 773
Total assets 9,085 1,597 27,572 38,254
Total
liabilities (5,981) (1,119) (32,698) (39,798)
Capital
expenditure 2,260 51 15,599 17,910
------------------- --------- --------- --------- ---------
1Inter-segment revenue of £588,000, representing laboratory sales to veterinary
practices, has been eliminated on consolidation.
5. Finance (income) and expense
Other finance expense Six months Six months Year ended 30
ended 31 ended 31 June
December 2007 December 2006 2007
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
----------------------- -------- -------- --------
Bank loans and overdraft 947 357 1,021
Debt finance costs 44 29 70
Loan stock redemption
premium 427 597 1,195
Preference share redemption
premium 22 24 51
Participating dividend on
preferred ordinary shares 156 108 344
Finance charges payable
under finance leases 2 - 1
----------------------- -------- -------- --------
Other finance expense 1,598 1,115 2,682
----------------------- -------- -------- --------
Exceptional finance expense
Write off of debt issue
costs relating to bank
loans redeemed in
the period 287 - -
----------------------- -------- -------- --------
Fair value adjustments in
respect of financial
assets and liabilities 642 (44) (351)
----------------------- -------- -------- --------
Bank interest receivable (104) (73) (210)
----------------------- -------- -------- --------
Net finance expense 2,423 998 2,121
----------------------- -------- -------- --------
Fair value adjustments in respect of financial assets and liabilities reflect
movements in the valuation of a hedging instrument taken out to partially hedge
interest rate exposure on a term loan facility. This derivative financial
instrument did not qualify for hedge accounting, and as such, the fair value
movement is recognised in the income statement.
6. (Loss)/earnings per ordinary share
(Loss)/earnings per ordinary share are calculated by dividing the (loss)/profit
after taxation by the weighted average number of shares in issue during the
period.
The group has potentially dilutive ordinary shares being the contingently
issueable shares under the group's long term incentive plan ('LTIP') scheme. The
performance criteria for the vesting of the awards under the scheme cannot be
assessed at the balance sheet date. Consequently, these contingently issueable
shares have been excluded from the diluted EPS calculations. There are no other
dilutive or potentially dilutive shares in issue.
Details of the earnings and weighted average number of shares used in each
calculation are set out below:
----------------------------- -------- -------- --------
Six months Six months Year ended
ended 31 ended 31
December 2007 December 2006 30 June
(Unaudited) (Unaudited)* 2007
£'000 £'000 (Audited)*
£'000
----------------------------- -------- -------- --------
Weighted average number of ordinary Number Number Number
and preferred ordinary shares in
issue
Total ordinary and
preferred ordinary
shares 51,563,475 51,563,475 51,563,475
----------------------------- -------- -------- --------
£'000 £'000 £'000
(Loss)/earnings
attributable to
ordinary shareholders (1,830) 99 346
----------------------------- -------- -------- --------
Pence Pence Pence
Basic and diluted
(loss)/earnings per
share (3.5p) 0.2p 0.7p
----------------------------- -------- -------- --------
Non-GAAP measure: Adjusted earnings per share
Adjusted earnings per ordinary share is calculated by dividing the profit on
ordinary activities after taxation excluding exceptional items and fair value
adjustments, by the weighted average number of shares in issue during the
period.
£'000 £'000 £'000
----------------------------- -------- -------- --------
(Loss)/earnings attributable to ordinary (1,830) 99 346
shareholders
Adjustments for:
Amortisation (note 8) 1,343 599 1,617
Exceptional administrative expenses (note 3) 1,764 - -
Fair value adjustments in respect of financial
assets 642 (44) (351)
and liabilities (note 5)
Exceptional finance expense (note 5) 287 - -
----------------------------- -------- -------- --------
Adjusted profit after income tax and earnings
attributable to ordinary shareholders 2,206 654 1,612
----------------------------- -------- -------- --------
Pence Pence Pence
Adjusted earnings per share 4.3p 1.3p 3.1p
----------------------------- -------- -------- --------
*The number of shares used for the calculation of EPS for the year ended 30 June
2007 has been re-stated to the number of shares in issue following the capital
re-structuring of the company completed on 2 October 2007. This did not result
in an increase in the overall share capital but was an increase in the number of
shares and a reduction to the nominal value (see note 4).
7. Income tax expense
Income tax expense is recognised based on management's best estimate of the
weighted average annual statutory income tax rate expected for the full
financial year as a percentage of taxable profit ('the effective tax rate').
8. Intangible assets
Goodwill Patient data Capitalised Total
records software
£'000 £'000 £'000 £'000
--------------------- ---------- -------- -------- --------
Cost
At 1 July 2006 4,411 8,666 211 13,288
Additions through
business combinations 21 4,407 - 4,428
Additions - - 73 73
--------------------- ---------- -------- -------- --------
At 31 December 2006 4,432 13,073 284 17,789
Additions through
business combinations 27 10,804 - 10,831
Additions - - 70 70
--------------------- ---------- -------- -------- --------
At 30 June 2007 4,459 23,877 354 28,690
Additions through
business combinations
(note 9)* - 4,639 - 4,639
Additions - - 35 35
--------------------- ---------- -------- -------- --------
At 31 December 2007 4,459 28,516 389 33,364
--------------------- ---------- -------- -------- --------
Amortisation
At 1 July 2006 - 636 154 790
Amortisation for the
period - 559 40 599
--------------------- ---------- -------- -------- --------
At 31 December 2006 - 1,195 194 1,389
Amortisation for the
period - 977 41 1,018
--------------------- ---------- -------- -------- --------
At 30 June 2007 - 2,172 235 2,407
Amortisation for the
period - 1,326 17 1,343
--------------------- ---------- -------- -------- --------
At 31 December 2007 - 3,498 252 3,750
--------------------- ---------- -------- -------- --------
Net book amount
At 31 December 2007 4,459 25,018 137 29,614
At 30 June 2007 4,459 21,705 119 26,283
At 31 December 2006 4,432 11,878 90 16,400
--------------------- ---------- -------- -------- --------
*The purchase price allocation exercise in relation to certain business
combinations in the period has not been completed as at 31 December 2007. As
such, provisional values have been used in this report. The final purchase price
allocation will be presented in the full year report. The directors do not
anticipate material differences to the provisional values.
9. Business combinations
Details of business combinations in the six month period ended 31 December 2007
are set out below, in addition to an analysis of pre and post acquisition
performance of the respective business combinations.
Given the nature of the practices acquired (mainly partnerships or sole traders)
and the records maintained by such practices it is not practicable to disclose
the revenue or profit/loss of the combined entity for the period as though the
acquisition date for all business combinations effected during the period had
been the beginning of that period.
9. Business combinations (continued)
It is not practicable to disclose the impact of the acquisitions on the
consolidated cash flow statement as full ledgers were not maintained for each
acquisition in relation to all related assets and liabilities post acquisition.
Pre-acquisition performance represents the results for the last year prior to
acquisition for which accounts are available. The profit before tax figures
given for the practice acquisitions exclude any salary or drawings in respect of
the partners/proprietors working within the practices.
Six month period ended 31 December 2007:
Assets and trade Date of Fair value of property Fair value of Cash paid2
------------------ acquisition plant and equipment intangible
-------- acquired £'000 assets
----------- acquired1 £'000
£'000 ---------
---------
A practice in:
Hampshire &
Surrey 02/07/2007 173 2,213 2,386
Buckinghamshire 03/09/2007 - 78 78
Hampshire 03/12/2007 50 424 474
Yorkshire 11/12/2007 10 336 346
------------------ -------- ----------- --------- ---------
233 3,051 3,284
------------------ -------- ----------- --------- ---------
1Intangible assets acquired represents patient data records.
2Cash paid includes professional fees of £60,000.
Analysis of pre and post acquisition performance:
Previous year Pre-acquisition Post-acquisitio Post-acquisitio
----------------- end performance1 n revenue2 n contribution3
-------- £'000 £'000 £'000
----------- --------- ---------
A practice in:
Hampshire &
Surrey 31/03/2007 489 1,140 264
Buckinghamshire 31/03/2007 50 52 (13)
Hampshire 31/03/2007 14 53 (2)
Yorkshire 30/04/2007 126 21 (7)
----------------- -------- ----------- --------- ---------
679 1,266 242
----------------- -------- ----------- --------- ---------
1Pre-acquisition performance represents profit before tax excluding partners' or
proprietors' drawings for the last full year prior to acquisition.
2Post-acquisition revenue represents revenue from the date of acquisition to the
period end.
3Post-acquisition contribution represents the direct operating result of
practices prior to the allocation of central overheads, on the basis that it is
not practicable to allocate these, from the date of acquisition to the period
end.
Acquisition of Petmedics Limited and Beechwood Veterinary Practice Limited
On 26 November 2007, the group acquired the whole of the issued share capital of
Petmedics Limited ('PML') for a total consideration of £1,518,000. On 30
November 2007 the group acquired the whole of the issued share capital of
Beechwood Veterinary Practice Limited ('BVPL') for a total consideration of
£600,000. Immediately following the respective acquisitions the trade and
related assets were transferred from PML and BVPL to CVS (UK) Limited. The book
values of the non-intangible assets and liabilities of PML and BVPL, and the
fair value of the intangible assets, at the date of acquisition are set out
below. The directors consider that the book values are equivalent to the fair
values.
9. Business combinations (continued) PML BVPL Total
£000 £000 £000
------------------------ --------- ---------- ----------
Intangible assets - patient data records 1,134 454 1,588
Property, plant and equipment 449 48 497
Inventories 93 11 104
Trade and other receivables 290 32 322
Cash and cash equivalents 88 146 234
Current income tax liabilities (80) (39) (119)
Deferred income tax liabilities (14) (3) (17)
Trade and other payables (442) (49) (491)
------------------------ --------- ---------- ----------
Net assets acquired 1,518 600 2,118
------------------------ --------- ---------- ----------
Consideration satisfied by:
Cash (including related costs of
acquisition amounting 1,491 495 1,986
to £101,000)
Accrued consideration 27 105 132
------------------------ --------- ---------- ----------
1,518 600 2,118
------------------------ --------- ---------- ----------
For the year ended 30 September 2006, PML reported an unaudited post tax profit
of £115,000. For the unaudited period ended 26 November 2007, the turnover was
£3,736,000, operating profit £402,000 and the tax charge £78,000. The
post-acquisition turnover of PML amounted to £280,000 and the post-acquisition
contribution amounted to £25,000 (contribution represents the direct operating
result prior to the allocation of central overheads on the basis that it is not
practicable to allocate these, from the date of acquisition to the period end).
For the year ended 30 November 2006, BVPL reported an unaudited post tax profit
of £114,000. For the unaudited period ended 30 November 2007, the turnover was
£698,000, operating profit £153,000 and the tax charge £32,000. The
post-acquisition turnover of BVPL amounted to £43,000 and the post-acquisition
contribution amounted to £11,000 (contribution represents the direct operating
result prior to the allocation of central overheads on the basis that it is not
practicable to allocate these, from the date of acquisition to the period end).
10. Borrowings
--------------------------- -------- -------- ---------
31 December 31 December 30 June
2007 2006
(Unaudited) (Unaudited) 2007
£'000 £'000 (Audited)
£'000
--------------------------- -------- -------- ---------
Current
Bank loan 24 - -
Secured loan stock - 8,950 9,559
Finance leases 6 11 10
Accrued participating dividend
on preferred ordinary shares - 389 625
Redeemable preference shares,
including redemption premium - 898 925
--------------------------- -------- -------- ---------
30 10,248 11,119
--------------------------- -------- -------- ---------
--------------------------- -------- -------- ---------
31 December 31 December 30 June
2007 2006
(Unaudited) (Unaudited) 2007
£'000 £'000 (Audited)
£'000
---------------------------- -------- -------- ---------
Non-Current
Bank loan 33,912 9,928 20,028
Finance leases - 15 -
---------------------------- -------- -------- ---------
33,912 9,943 20,028
---------------------------- -------- -------- ---------
On 4 October 2007 the group entered into a banking facility agreement with The
Royal Bank of Scotland plc and Barclays Bank plc comprising a £32,000,000 term
loan to refinance existing bank and other indebtedness, and an acquisition
facility of £12,000,000 (£2,490,000 of which has been drawn down as at 31
December 2007). The term loan is repayable over a four year period, the first
quarterly payment being due on 31 December 2009. The acquisition facility is
repayable over a three year period, the first quarterly payment being due on 30
September 2010.
The facility is secured over the assets of the company and its subsidiary
undertakings. The non-current bank loan balance is shown net of issue costs of
£585,000 which are being amortised over the life of the bank loan.
In addition to the above, the group had an undrawn working capital facility of
£2,000,000 at 31 December 2007.
11. Financial instruments
On 24 December 2007, the group entered into an interest rate swap limiting the
group's exposure to interest rate increases by means of a cap whilst allowing it
to take advantage of potential rate reductions by having a collar in place. The
swap hedges 100% of the £32.0m term loan facility by means of an amortising
hedge which matches the debt amortisation. Contractually, the swap became
effective on 31 December 2007.
The group classifies its interest rate swap as a cash flow hedge and utilises
hedge accounting to minimise profit and loss volatility in relation to movements
in the swap value.
At 31 December 2007, the group recognised a liability in relation to the break
costs on a £12.7m interest rate swap agreement that was terminated post year
end, amounting to £269,000. This derivative financial instrument did not qualify
for hedge accounting, and as such, the fair value loss in the period has been
recognised in the income statement.
12. Reconciliation of (loss)/profit for the period to net cash generated from
operations
Six months Six months Year ended 30
ended 31 ended 31 June
December 2007 December 2006 2007
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
---------------------------- -------- -------- --------
(Loss)/profit for the period (1,830) 99 346
Income tax expense 243 213 427
Net finance expense 2,423 998 2,121
Amortisation of intangible
assets 1,343 599 1,617
Depreciation of property,
plant and equipment 461 243 577
Share-based payments 33 - -
(Increase) in inventories (122) (126) (416)
(Increase) in trade and
other receivables (471) (597) (986)
Increase in trade and
other payables 733 587 2,823
---------------------------- -------- -------- --------
Total net cash generated from
operations 2,813 2,016 6,509
---------------------------- -------- -------- --------
13. Post balance sheet events
On 9 January 2008, the group acquired the whole of the issued share capital of
Axiom Veterinary Laboratories Limited ('AVLL'). The total consideration will not
be known until the completion accounts have been finalised for this acquisition.
The total consideration, the purchase price allocation and details of revenue,
profits or recognised gains and losses for the period from the prior period end
to the date of acquisition will be disclosed in the full year financial
statements of the group. For the year ended 31 December 2006, AVLL reported an
audited post tax profit of £266,000.
On 25 February 2008, the group acquired the trade and related assets of a
veterinary practice based in Manchester for an estimated total consideration of
£850,000. The final consideration will be subject to the finalisation of
professional fees. The purchase price allocation exercise has not yet been
completed, and will be disclosed in the full year financial statements of the
group. Given the nature of the records maintained by the practice it is not
practicable to provide details of revenue, profits or recognised gains and
losses for the period from the prior period end to the date of acquisition. For
the year ended 30 April 2007, the practice reported an unaudited pre-tax profit
(excluding any salary or drawings in respect of the partners/proprietors working
within the practice) of £140,000.
On 17 March 2008, the group acquired the trade and related assets of a
veterinary practice based in Hampshire for an estimated total consideration of
£1,600,000 before professional fees. The total consideration will be subject to
the finalisation of professional fees. The purchase price allocation exercise
has not yet been completed, and will be disclosed in the full year financial
statements of the group. Given the nature of the records maintained by the
practice it is not practicable to provide details of revenue, profits or
recognised gains and losses for the period from the prior period end to the date
of acquisition. For the year ended 31 March 2007, the practice reported an
unaudited pre-tax profit (excluding any salary or drawings in respect of the
partners/proprietors working within the practice) of £441,000.
Independent review report to CVS Group plc
Introduction
We been engaged by the company to review the interim consolidated financial
information in the interim report for the six months ended 31 December 2007,
which comprises the interim consolidated income statement, interim consolidated
balance sheet, interim consolidated statement of changes in equity, interim
consolidated cash flow statement and related notes. We have read the other
information contained in the interim report and considered whether it contains
any apparent misstatements or material inconsistencies with the information in
the interim consolidated financial information.
Directors' responsibilities
The interim report is the responsibility of, and has been approved by, the
directors. The directors are responsible for preparing the interim report in
accordance with the AIM Rules for Companies which require that the financial
information must be presented and prepared in a form consistent with that which
will be adopted in the company's annual financial statements.
This interim report has been prepared in accordance with the basis set out in
Notes 1 and 2.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial information in the interim report based on our review. This
report, including the conclusion, has been prepared for and only for the company
for the purpose of the AIM Rules for Companies and for no other purpose. We do
not, in producing this report, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into whose hands
it may come save where expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly, we
do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the condensed set of financial statements in the interim report for the six
months ended 31 December 2007 is not prepared, in all material respects, in
accordance with the basis set out in Note 12 and the AIM Rules for Companies.
PricewaterhouseCoopers LLP
Chartered Accountants
Norwich
17 March 2008
Notes:
a) The maintenance and integrity of the CVS Group plc website is the
responsibility of the directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the interim financial
information since it was initially presented on the website.
b) Legislation in the United Kingdom governing the preparation and dissemination
of financial information may differ from legislation in other jurisdictions.
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