Trading update, AU expansion and UK acquisitions
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 sales2 (FY22: 8.0%), consistent with the Group's organic revenue growth ambition of between 4% and 8%;
· Adjusted EBITDA3 margins also expected to be within our stated ambition of margins between 19% to 23%;
· FY23 adjusted EBITDA3 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;
· Leverage5 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-like2 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 EBITDA3 for FY23 comfortably in line with market expectations, notwithstanding increased utility costs and other inflationary pressures.
Adjusted EBITDA3 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 borrowings4 increased as at 30 June 2023 to £74.1m (31 December 2022: £57.6m, 30 June 2022: £36.0m). The Group expects to report leverage5 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 leverage5 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)
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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