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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Cvs Group Plc | LSE:CVSG | London | Ordinary Share | GB00B2863827 | ORD 0.2P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 11.00 | 1.16% | 961.00 | 952.00 | 955.00 | 957.00 | 933.00 | 945.00 | 914,265 | 16:35:01 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Veterinary Svcs-animal Specs | 608.3M | 41.9M | 0.5843 | 16.36 | 685.58M |
TIDMCVSG
RNS Number : 8784N
CVS Group plc
27 September 2019
For Immediate Release 27 September 2019
CVS GROUP plc
("CVS", the "Company" or the "Group")
Preliminary Results for the year ended 30 June 2019
CVS, the UK's leading provider of integrated veterinary services, is pleased to announce its preliminary results for the year ended 30 June 2019.
Financial Highlights
Hot Features
Premium
Year ended Year ended
30 June 30 June Change(4)
2019 2018 %
Revenue (GBPm) 406.5 327.3 +24.2
Adjusted EBITDA (GBPm)(1) 54.5 47.6 +14.5
Adjusted profit before income tax
(GBPm)(2) 41.4 36.0 +15.0
Adjusted earnings per share (pence)(3) 46.7 42.4 +10.1
Cash generated from operations (GBPm) 52.1 46.7 +11.6
Profit before income tax (GBPm) 11.7 14.1 -17.0
Basic earnings per share (pence) 11.6 16.0 -27.5
Proposed dividend (pence) 5.5 5.0 +10.0
-- Revenue up 24.2% to GBP406.5m
-- Like-for-like sales growth for the Group of +5.2% (5)
-- Healthy Pet Club members up 10.8% to 401,000
-- Adjusted EBITDA up 14.5% to GBP54.5m
-- Adjusted earnings per share increased 10.1% to 46.7 pence per share
-- Cash generated from operations up 11.6% to GBP52.1m
-- Profit before income tax down 17.0% to GBP11.7m due to amortisation costs in relation to acquisitions
-- Leverage reduced to 2.08x at 30 June 2019 -- Significant improvement in second half -- Now operate 510 surgeries across the UK, the Netherlands and the Republic of Ireland
(1) Adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) is profit before income tax, net finance expense, depreciation, amortisation, costs relating to business combinations and exceptional items.
(2) Adjusted profit before income tax is calculated before amortisation, taxation, costs relating to business combinations and exceptional items.
(3) Adjusted earnings per share is calculated as adjusted profit before income tax less applicable taxation divided by the weighted average number of ordinary shares in issue in the year.
(4) Percentage changes have been calculated throughout this document based on the unrounded values.
(5) Like for like sales are as defined in the Summary of significant accounting policies
Richard Connell, Chairman of CVS commented:
"The Group delivered a significant improvement in financial performance in the second half of the financial year following a disappointing first half. This improvement reflects our actions in addressing the key issues which had impacted performance and I am pleased that the Group continues to show positive trends in the early part of the new financial year.
CVS operates in a sector with favourable market and consumer trends which has proven resilient in past economic downturns. Plans are in place to manage any short-term Brexit impacts and the Board is confident that the business is well placed to avoid significant adverse impacts from the UK's decision to exit the EU.
Multiple initiatives are being pursued to drive further organic growth and the Group continues to generate strong operating cashflow. This positions the business well for further investment in our people and facilities and a continued focus on delivering the highest standards of clinical care. We will explore selective acquisitions where the Board is confident that they generate appropriate returns.
I am pleased with the improvements made and am confident that CVS is well positioned for future growth and a further restoration of shareholder value."
The annual report and accounts will be available on the Group's website www.cvsukltd.co.uk together with this announcement from 27 September 2019 and will be posted to shareholders who have requested a hard copy in due course.
This announcement is released by CVS Group plc and contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 ("MAR"), encompassing information relating to trading for the Company's current financial year, and is disclosed in accordance with the Company's obligations under Article 17 of MAR.
For the purposes of MAR and Article 2 of Commission Implementing Regulation (EU) 2016/1055, this announcement is being made on behalf of the Company by the directors named below.
Contacts:
CVS Group plc Simon Innes, Chief Executive Officer Richard Fairman, Chief Finance Officer 01379 644 288 N+1 Singer - Nominated Adviser & Broker Aubrey Powell (Corporate Finance) Rachel Hayes (Corporate Broking) 020 7496 3000
Chairman's statement
A strong half two performance
The Group delivered a significant improvement in financial performance in the second half of the financial year following a disappointing first half. A number of actions have been taken to address performance and I am confident that CVS is well positioned for future growth and a continued restoration of shareholder value.
Financial performance
We generated revenue for the year of GBP406.5m, a 24.2% increase over the prior year (2018: GBP327.3m). 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 GBP54.5m (2018: GBP47.6m) 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 GBP52.1m (2018: GBP46.7m). Profit before tax decreased by 17.0% to GBP11.7m (2018: GBP14.1m) due to increased amortisation. Basic EPS decreased by 27.5% to 11.6p (2018: 16.0p).
CVS finished the year with net debt of GBP102.0m (2018: GBP69.0m) and leverage of 2.08x (2018: 1.44x).
Growth Initiatives
We have a number of opportunities to develop the business and generate enhanced shareholder value as set out on in our annual report 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 GBP22.5m (2018: GBP18.5m). 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 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 GBP23.3m (2018: GBP18.8m). 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 consumables 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.
Our people
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 of our annual report.
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.
Board Governance
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.
Shareholder engagement
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.
Dividends
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.
Outlook
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.
Richard Connell
Non-Executive Chairman
27 September 2019
Business review
We continue to invest in our practices and people to achieve our strategic priorities
Introduction
CVS Group operates an integrated veterinary platform with our Veterinary Practices division at the core of the business. This is integrated with a range of complementary supporting services to internalise services and improve margins, with these services provided from our Laboratories, Crematoria and Animed Direct divisions.
Revenue by Division
2019 2018
GBPm GBPm
Veterinary Practices 370.7 297.5
Laboratories 20.1 17.9
Crematoria 7.3 6.6
Animed Direct 23.3 18.8
Head Office (14.9) (13.5)
Total Group 406.5 327.3
Like for like revenue 2019 2018 Growth
GBPm GBPm %
Group revenue 406.5 327.3
Adjustment for acquisitions (62.2)
----------------------------- ------- ------ -------
Underlying Group Revenue 344.3 327.3 5.2%
----------------------------- ------- ------ -------
Veterinary Practices Division
2019 2018
GBPm GBPm
Total revenue 370.7 297.5
----------------- ------ ------
Adjusted EBITDA 56.2 50.1
EBITDA margin % 15.2 16.9
----------------- ------ ------
The Veterinary Practices division comprises the four key veterinary practice areas of Small Animal, Referrals, Equine and Farm plus ancillary areas such as MiPet Insurance, Vet Direct and our buying groups. Like-for-like growth from the four key veterinary practice areas prior to intercompany sales elimination was 4.3% for the year (2018: 2.9%).
Revenue for these four key areas amounted to GBP360.2m (2018: GBP291.4m), an increase of 23.6%. Total revenue for the veterinary practice division amounted to GBP370.7m (2018: GBP297.5m), an increase of 24.6% on the prior year. Like-for-like sales for the practices division as a whole increased by 3.7% (2018: 3.0%).
The mix of revenue within the veterinary practices division changed in the year, reflecting growth from the newer Farm practices which accounted for 10.4% of veterinary practice division revenue in the year (2018: 4.3%). Revenue from Farm practices comprises a higher proportion of drug sales and a lower proportion of veterinary fees, than that in small animal practices. The acquisition of Slate Hall, a specialist poultry practice, further impacted this change. Both the increase in the mix of Farm revenue, and the proportion of this revenue generated from drug sales, resulted in a decrease in the overall Gross margin achieved (before the deduction of employment costs) in the veterinary practice division, which reduced to 77.4% for the year (2018: 80.8%).
In the first half of the financial year the veterinary practices division faced increased employment costs due to an industry wide structural shortage of veterinary surgeons and nurses in the UK. The Group had previously awarded above inflationary salary increases to veterinary surgeons and nurses on 1 January 2018 and these resulted in clinical salaries in the six month period to 31 December 2018 being c. 8.0% higher than in the equivalent six month period to 31 December 2017.
The Group has taken a number of proactive steps to address this issue including an increased focus on clinical recruitment, further investment in learning, education and development, the introduction of more flexible working and the award of an additional day's holiday per annum for employees with five years' CVS service. In light of these actions the Group has seen a reduction in its veterinary surgeon vacancy rate, with an average vacancy rate of 8.4% in the second half of the financial year ended 30 June 2019 compared to a peak of 12.5% in April 2018. This reduction, along with additional controls and visibility over the use of locum vets, has resulted in reduced locum spend in the second half of the financial year to 30 June 2019. The Group has also seen a reduction in its nurse vacancy rate with an average of 4.3% in the second half of the financial year compared to a peak of 8.8% in January 2018. In light of the reduced veterinary surgeon and nurse vacancy rates and the reduced reliance on locums, the Group's employment costs reduced to 50.4% of revenue in the second half of the financial year ended 30 June 2019 in comparison to 51.7% in the first half of the financial year.
The Group welcomed the review of the Shortage Occupation List ('SOL') published by the Migration Advisory Committee in May 2019 in which it was recommended that veterinary surgeons be reinstated on the SOL. The Home Office subsequently confirmed that it was implementing this recommendation and the Group believes this will have a positive impact on its future ability to recruit veterinary surgeons from outside of the European Union.
The expansion of the veterinary services division to newer Farm, Equine and Netherlands based practices led to certain practices, acquired in the previous two financial years delivering returns in the first half of the financial year which were below expectations. A number of steps were taken in the financial year to improve performance in these practices and these actions resulted in improvements being seen in the second half.
In the full financial year, the veterinary practices division acquired 34 surgeries operating as 26 businesses. These businesses contributed GBP47.0m of revenue and GBP5.5m of EBITDA in the year. Practices acquired during the year and after the year end are set out in note 14 to the financial statements. The Group is focused on delivering organic growth from its veterinary practices division, with this growth supported by future acquisitions where multiples are considered acceptable and where returns will be accretive. In light of this, the Group's rate of acquisitions slowed considerably in the second half of the financial year with only two of the acquisitions in the year completing in the second half.
Adjusted EBITDA for the Group as a whole, as a percentage of sales, fell from 16.9% to 15.2%. This reduction is due to the increased mix of Farm revenues at naturally lower gross margins, increased employment costs in the first half of the financial year and the impact of certain acquisitions in the first half as noted above.
The veterinary services division generated significant growth from its specialist Referrals practices which provide the most sophisticated levels of clinical care across all referral specialisms. Revenue from Referral practices increased by 21.6% in the financial year to GBP22.5m (2018: GBP18.5m). This growth was achieved through increased referrals from CVS first opinion practices and the recruitment of additional leading referral specialists, a number of whom joined CVS from our direct competitors. The further development of our referrals business, and the recruitment of further specialist resource, remains a key strategic priority for CVS.
Our preventative medicine scheme, the Healthy Pet Club, continued to prove popular with our clients with total membership increasing by 10.8% in the year to 401,000 pets covered by the scheme at 30 June 2019 (2018: 362,000). The scheme provides preventative medicine to our customers' pets as well as a range of discounts and benefits. CVS benefits from improved customer loyalty, the encouragement of clinical compliance, protecting revenue generated from drug sales and bringing more customers into our surgeries. Monthly subscription revenue generated in the year increased to GBP45.4m (2018: GBP38.0m). We also launched a new Healthy Horse Programme in the previous year with 7,000 equine clients covered by the scheme at 30 June 2019.
We continue to expand our specialist MiNight Vet centres which provide out-of-hours and emergency support to both CVS and private practices. We now have 22 centres with three new sites opened in the year, including the UK's first dedicated equine out-of-hours service, called Equicall. The Group will seek further expansion of dedicated out-of-hours centres with a further eight centres planned to open in the next twelve to eighteen months. Our strategic objective is to become self-sufficient in the provision of out-of-hours cover over the medium term.
Our MiPet own brand range continues to expand and now represents c.25.0% of our small animal practice drug sales. The range is well supported by both our customers and our staff. MiPet products are only available in our surgeries and to our buying group members and hence they differentiate CVS in the market. Significant progress was made during the year in selling the MiPet range to our buying group members and this is expected to develop further. Further discounts were secured in the second half of the financial year on Endectrid, a flea treatment, and Milbeworm, a worming treatment and these will help to improve margins. We have recently launched our first Equine product and our new warehouse management system, which will go live in the new financial year, will facilitate further expansion of our product range.
We are focused on the internalisation of spend within the Group and in August 2018 we acquired Vet Direct, a consumables and equipment supply business. We have now incorporated Vetisco into Vet Direct to provide a "one stop shop" for both CVS and private practices to purchase all their equipment and consumable needs from one place and we will look to deliver further growth from Vet Direct in the future.
We continue to invest in our existing practices with GBP2.9m of capital expenditure incurred in the financial year in the relocation of existing surgeries and a further GBP0.7m of capital expenditure incurred in refurbishing existing sites. We are committed to delivering the highest levels of clinical care and we invested a further GBP1.0m of capital expenditure in new clinical equipment in the financial year. Investment will continue in appropriate capital expenditure projects which facilitate the delivery of high clinical standards and drive increased average transaction values and hence revenues in practices. We will continue to invest in greenfield sites and practice relocations where we are confident that appropriate financial returns will be achieved.
We launched our own insurance product, MiPet Cover, in August 2017. CVS does not take any underwriting risk and receives a commission on the sale and renewal of each policy. We had 9,000 policies in force as at 30 June 2019, a 173.0% increase from the prior year (2018: 3,000). The business will take time to develop fully and made a small loss in the year.
CVS continues to support the RCVS Practice Standards Scheme with all CVS practices participating and 118 "Outstanding" awards received under the scheme. The Group's Springfield practice has achieved outstanding awards in all six categories. We are focused on providing the highest levels of clinical care and we continue to invest in clinical audits of practices to monitor compliance. We will continue to promote the Vetsafe scheme to capture and learn from significant events/near misses.
The Group believes that the highest levels of patient care can be provided through face to face consultations in its practices or through its ambulatory teams. The Group will explore opportunities to provide remote consultations through telemedicine provision where it is confident that services can be provided in an effective manner without compromising its high standards of clinical patient care.
CVS continues to place significant emphasis on staff training and career opportunities. We are focused on improved staff retention through the provision of diverse clinical experience from our broad practice specialisms, continued support in studying for enhanced professional qualifications and through the opportunity for clinical staff to undertake leadership roles in the business. The Group recruited a record number of graduate veterinary surgeons in September 2018 and our leading graduate induction and support programme will continue to evolve. This will ensure that all our graduates are best equipped to fulfil their future careers from a combination of industry leading clinical training alongside communication, resilience and customer service training. Professor Renate Weller will oversee the development of the Group's clinical training for veterinary surgeons and nurses and has a wealth of experience in this area.
CVS has been campaigning for our highly skilled Qualified Nurses to be better recognised by the professional bodies and for them to be allowed to undertake additional clinical work currently preserved for veterinary surgeons. We will continue to campaign for this much needed change in the sector which will allow our Nurses to have increased career opportunities whilst reducing pressure on scarce veterinary surgeon resource.
We will continue to invest in the highest levels of employee training and development and in providing appropriate career pathways in order to position CVS as the employer of choice in the sector.
Laboratories Division
Our laboratories division provides diagnostic services and in-practice laboratory analysers to CVS practices and third party owned veterinary surgeries. Diagnostic services are offered via post and courier allowing complete coverage of the UK.
2019 2018
GBPm GBPm
Revenue 20.1 17.9
----------------- ------ ------
Adjusted EBITDA 4.3 3.9
EBITDA margin % 21.4 21.9
----------------- ------ ------
The Laboratories Division generated revenue of GBP20.1m, a 12.4% increase on the prior year figure of GBP17.9m. Adjusted EBITDA grew by 9.8% from GBP3.9m to GBP4.3m and profit before tax increased from GBP3.3m to GBP3.7m.
Revenue from the analysers business (analysers and related consumables) increased in the year, driven by increased reagent (consumables) sales. Analysers are installed in newly acquired CVS owned practices and independent practices and since the analyser machines have an economic life of several years, the sale of the machines leads to consumable sales for several further years.
Revenue from the diagnostics testing business increased steadily during the year. Further Equine and Farm tests are being developed and these are expected to deliver further growth in the future.
EBITDA as a percentage of sales fell slightly from 21.9% to 21.4%.
Crematoria Division
Our Crematoria division provides individual and communal cremation services for companion animal and equine clients and clinical waste disposal services for CVS and independently owned practices.
2019 2018
GBPm GBPm
Revenue 7.3 6.6
----------------- ------ ------
Adjusted EBITDA 2.5 2.3
EBITDA margin % 34.2 34.6
----------------- ------ ------
Revenue in our Crematoria division increased by 10.1% to GBP7.3m (2018: GBP6.6m). The Crematoria Division benefits from becoming the supplier to veterinary practices that we acquire.
Adjusted EBITDA grew by 8.8% to GBP2.5m (2018: GBP2.3m). EBITDA as a percentage of sales slightly decreased from 34.6% to 34.2%.
Animed Direct
Animed Direct is the Group's on-line dispensary and pet food and equipment retailer. Animed Direct focuses on prescription and non-prescription medicines where the Group's buying power allows it to be extremely competitive.
2019 2018
GBPm GBPm
Revenue 23.3 18.8
----------------- ------ ------
Adjusted EBITDA 1.7 1.2
EBITDA margin % 7.2 6.4
----------------- ------ ------
The business performed excellently during the year, with revenue growing by 24.3% to GBP23.3m (2018: GBP18.8m) and with adjusted EBITDA increasing by 39.9% to GBP1.7m (2018: GBP1.2m). The EBITDA margin percentage improved slightly from 6.4% to 7.2%. The business now has an active customer database of over 244,000 people (2018: over 204,000 people).
Head Office
Central administration costs include those of the central finance, IT, human resource, purchasing, legal and property functions. Total costs were GBP10.2m (2018: GBP9.9m), representing 2.5% of revenue (2018: 3.0%).
Whilst the increased scale of the Group's operations requires additional investment in support functions, the Group is able to benefit from economies of scale with Head Office costs reducing to 2.5% of revenue in the financial year. Continued investment will be made in support areas to ensure that CVS continues to have appropriate systems and controls and to ensure the divisions receive appropriate support. The Group will continue to base support staff in the regions where they can more easily provide the close support that the operations teams require.
Simon Innes
Chief Executive Officer
27 September 2019
Finance review
Continued growth in revenue
Financial highlights
CVS has continued to deliver growth in revenues and operating profit. Key financial highlights are shown below:
2019 2018 Change
%
Revenue (GBPm) 406.5 327.3 24.2
Adjusted EBITDA
(GBPm)* 54.5 47.6 14.5
Adjusted profit
before tax (GBPm)* 41.4 36.0 15.0
Adjusted earnings
per share (p)* 46.7 42.4 10.1
Operating profit
(GBPm) 15.6 17.7 -11.9
Profit before tax
(GBPm) 11.7 14.1 -17.0
Basic earnings
per share (p) 11.6 16.0 -27.5
--------------------- ------ ------ -------
* Adjusted financial measures are defined on page 3 of the Annual Report and reconciled to the financial measures defined by International Financial Reporting Standards ("IFRS") below, on page 66 of the annual report (adjusted EBITDA) and on page 89 of the annual report (adjusted profit before tax and adjusted earnings per share).
Management uses adjusted EBITDA and adjusted earnings per share ("EPS") as the basis for assessing the financial performance of the Group. These figures exclude costs relating to business combinations and hence assist in understanding the performance of the Group. These terms are not defined by IFRS and therefore may not be directly comparable with other companies' adjusted profit measures.
An explanation of the difference between the reported operating profit figure and adjusted EBITDA is shown below:
2019 2018
GBPm GBPm
Operating profit
as reported 15.6 17.7
Adjustments for:
Amortisation and
depreciation 31.4 26.4
Costs of business
acquisitions 7.2 3.5
Exceptional items 0.3 -
-------------------- ------ ------
Adjusted EBITDA 54.5 47.6
-------------------- ------ ------
Adjusted EBITDA increased by 14.5% from GBP47.6m to GBP54.5m.
Adjusted EBITDA as a percentage of revenue (adjusted EBITDA margin) decreased from 14.5% in 2018 to 13.4%. This reduction largely reflects performance in the first half of the financial year within the veterinary practices division with an increasing mix of lower margin Farm revenues, higher employment costs and performance from certain acquisitions being below expectations.
Profit before tax for the year decreased from GBP14.1m to GBP11.7m (-17.0%). The decrease in profit before tax is due to the GBP3.8m increase in amortisation costs as a result of the full year impact of prior year acquisitions. Basic EPS decreased 27.5% to 11.6p (2018: 16.0p).
Adjusted profit before tax showed a 15.0% increase in the year from GBP36.0m to GBP41.4m. Adjusted EPS (as defined in note 10 of the annual report) marginally increased 10.1% to 46.7p (2018: 42.4p). Adjusted profit before tax and adjusted EPS exclude the impact of amortisation of intangible assets, business combination costs and exceptional items.
Long-term growth
The Group has generated consistent growth in the scale of its business and profits over recent years. A summary of the compound annual growth rates ("CAGR") over the past five years in key financial figures is as follows:
2019 2015 CAGR
%
Revenue (GBPm) 406.5 167.3 24.9
Adjusted EBITDA
(GBPm) 54.5 23.0 24.1
Adjusted profit
before tax (GBPm) 41.4 18.2 22.8
Adjusted EPS (p) 46.7 24.7 17.3
-------------------- ------ ------ -----
Bank facilities
Total bank facilities consist of GBP190.0m are available to support the Group's organic and acquisitive growth initiatives over the coming years. These facilities are provided by a syndicate of three banks, RBS, HSBC and AIB, and comprise the following elements:
-- a fixed term loan of GBP95.0m, repayable on 23 November 2021 via a single bullet repayment; and
-- a six-year revolving credit facility ("RCF") of GBP95.0m that runs to 23 November 2021.
In addition the Group has a GBP5.0m overdraft facility renewable annually.
Cash flow
Cash flow from operating activities was GBP52.1m (2018: GBP46.7m). The increase reflects the growth in adjusted EBITDA.
Net debt increased by GBP33.0m to GBP102.0m (2018: GBP69.0m).
The movement in net debt is explained as follows:
2019 2018
GBPm GBPm
Cash generated from operations 52.1 46.7
Capital expenditure -
maintenance (8.9) (7.6)
Taxation paid (7.3) (6.2)
Interest paid (3.4) (3.1)
---------------------------------- ------- -------
Free cash flow 32.5 29.8
Capital expenditure -
development (4.0) (3.1)
Acquisitions (58.1) (52.6)
Proceeds from Ordinary
shares 0.6 61.0
Dividends paid (3.5) (2.9)
Debt issuance costs amortisation (0.5) (0.4)
Acquired finance leases - (0.8)
(Increase)/decrease in
net debt (33.0) 31.0
---------------------------------- ------- -------
Cash available for discretionary expenditure ("free cash flow") increased from GBP29.8m to GBP32.5m due to improvement in cash generated from operations.
The analysis of capital expenditure in the table above reflects a broad split between expenditure that we expect to increase profit and that which we believe will primarily maintain profit. This split can only ever be approximate. Development capital expenditure includes expenditure on new sites, relocations, significant extensions and significant new equipment. All other expenditure is included as replacement.
GBP62.0m was paid (including GBP1.5m repayment of acquired bank debt) for the 34 surgeries acquired during 2019. GBP1.0m of consideration was payable at 30 June 2019 in respect of completion net asset adjustments. In addition to GBP62.0m paid for businesses acquired in the year, GBP0.1m was paid in respect of completion net asset adjustments for business acquired in the 30 June 2018 financial year.
No corporation tax relief is received on the majority of the amortisation and transaction costs which are deducted in arriving at the unadjusted profit before taxation figure. Therefore, taxation paid increases broadly in line with the adjusted profit before tax of the Group. The interest payment of GBP3.4m was marginally higher than last year (GBP3.1m) reflecting the higher average net debt during the financial year.
Proceeds from Ordinary shares arose due to the exercise of options under the Group's approved SAYE scheme which allows staff to save regular amounts each month over a three-year period and benefit from increases in the Group's share price over that time.
The movement in debt issue costs was GBP0.2m, which represents the GBP0.5m amortisation of costs during the year, which is partly offset by the capitalisation of costs GBP0.3m associated with the September 2018 refinance.
Net debt and borrowing covenants
The Group's net debt comprises the following:
2019 2018
GBPm GBPm
Borrowings repayable:
within one year 0.3 0.5
after more than one
year 114.2 83.5
----------------------- ------- -------
Total borrowings 114.5 84.0
Cash in hand and at
bank (12.5) (15.0)
----------------------- ------- -------
Net debt 102.0 69.0
----------------------- ------- -------
The total borrowings principally consist of:
-- GBP95.0m term loan (gross of unamortised issue costs). The term loan is repayable in one bullet payment in 2021; and
-- GBP20.0m drawn down under the RCF (gross of unamortised issue costs). The RCF is available until 2021.
GBP75.0m of the RCF remained unutilised at 30 June 2019. The Board remains committed to expanding the Group through organic growth and selective acquisitions.
The two financial covenants associated with the Group's bank facilities are based on Group borrowings to EBITDA and Group EBITDA to interest ratios. EBITDA is based on the last twelve months' performance adjusted for the full year impact of acquisitions made during that period. The EBITDA to interest ratio must not be less than 4.5. At 30 June 2019 it was 14.55.
The covenant levels allow a maximum Group borrowing to EBITDA ratio of 3.25x, although it is not the Group's intention to operate at this level. The gearing ratio increased during the year from 1.44x at 30 June 2018 to 2.08x at 30 June 2019. This increase in the ratio reflects the increase in loan to fund the current year acquisitions. The Group aims to continue to expand the business, and has a strong acquisition pipeline and sufficient capacity to fund it. The Group manages its banking arrangements centrally. Funds are swept daily from its various bank accounts into central bank accounts to optimise the Group's net interest payable position.
Interest rate risk is also managed centrally and derivative instruments are used to mitigate this risk. On 1 March 2018, the Group entered into a three-year interest rate fixed rate swap arrangement to hedge fluctuations in interest rates on GBP45.0m of its RCF facility. The swap reduced to GBP35.0m on 1 March 2019.
Going concern
At the balance sheet date the Group had cash balances of GBP12.5m and an unutilised overdraft facility of GBP5.0m. Total facilities of GBP190.0m are available to support the Group's organic and acquisitive growth initiatives over the coming years, comprising a term loan of GBP95.0m and a RCF of GBP95.0m. The Directors consider that the GBP5.0m overdraft and the GBP190.0m facility enable them to meet all current liabilities when they fall due. Since the year end, the Group has continued to trade profitably and to generate cash.
After consideration of market conditions including Brexit, the Group's financial position (including the level of headroom available within the bank facilities), financial forecasts for the three year period to June 2022, its profile of cash generation and the timing and amount of bank borrowings repayable, the Directors have formed a judgement at the time of approving the financial statements that both the Company and the Group have adequate resources available to continue operating in the foreseeable future. For this reason, the going concern basis continues to be adopted in preparing the financial statements.
Taxation
The Group's effective tax rate was 29.9% (2018: 24.1%). A reconciliation of the expected tax charge at the standard rate to the actual charge in millions of pounds and as a percentage of profit before tax is shown below:
GBPm %
Profit before tax 11.7
---------------------------- -------- -------
Expected tax at standard
rate of tax 2.2 19.0
Expenses not deductible
for tax 0.5 4.2
Adjustments to prior
year tax charge 0.5 4.2
Benefit of tax rate
change 0.3 2.5
---------------------------- -------- -------
Actual charge/ effective
rate of tax 3.5 29.9
---------------------------- -------- -------
All of the Group's revenues and the majority of its expenses are subject to corporation tax. The main expenses which are not deductible for tax are costs relating to acquisitions. Tax relief against some expenses, mainly depreciation, is received over a longer period than that for which the costs are charged in the financial statements.
The tax charge has increased by GBP0.1m to GBP3.5m (2018: GBP3.4m) whilst profit before taxation has decreased GBP2.4m from GBP14.1m to GBP11.7m.
The benefit of the tax rate change reflects the impact of the future reduction in corporation tax rates on the deferred tax liabilities in respect of intangible assets.
Share price performance
At the year end the market capitalisation was GBP511.1m (724p per share), compared to GBP795.5m (1,131p per share) at the previous year end.
Key contractual arrangements
The Directors consider that the Group has only one significant third-party supplier contract which is for the supply of veterinary drugs. In the event that this supplier ceased trading the Group would be able to continue in business without significant disruption in trading by purchasing from alternative suppliers.
Forward-looking statements
Certain statements in this Annual Report are forward looking. Although the Board believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to be correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.
Key Performance indicators
The Directors monitor progress against the Group strategy by reference to the following financial KPIs. Performance during the year is set out in the table below
KPI 2019/2018 Definition Changes in 2019
Revenue GBP406.5m Total revenue of the Total revenue increased
GBP327.3m Group. by GBP79.2m.
Revenue before the impact
of prior year and current
year acquisitions was GBP339.2m,
a GBP17.8m increase compared
with 2018. Factors contributing
to the increase are noted
in the like-for-like sales
performance.
Acquisitions in the year
and the full year impact
of the prior year's acquisitions
generated revenue of GBP82.3m,
an increase of GBP63.2m.
Intercompany sales eliminated
on consolidation were GBP14.9m,
an increase of GBP1.8m,
principally due to the impact
of internal crematoria and
laboratory sales to practices
acquired in 2018 and 2019,
in addition to our internal
equipment and instrument
sales.
----------- ------------------------------- ----------------------------------
Like-for-like 5.2% Revenue generated The like-for-like performance
sales % performance from like-for-like reflects strong performances
operations compared in all divisions.
to the prior year.
Revenue for 2019 is
included in the like-for-like
calculation with effect
from the month in
which it was acquired
in the previous year;
for example for a
practice acquired
in September 2017,
revenue is included
from September 2018
in the like-for-like
calculation.
4.9%
----------- ------------------------------- ----------------------------------
Healthy Pet 401,000 Number of members The growth of Healthy Pet
Club members in our Healthy Pet Club membership from 362,000
Club Scheme. to 401,000 led to an increase
in revenue for the year
but the percentage of sales
fell as non Healthy Pet
Club revenue increased.
362,000
----------- ------------------------------- ----------------------------------
Gross margin 76.2% Gross margin after The decrease in the gross
before clinical deducting the cost margin is principally due
staff costs of drugs, laboratories' to the increase in our large
fees and cremation animal division, which operates
fees, and other goods at a lower margin to our
sold or used by the small animal division.
business from revenue,
expressed as a percentage
of total revenue.
79.6% Gross margin was GBP168.9m,
after deducting GBP140.9m
of clinical staff
costs.
----------- ------------------------------- ----------------------------------
Adjusted GBP54.5m Earnings before income The improvement in adjusted
EBITDA GBP47.6m tax, net finance expense, EBITDA is explained by the
depreciation, amortisation, full year impact of prior
costs relating to year acquisitions (GBP1.8m)
business combinations and acquisitions in the
and exceptional items. current year (GBP5.4m),
partly offset by a GBP0.3m
increase in central costs
incurred to build a foundation
for further development
and expansion of the Group.
----------- ------------------------------- ----------------------------------
Adjusted 46.7p Earnings, adjusted The increase reflects the
EPS 42.4p for amortisation, increase in adjusted profit
costs relating to before tax of GBP5.4m
business combinations
and non-recurring
tax credits, net of
the notional tax impact
of the above, divided
by the weighted average
number of issued shares.
----------- ------------------------------- ----------------------------------
Cash generated GBP52.1m Cash inflow before The increase primarily reflects
from operations GBP46.7m payments of taxation the improvement in EBITDA
and interest; acquisitions; of the business, together
purchases of property, with the decrease in other
plant and equipment receivables partially offset
and intangible assets; by the increase in stock
payments of dividends; reflecting the growth of
debt issue costs; the Group.
increase/repayment
of bank loans; and
proceeds from issue
of shares.
----------- ------------------------------- ----------------------------------
Principal risks and uncertainties
The Group's businesses are subject to a wide variety of risks. Some of the most significant risks are explained below together with details of actions that have been taken to mitigate these risks.
Our risk management framework
The Board has overall responsibility for ensuring risk is appropriately managed across the Group. The day-to-day identification, management and mitigation of risk is delegated to the Group's executive management. This process is overseen by the Group Internal Audit Manager.
Risk registers are prepared which evaluate the risks most likely to impact the Group. Staff across the business are involved in the process to ensure all potential areas of risk are adequately identified and recorded. Controls that are currently in place are assessed in order to determine the extent to which they mitigate risk and actions are determined where it is considered appropriate to reduce risk further.
Risk Description Mitigating factors
Key staff The Group is exposed The Group is committed to maintaining
to risk in relation salaries for its employees which are
to its ability to competitive in the marketplace and
attract and retain regular benchmarking is undertaken.
key staff, in particular The Group maintains close relationships
appropriately qualified with UK veterinary schools and has
veterinary surgeons a market leading graduate induction
and specialists. programme in place in order to attract
and develop leading graduates.
The market for veterinary The training and development of the
surgeons is highly Group's employees is a key focus and
competitive and there Professor Renate Weller was recruited
are insufficient UK during the year to lead the Group's
veterinary surgeons Learning Education and Development
and nurses to fill programme. The Group has developed
all positions with a range of training programmes for
a resulting reliance its employees which include clinical,
on foreign nationals. customer service and management training.
The Group has focused on providing
Furthermore, there more flexible working for its employees
are other changes and increased wellbeing support.
in the industry such The retention of senior employees
as the increasing is encouraged through a Group LTIP
feminisation of veterinary scheme. An annual SAYE scheme is in
surgeons which may place to incentivise all staff and
have an impact in help improve retention.
due course. Staff surveys and exit interviews
are undertaken and the feedback from
As a result of the these is used to address any common
above factors there issues or concerns.
has been an increase A highly qualified recruitment team
in the veterinary is in place to facilitate the recruitment
surgeon and nurse of employees from the UK and overseas.
vacancy rates in the The group's veterinary surgeon vacancy
UK and an increased rate and nurse vacancy rate are both
reliance on locums. internal performance indicators which
This has resulted are reported to the Board each month.
in increased salary The Home Office has recently confirmed
cost inflation. that it supports the Migration Advisory
Committee's recommendation that the
role of veterinary surgeon should
be reinstated on the UK Shortage Occupation
List and the Board welcomes this as
a positive step in helping to address
the UK shortage of veterinary surgeons.
------------------------------ ------------------------------------------------
Economic The continued Brexit The veterinary sector has proven to
environment uncertainty and a be resilient in times of past economic
decline in the UK downturn and the Board believes that
economy could result the characteristics of our business
in a reduction in make it relatively resilient to future
consumer confidence economic fluctuations.
and spending on veterinary
services. The Group has diversified the business
and provides a wide range of integrated
veterinary services to small animal,
equine and farm patients and clients
in the UK, Republic of Ireland and
the Netherlands.
The Group continues to focus on providing
the best levels of clinical care and
its preventative healthcare schemes
serve to bond clients to the Group.
The Group now has 401,000 members
of its Healthy Pet Club and has recently
launched a Healthy Horse Programme.
These schemes, and the Group's ability
to provide end to end veterinary services,
bond clients to the Group and increase
retention.
The range of businesses within the
Group, and our geographic expansion,
reduces the risk of the impact of
any economic downturn. The small animal,
equine and farm veterinary markets
have slightly different characteristics
and the Group's expansion of its equine
and farm divisions reduces its risk.
The Group's Animed Direct business
protects the Group against an increase
in customers who may switch to purchasing
pharmaceuticals online. The Group's
own brand products are only available
in practices and are not available
to customers online.
The impact from a future Brexit on
the Group's business remains uncertain.
The Board believes that the main risks
from Brexit are from short term disruption
to its key supplies and from a subsequent
reduction in economic growth. The
Group has taken a number of steps
to reduce the impact from disruption
to its supplies including working
with manufacturers and wholesalers
to ensure they increase stocks, the
development of a new warehouse management
system and through short term stock
building. The Board believes that
the veterinary industry is relatively
resilient to economic downturns and
hence the impact from Brexit is likely
to be less than for many industries.
Brexit uncertainty has already impacted
on the availability of veterinary
surgeons and nurses in the UK and
the Board believes that future Brexit
certainty will help to improve its
ability to attract and retain employees
from the EU.
------------------------------ ------------------------------------------------
Competition Increasing corporate The Group focuses on providing the
consolidation and best levels of clinical care and customer
acquisition of independent service to its clients.
veterinary practices
results in a loss The Group's integrated veterinary
of clients to the platform allows it to provide the
Group. Independent full range of veterinary services
practices which currently to our clients. The Group provides
procure services from referral services, out of hours provision,
the Group are likely buying group membership discounts,
to switch their business laboratory and crematoria services
post acquisition by and these help bond clients to the
a corporate competitor Group.
thereby resulting
in lost revenue to The Group continues to invest in
the Group. high class facilities and equipment
to provide appropriate clinical service.
Increasing acquisition Employees pride themselves on providing
multiples being paid the highest levels of clinical care
by competitors increases and excellent customer service. New
the value of potential peripatetic services are being launched
acquisition targets to facilitate greater access to specialist
and reduces the margins care in local practices in order to
available and the improve customer access to local care.
Group's ability to
successfully acquire The Group assesses each acquisition
and integrate acquisitions. opportunity on its own merits and
against a clear set of criteria. The
Increased price competition Group will only make acquisitions
may limit the Group's at acceptable multiples and where
ability to pass on it is confident that it will achieve
increases in employment, appropriate returns.
pharmaceutical and
other costs and result The Group regularly reviews the pricing
in reduced margins. of its products and services and seeks
to remain competitive in each of the
business areas in which it operates.
------------------------------ ------------------------------------------------
Adverse publicity Adverse publicity The Group aims to provide the highest
could result in a levels of clinical care and has policies
reduction in customer and procedures in place to monitor
numbers, revenue and delivery. The Group's practices participate
earnings and in our in the RCVS Practice Standards Scheme
ability to attract and the Group has to date attained
and retain key staff. 118 outstanding awards. The Group
is committed to an ongoing programme
of Quality Improvement ('QI') and
has been awarded the RCVS Knowledge
QI Champion award. The Group operates
clinical advisory committees to promote
and set appropriate clinical standards
and drugs lists across the Group.
An independent clinical team monitors
practice standards and makes recommendations
for future improvement where appropriate.
The individual branding of our practices
reduces the risk of any adverse publicity
at one practice impacting on another
or on the wider Group.
The Group has a Marketing/communication
team in place which can respond swiftly
to any adverse publicity.
Within the veterinary industry, the
Group aims to be prominent in its
representation on national bodies
and at industry events so as to continue
to build its reputation and influence
within the industry.
------------------------------ ------------------------------------------------
Information The Group is dependent The Group has a number of policies
technology on secure and reliable in place that are aimed at ensuring
IT technology for the stability and security of our
the continued operation networks and systems, whilst at the
of its business. same time supporting the growth of
the business. The IT service desk
have agreed a number of operational
KPIs with the business aimed at ensuring
the systems are reliable with minimum
down time.
Access to networks, applications and
data is limited to those who require
it. Where possible, physical access
to equipment is restricted. Access
to networks and applications is restricted
by passwords which are changed regularly.
Permissions are set so that access
within networks and applications are
limited as appropriate.
Network security is regularly enhanced
with external reviews being performed
periodically to identify areas of
risk. Networks and equipment are automatically
monitored to identify risks and issues
and failover systems are in place
in key areas. A scheduled programme
of equipment and software replacement
takes place to help ensure that the
latest security features are available.
Procedures are in place over the development
of systems. These require full testing
on test platforms and, where relevant
on a number of test sites, before
the full implementation of any changes.
Systems are regularly backed up to
the cloud and the recovery of those
systems is tested.
The main system used by operations
is the practice management system
in our surgeries. One well established
and well maintained practice management
system is primarily used. Each practice
system is independent of others and
most practices can operate for a short
period of time without access to the
internet. This reduces the risk of
any issues impacting on the business.
This system is periodically developed
to meet the needs of the business.
------------------------------ ------------------------------------------------
Ability to The Group's operations The Group has an appropriate supply
source pharmaceutical require it to acquire agreement in place with its major
supplies and supply significant wholesaler to secure supplies. Other
quantities of pharmaceutical wholesalers can supply most medicines
products at appropriate and hence the Group is confident that
prices. The majority supplies will be available should
of medicines are purchased the existing CVS wholesaler withdraw.
through one wholesaler CVS has direct relationships with
and any operational many manufacturers which would enable
issues within that direct supply should any difficulties
supplier could have occur.
an adverse impact
on the Group. The The Group has developed an increasing
Group has expanded range of own brand medicines which
its operations into are supplied directly to our warehouse
equine and farm species in Diss for onward supply to our practices.
and also into the These own brand medicines now account
Netherlands and the for c.25% of small animal first opinion
Republic of Ireland practice drug sales. The Group has
and there is a risk developed a new warehouse management
that the Group fails system which is expected to go live
to achieve appropriate in the new financial year and this
prices for pharmaceutical will facilitate further growth in
products in these direct distribution.
new areas.
The Group undertakes regular reviews
with manufacturers on drug prices
and compares pricing for small animal
products in the UK, the Netherlands
and the Republic of Ireland to identify
anomalies in pricing. Similarly the
Group reviews equine and farm drug
prices in comparison to small animal.
Brexit uncertainty may lead to an
adverse impact on the availability
of drugs in the UK. The Group continues
to monitor the position. The main
wholesaler and manufacturers are building
stocks in advance of a possible Brexit
and the Group will also consider increasing
its own stock levels to mitigate any
risk of supply disruption from Brexit.
------------------------------ ------------------------------------------------
Ability to The Group has completed The Group continues to consider opportunities
source and a number of veterinary to acquire practices that provide
integrate practice and related veterinary services to small animal,
acquisitions business acquisitions equine and farm clients, where the
in recent years and Group is confident that they can be
these have driven acquired at acceptable multiples and
significant growth can be integrated effectively. In
in revenue and earnings. the UK each of these parts of the
Acquisition multiples veterinary industry are at different
being paid in the stages of consolidation with a relatively
industry have increased low level of consolidation in the
and there is a risk equine and farm sectors.
that the Group is
unable to make further In recent years the Group has also
acquisitions at acceptable acquired practices in the Netherlands
multiples, or fails and in the Republic of Ireland. Both
to integrate them of these markets, whilst smaller than
successfully with the UK market, are substantially less
its existing operations. consolidated and together provide
opportunities for further growth through
acquisition. The Group may consider
entering other geographic markets
in due course where they are considered
attractive.
The Group has developed a robust
approach to assess acquisition opportunities
against a clear list of criteria and
offers are only made where practices
meet these criteria and where the
Group is confident that we can generate
appropriate returns post acquisition
and successfully integrate the acquisition
target with our existing operations.
The Operations teams, who will be
responsible for managing the acquisition
target post a successful acquisition
process, are fully involved in the
acquisition process before any offers
are made. The Group employs professional
advisers to ensure a robust due diligence
process is undertaken prior to acquisition
and formal business cases are presented
to the Board for approval. These business
cases clearly set out the rationale
for the proposed acquisition, the
process by which the acquisition target
will be integrated with the Group,
the key priorities immediately post
acquisition and the expected financial
returns. Post acquisition, the results
of acquisitions are reported and monitored
separately by the Operations teams,
by the Executive Committee and by
the Board. Any learnings to be gained
from previous acquisitions are used
to refine the acquisition process
and approach.
------------------------------ ------------------------------------------------
Maintain The Group's operations The Group engages a leading insurance
appropriate expose it to a range broker to help it consider its risks
insurance of risks which, depending and to procure appropriate insurance
on the circumstances where it decides that it is appropriate
applicable to each and cost effective to transfer risk
one, can be avoided, to a third party insurer. Regular
reduced, accepted reviews of the Group's insurance requirements
or where considered are undertaken and amendments to insurance
appropriate transferred policies, premiums, claims limits
through the means and excesses are made where it is
of insurance. If the considered appropriate. The Group
Group's insurance works closely with its insurance Broker
arrangements are not and its end insurers to minimise claims
appropriate there arising, to appropriately manage existing
is a risk that the claims and to learn lessons from past
Group incurs loss cases.
as a result.
The Group engages with the Veterinary
Defence Society ('VDS') to help reduce
clinical risks and to provide support
to its clinical staff in managing
and defending any claims from customers
such as accusations of professional
misconduct. The Group pays an annual
premium to the VDS to cover both the
advice service for its clinical staff,
and to cover the premium for providing
clinical staff with insurance. The
Group's Clinical team work closely
with the VDS to review claims and
any near misses and in order to ensure
that lessons are learned. The Group
works closely with its clinical staff
in this process in order to ensure
they receive appropriate support.
------------------------------ ------------------------------------------------
Compliance The Group is subject The Group is subject to general legislation
with legal to a wide range of in the same way as other businesses
and regulatory legislation and regulations. (e.g. on corporate governance, health
requirements Non compliance with and safety and employment law). The
laws and regulations Group has clearly defined policies
could lead to limitations in all relevant areas which are communicated
on certain areas of to staff and on which staff are trained
the business or ultimately as appropriate. Suitably qualified
fines, penalties and experts are employed, checks on compliance
the suspension of are carried out and policies and practices
certain operations. are updated as new legislation and
regulations are introduced. The Group
obtains professional advice from third
party experts where appropriate.
Specific regulations apply to different
parts of the business. Policies and
procedures are maintained in all areas
as appropriate. In particular, the
practices are subject to various clinical
regulations. An experienced Director
of Clinical Governance is responsible
for ensuring that policies and procedures
are in place and that appropriately
high standards are maintained. Every
practice employs an individual responsible
for clinical governance.
The Group's Company Secretary is
an experienced data practitioner and
manages compliance with GDPR requirements
and legislation.
The Group operates as an Appointed
Representative of its pet insurance
provider and hence is subject to regulation
by the Financial Conduct Authority.
The Group employs suitably qualified
individuals to ensure compliance with
appropriate FCA legalisation and works
closely with its insurance provider
in this regard.
------------------------------ ------------------------------------------------
Changes in The Group's operations The Group operates under a number
laws and are subject to a number of laws and regulations and operations
regulations of laws and regulations teams in each area of the business
impact our and changes in these have procedures in place to monitor
operations could have a material compliance and also to monitor developments
and margins adverse impact to and proposed changes.
the Group. For example,
the RCVS is debating The Group engages closely with regulatory
changes which could and legislative bodies to promote
allow telemedicine best practice in veterinary care and
providers to prescribe to maintain awareness of any proposed
medicine remotely changes and to lobby for changes where
and this could have considered appropriate. For example,
a material impact the Group believes that its highly
on the Group. skilled veterinary nurses should be
able to undertake further clinical
work and continues to lobby for this
change.
The Group has lobbied in recent years
for the veterinary surgeon to be added
back to the UK Shortage Occupation
list and is delighted that the Home
Office have now agreed to that change.
------------------------------ ------------------------------------------------
Change in Pet ownership levels The Group is focused on providing
UK pet population in the UK have remained excellent clinical care and choice
relatively static to our customers. The Group's integrated
in recent years but veterinary model allows it to provide
we may see a future end to end veterinary care including
decline in the event first opinion services, preventive
of an economic downturn medicine, out of hours provision,
or in light of changing specialist referral procedures, pet
lifestyles. insurance and online purchasing of
drugs, food and equipment.
The Group prices it services appropriately
in order to compete effectively in
the markets in which it operates and
believes it is well placed to compete.
The Group continues to invest in new
facilities, equipment and clinical
services in order to promote higher
clinical standards and to deliver
enhanced clinical work leading to
additional revenue per client.
The Group's preventative medicine
scheme, the Healthy pet Club, now
has over 401,000 members and this
helps bond customers to the Group.
The Group continues to invest in
facilities and customer service and
has developed a new range of peripatetic
services to provide specialist treatments
in local practices.
The Group monitors practice visits
and advanced clinical care as two
internal KPIs and hence any adverse
trends in these measures would be
identified so that appropriate action
can be taken in response.
------------------------------ ------------------------------------------------
Richard Fairman
Chief Financial Officer
27 September 2019
Consolidated income statement for the year ended 30 June 2019
2019 2018
Note GBPm GBPm
--------------------------------------------- ----- -------- --------
Revenue 2 406.5 327.3
Cost of sales (237.6) (175.7)
--------------------------------------------- ----- -------- --------
Gross profit 168.9 151.6
--------------------------------------------- ----- -------- --------
Administrative expenses (153.3) (133.9)
--------------------------------------------- ----- -------- --------
Operating profit 15.6 17.7
Net finance expense (3.9) (3.6)
--------------------------------------------- ----- -------- --------
Profit before income tax 2 11.7 14.1
Income tax expense 3 (3.5) (3.4)
--------------------------------------------- ----- -------- --------
Profit for the year attributable to owners
of the Parent 8.2 10.7
--------------------------------------------- ----- -------- --------
Earnings per ordinary share for profit attributable to owners of
the Company (expressed in pence per share) ("EPS")
Basic 4 11.6p 16.0p
Diluted 4 11.6p 15.9p
--------------------------------------------- ----- -------- --------
Reconciliation of adjusted financial measures
The Directors believe that adjusted profit provides additional useful information for shareholders on performance. This is used for internal performance analysis. This measure is not defined by IFRS and is not intended to be a substitute for, or superior to, IFRS measurements of profit. The following table is provided to show the comparative earnings before interest, tax, depreciation and amortisation ("EBITDA") after adjusting for costs relating to business combinations and exceptional items.
Non-GAAP measure: Adjusted EBITDA 2019 2018
Note GBPm GBPm
---------------------------------------------- ----- ------ ------
Profit before income tax 2 11.7 14.1
Adjustments for:
Finance expense 3.9 3.6
Depreciation 9.2 8.0
Amortisation of intangible assets 22.2 18.4
Costs relating to business combinations* 7.2 3.5
Exceptional items 0.3 -
Adjusted EBITDA 2 54.5 47.6
---------------------------------------------- ----- ------ ------
* Includes amounts paid in respect of acquisitions in prior years expensed to the income statement
Statement of consolidated comprehensive income for the year ended 30 June 2019
2019 2018
GBPm GBPm
------------------------------------------------------ ------ ------
Profit for the year 8.2 10.7
------------------------------------------------------- ------ ------
Other comprehensive income - items that will
or may be reclassified to loss in future periods
Cash flow hedges:
Net movement on cashflow hedge (0.1) 0.1
Exchange difference on translation of foreign 0.2 -
operations
Other comprehensive income for the year, net
of tax 0.1 0.1
------------------------------------------------------- ------ ------
Total comprehensive income for the year attributable
to owners of the parent 8.3 10.8
------------------------------------------------------- ------ ------
Consolidated balance sheet as at 30 June 2019
Group Group
2019 2018
Note GBPm GBPm
--------------------------------- ---- ------- -------
Non-current assets
Intangible assets 244.5 203.5
Property, plant and equipment 51.4 47.9
Investments 0.1 0.1
Deferred income tax assets 0.2 0.6
Derivative financial instruments 0.1 0.2
--------------------------------- ---- ------- -------
296.3 252.3
--------------------------------- ---- ------- -------
Current assets
Inventories 17.0 13.5
Trade and other receivables 51.6 38.2
Cash and cash equivalents 12.5 15.0
--------------------------------- ---- ------- -------
81.1 66.7
--------------------------------- ---- ------- -------
Total assets 2 377.4 319.0
Current liabilities
Trade and other payables (73.7) (53.9)
Current income tax liabilities (4.9) (3.6)
Borrowings 7 (0.3) (0.5)
(78.9) (58.0)
Non-current liabilities
Borrowings 7 (114.2) (83.5)
Deferred income tax liabilities (21.2) (19.8)
--------------------------------- ---- ------- -------
(135.4) (103.3)
--------------------------------- ---- ------- -------
Total liabilities 2 (214.3) (161.3)
--------------------------------- ---- ------- -------
Net assets 163.1 157.7
--------------------------------- ---- ------- -------
Shareholders' equity
Share capital 0.1 0.1
Share premium 99.7 99.1
Capital redemption reserve 0.6 0.6
Revaluation reserve 0.1 0.1
Merger reserve (61.4) (61.4)
Retained earnings 124.0 119.2
Total equity 163.1 157.7
--------------------------------- ---- ------- -------
The financial information comprising the consolidated income statement, the statement of consolidated comprehensive income, the consolidated balance sheet, the consolidated statement of changes in shareholders' equity, the consolidated cash flow statement and the related notes, were authorised for issue by the Board of Directors on 27 September 2019 and were signed on its behalf by:
Richard Fairman Simon Innes
Director Director
Company registered number: 06312831
Consolidated statement of changes in equity for the year ended 30 June 2019
Capital
Share Share redemption Revaluation Merger Retained Total
capital premium reserve reserve reserve earnings Equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- -------- -------- ----------- ------------ -------------------- ---------- -------------------
At 1 July 2017 0.1 31.8 0.6 0.1 (61.4) 110.5 88.0
------------------- -------- -------- ----------- ------------ -------------------- ---------- -------------------
Profit for the
year - - - - - 10.7 10.7
------------------- -------- -------- ----------- ------------ -------------------- ---------- -------------------
Other
comprehensive
income
Cash flow hedges:
Fair
value
gains - - - - - 0.1 0.1
Total other
comprehensive
income - - - - - 0.1 0.1
------------------- -------- -------- ----------- ------------ -------------------- ---------- -------------------
Total
comprehensive
income - - - - - 10.8 10.8
------------------- -------- -------- ----------- ------------ -------------------- ---------- -------------------
Transactions with
owners
Issue of Ordinary
shares - 61.0 - - - - 61.0
Credit to reserves
for share-based
payments - - - - - 1.3 1.3
Deferred tax
relating to
share-based
payments - - - - - (0.5) (0.5)
Dividends to
equity holders
of the Company - - - - - (2.9) (2.9)
Transactions with
owners - 61.0 - - - (2.1) 58.9
------------------- -------- -------- ----------- ------------ -------------------- ---------- -------------------
At 30 June 2018 0.1 99.1 0.6 0.1 (61.4) 119.2 157.7
------------------- -------- -------- ----------- ------------ -------------------- ---------- -------------------
Capital
Share Share redemption Revaluation Merger Retained Total
capital premium reserve reserve reserve earnings Equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ -------- -------- ----------- ----------- -------- --------- -------
At 1 July 2018 0.1 99.1 0.6 0.1 (61.4) 119.2 157.7
------------------------------------ -------- -------- ----------- ----------- -------- --------- -------
Profit for the year - - - - - 8.2 8.2
------------------------------------ -------- -------- ----------- ----------- -------- --------- -------
Other comprehensive income
Cash flow hedges:
Fair value loss - - - - - (0.1) (0.1)
Exchange difference on translation
of foreign operations - - - - - 0.2 0.2
------------------------------------ -------- -------- ----------- ----------- -------- --------- -------
Total other comprehensive
income - - - - - 0.1 0.1
------------------------------------ -------- -------- ----------- ----------- -------- --------- -------
Total comprehensive income - - - - - 8.3 8.3
------------------------------------ -------- -------- ----------- ----------- -------- --------- -------
Transactions with owners
Issue of Ordinary shares - 0.6 - - - - 0.6
Credit to reserves for share-based
payments - - - - - 0.1 0.1
Deferred tax relating to
share-based payments - - - - - (0.1) (0.1)
Dividends to equity holders
of the Company - - - - - (3.5) (3.5)
------------------------------------ -------- -------- ----------- ----------- -------- --------- -------
Transactions with owners - 0.6 - - - (3.5) (2.9)
------------------------------------ -------- -------- ----------- ----------- -------- --------- -------
At 30 June 2019 0.1 99.7 0.6 0.1 (61.4) 124.0 163.1
------------------------------------ -------- -------- ----------- ----------- -------- --------- -------
Consolidated cash flow statement for the year ended 30 June 2019
Group Group
2019 2018
Note GBPm GBPm
--------------------------------------------- ----- --------------- ------------
Cash flows from operating activities
--------------------------------------------- ----- --------------- ------------
Cash generated from operations 8 52.1 46.7
Taxation paid (7.3) (6.2)
Interest paid (3.4) (3.1)
Net cash generated from operating activities 41.4 37.4
--------------------------------------------- ----- --------------- ------------
Cash flows from investing activities
Acquisitions (net of cash acquired) 5 (56.6) (50.3)
Purchase of property, plant and equipment (11.9) (10.2)
Purchase of intangible assets (1.0) (0.5)
Net cash used in investing activities (69.5) (61.0)
--------------------------------------------- ----- --------------- ------------
Cash flows from financing activities
Dividends paid (3.5) (2.9)
Proceeds from issue of ordinary shares 0.6 61.0
Debt issuance costs (0.3) (0.3)
Increase/(Repayment) of borrowings 28.8 (26.0)
--------------------------------------------- ----- --------------- ------------
Net cash used in financing activities 25.6 31.8
--------------------------------------------- ----- --------------- ------------
Net increase in cash and cash equivalents (2.5) 8.2
Cash and cash equivalents at beginning
of year 15.0 6.8
Cash and cash equivalents at end of year 12.5 15.0
--------------------------------------------- ----- --------------- ------------
Notes to the consolidated financial statements for the year ended 30 June 2019
1. Summary of significant accounting policies
Statement under s498 - publication of non-statutory accounts
The financial information set out in this preliminary announcement does not constitute statutory financial statements for the years ended 30 June 2019 or 2018, for the purpose of the Companies Act 2006, but is derived from those financial statements. Statutory financial statements for 2019, on which the Group's auditors have given an unqualified report which does not contain statements under Section 498(2) or (3) of the Companies Act 2006, will be filed with the Registrar of Companies subsequent to the Group's next annual general meeting. Statutory financial statements for 2018 have been filed with the Registrar of Companies. The Group's auditors have reported on those accounts; their reports were unqualified and did not contain statements under Section 498(2) or (3) of the Companies Act 2006.
Basis of preparation
The consolidated financial statements, from which this preliminary announcement is derived, have been prepared on a going concern basis and under the historical cost convention, except for certain financial instruments that have been measured at fair value. The Group has operated within the levels of its current debt facility and complied with both the financial and non-financial covenants contained in the facility agreement therein throughout the year under review and to the date of the approval of the financial statements. The Group is forecasting that it will continue to operate within the levels of its current facility and comply with the financial and non-financial covenants contained in the facility agreement. On this basis the Directors consider it appropriate to prepare the consolidated financial statements on the going concern basis.
Whilst the financial information included in this preliminary announcement has been prepared in accordance with the International Financial Reporting Standards (IFRSs) as adopted for use in the European Union and as issued by the International Accounting Standards Board, this announcement does not itself contain sufficient information to comply with IFRS. Other than as stated below, the accounting policies applied in preparing this financial information are consistent with the Group's financial statements for the year ended 30 June 2018.
Changes in accounting policy and disclosure - IFRS 16 Leases (effective 1 January 2019)
IFRS 16 replaces IAS 17 'Leases' and is effective for annual periods beginning on or after 1 January 2019. The Group's accounting as a lessor will remain aligned to the current approach under IAS 17; however, for lessee accounting there will no longer be a distinction between finance and operating leases. The transition approach adopted by the Group will result in the recognition of right of use assets and lease liabilities of approximately GBP111.5 million in respect of leased properties, vehicles and equipment previously accounted for as operating leases; there will be no impact on shareholders' equity. As permitted by the transition options under IFRS 16, comparative figures for the prior year will not be restated. Going forward, the Group will recognise a finance charge on the lease liability and a depreciation charge on the right-of-use asset, whereas previously the Group included lease rentals within Administrative expenses.
The Group intends to take advantage of a number of exemptions within IFRS 16, including the election not to recognise a lease liability and a right-of-use asset for leases for which the underlying asset is of low value.
Use of non-GAAP measures
Adjusted EBITDA and Adjusted Profit Before Tax ("Adjusted PBT")
The Directors believe that adjusted EBITDA, adjusted PBT and adjusted EPS provide additional useful information for shareholders on performance. These measures are used for internal performance analysis. These measures are not defined by IFRS and therefore may not be directly comparable with other companies' adjusted measures. It is not intended to be a substitute for, or superior to, IFRS measurements of profit or earnings per share.
Adjusted EBITDA is calculated by reference to profit before income tax, adjusted for interest (net finance expense), depreciation, amortisation, costs relating to business combinations and exceptional items.
Adjusted profit before income tax is calculated as profit on ordinary activities before amortisation, taxation, costs relating to business combinations and exceptional items.
Adjusted earnings per share is calculated as adjusted profit before income tax less applicable taxation divided by the weighted average number of Ordinary shares in issue in the period.
Like-for-like sales
Like-for-like sales comprise the revenue generated from all operations compared to the prior year. Revenue is included in the like for like calculation with effect from the month in which it was acquired in the previous year; for example for a practice acquired in September 2017, revenue is included from September 2018 in the like for like revenue calculation.
2. Segmental reporting
The operating segments are based on the Group's management and internal reporting structure and monitored by the Group's chief operating decision maker (CODM). 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, costs relating to business combinations and head office salary and premises costs.
The business operates predominantly in the UK. It performs a small amount of laboratory work for Europe-based clients and Animed Direct Limited distributes a small quantity of goods to European countries. In accordance with IFRS 8 "Operating segments" no segmental results are presented for trade with European clients as these are not reported separately for management reporting purposes and are not considered material for separate disclosure.
Operating segments
The Group is split into four operating segments (Veterinary Practice Division, Laboratory Division, Crematoria Division and Animed Direct) and a centralised support function (Head Office) for business segment analysis. In identifying these operating segments, management generally follows the group's services lines representing its main products and services.
Each of these operating segments is managed separately as each segment requires different specialisms, marketing approaches and resources. Intra-group sales eliminations are included within the Head Office segment. Head Office includes costs relating to the employees, property and other overhead costs associated with the centralised support function together with finance costs arising on the Group's borrowings.
Year ended 30 June 2019 Veterinary Animed Head
Practices Laboratories Crematoria Direct Office Group
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ----------- ------------- ----------- -------- -------- --------
Revenue 370.7 20.1 7.3 23.3 (14.9) 406.5
Profit/(loss) before income
tax 30.7 3.7 2.1 1.6 (26.4) 11.7
Adjusted EBITDA 56.2 4.3 2.5 1.7 (10.2) 54.5
Total assets 332.4 18.5 12.3 11.9 2.3 377.4
Total liabilities (65.6) (3.3) (1.8) (8.9) (134.7) (214.3)
Reconciliation of adjusted
EBITDA
Profit/(loss) before income
tax 30.7 3.7 2.1 1.6 (26.4) 11.7
Net finance expense 0.1 - - - 3.8 3.9
Depreciation 7.8 0.6 0.4 - 0.4 9.2
Amortisation 13.2 - - 0.1 8.9 22.2
Costs relating to business
combinations 4.4 - - - 2.8 7.2
Exceptional items - - - - 0.3 0.3
----------------------------- ----------- ------------- ----------- -------- -------- --------
Adjusted EBITDA 56.2 4.3 2.5 1.7 (10.2) 54.5
----------------------------- ----------- ------------- ----------- -------- -------- --------
Year ended 30 June 2018 Veterinary Animed Head
Practices Laboratories Crematoria Direct Office Group
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ----------- ------------- ----------- -------- -------- --------
Revenue 297.5 17.9 6.6 18.8 (13.5) 327.3
Profit/(loss) before income
tax 29.3 3.3 1.9 1.2 (21.6) 14.1
Adjusted EBITDA 50.1 3.9 2.3 1.2 (9.9) 47.6
Total assets 283.0 14.9 10.0 8.5 2.6 319.0
Total liabilities (67.2) (2.2) (1.1) (6.6) (84.2) (161.3)
Reconciliation of adjusted
EBITDA
Profit/(loss) before income
tax 29.3 3.3 1.9 1.2 (21.6) 14.1
Net finance expense 0.1 - - - 3.5 3.6
Depreciation 6.8 0.6 0.4 - 0.2 8.0
Amortisation 12.2 - - - 6.2 18.4
Costs relating to business
combinations 1.7 - - - 1.8 3.5
----------------------------- ----------- ------------- ----------- -------- -------- --------
Adjusted EBITDA 50.1 3.9 2.3 1.2 (9.9) 47.6
----------------------------- ----------- ------------- ----------- -------- -------- --------
3. Income tax expense
a) Analysis of income tax expense recognised in the income statement
2019 2018
GBPm GBPm
Current tax expense
UK corporation tax 7.0 5.9
Adjustments in respect of previous years 1.1 (0.1)
--------------------------------------------------- ------ ------
Total current tax charge 8.1 5.8
--------------------------------------------------- ------ ------
Deferred tax expense
Origination and reversal of temporary differences (4.2) (2.5)
Adjustments in respect of previous years (0.9) 0.7
Effect of tax rate change on opening deferred
tax balance 0.5 (0.6)
--------------------------------------------------- ------ ------
Total deferred tax credit (4.6) (2.4)
Total income tax expense 3.5 3.4
--------------------------------------------------- ------ ------
Factors affecting the current tax charge
UK corporation tax is calculated at 19.0% (2018: 19.0%) of the estimated assessable profit for the year.
(b) Reconciliation of effective income tax charge
The tax on the Group's profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities as follows:
2019 2018
GBPm GBPm
Profit before tax 11.7 14.1
Effective tax charge at 19.0% (2018: 19.0%) 2.2 2.7
Effects of:
Expenses not deductible for tax purposes 0.5 0.6
Effect of tax rate change on opening deferred
tax balance 0.5 (0.6)
Adjustments to deferred tax charge in respect
of previous years (0.8) 0.8
Adjustments to current tax charge in respect
of previous years 1.1 (0.1)
Total income tax expense 3.5 3.4
-------------------------------------------------------- ------ ------
The main rate of corporation tax will reduce from 19% to 17% from 1 April 2020. This change had been substantively enacted at the balance sheet date and, therefore, it is reflected in these financial statements.
4. Earnings per Ordinary share (a) Basic
Basic earnings per Ordinary share are calculated by dividing the profit after taxation by the weighted average number of shares in issue during the year.
2019 2018
----------------------------------------------- ---------- ----------
Earnings attributable to Ordinary shareholders
(GBPm) 8.2 10.7
----------------------------------------------- ---------- ----------
Weighted average number of Ordinary shares in
issue 70,506,476 66,369,383
----------------------------------------------- ---------- ----------
Basic earnings per share (pence per share) 11.6 16.0
----------------------------------------------- ---------- ----------
(b) Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of Ordinary shares outstanding to assume conversion of all dilutive potential Ordinary shares. The Company has potentially dilutive Ordinary shares being the contingently issuable shares under the Group's long term incentive plan schemes and SAYE schemes. For share options, a calculation is undertaken to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options.
2019 2018
----------------------------------------------- ---------- ----------
Earnings attributable to Ordinary shareholders
(GBPm) 8.2 10.7
----------------------------------------------- ---------- ----------
Weighted average number of Ordinary shares
in issue 70,506,476 66,369,383
Adjustment for contingently issuable shares
- Long term incentive plans 88,379 259,505
Adjustment for contingently issuable shares
- SAYE schemes - 98,81
----------------------------------------------- ---------- ----------
Weighted average number of Ordinary shares
for diluted earnings per share 70,594,855 66,726,969
----------------------------------------------- ---------- ----------
Diluted earnings per share (pence per share) 11.6 15.9
----------------------------------------------- ---------- ----------
Non-GAAP measure: Adjusted earnings per share
Adjusted earnings per Ordinary share is calculated as adjusted profit before income tax less applicable taxation divided by the weighted average of ordinary shares in issue in the period.
2019 2018
------------------------------------------------ ------------------ ---------------------
GBP GBPm GBP GBPm
------------------------------------------------ ------------------ ---------------------
Earnings attributable to Ordinary shareholders 8.2 10.7
Add back taxation 3.5 3.4
------------------------------------------------ ------------------ ---------------------
Profit before taxation 11.7 14.1
Adjustments for:
Amortisation 22.2 18.4
Costs relating to business combinations (note
5) 7.2 3.5
Exceptional items 0.3 -
------------------------------------------------ ------------------ ---------------------
Adjusted profit before income tax 41.4 36.0
Tax on adjusted profits (8.5) (7.8)
Adjusted profit after income tax and earnings
attributable to owners of the parent 32.9 28.2
------------------------------------------------ ------------------ ---------------------
Weighted average number of Ordinary shares in
issue 70,506,476 66,369,383
Weighted average number of Ordinary shares for
diluted earnings per share 70,594,855 66,726,969
------------------------------------------------ ------------------ ---------------------
Pence Pence
Adjusted earnings per share 1 46.7p 1 42.4p
------------------------------------------------ ------------------ ---------------------
Diluted adjusted earnings per share 1 46.6p 1 42.1p
------------------------------------------------ ------------------ ---------------------
5. Business combinations
Details of business combinations in the year ended 30 June 2019 are set out below, in addition to an analysis of post-acquisition performance of the respective business combinations, where practicable.
Given the nature of the veterinary surgeries 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 year as though the acquisition date for all business combinations effected during the year had been the beginning of that year.
The table below summarises the assets acquired in the year ended 30 June 2019:
Book value
of acquired
assets Adjustments Fair value
GBPm GBPm GBPm
----------------------------------- ------------- ------------ -----------
Property plant and equipment 2.0 - 2.0
Patient data records and customer
lists - 35.3 35.3
Inventory 2.9 (0.3) 2.6
Deferred tax liability (0.2) (6.1) (6.3)
Trade and other receivables 9.0 - 9.0
Trade and other payables (10.8) - (10.8)
Loans (1.5) - (1.5)
----------------------------------- ------------- ------------ -----------
Total identifiable assets 1.4 28.9 30.3
Goodwill 26.3 26.3
Total consideration paid 56.6
----------------------------------- ------------- ------------ -----------
Goodwill recognised represents the excess of purchase consideration over the fair value of the identifiable net assets. Goodwill reflects the synergies arising from the combination of the businesses; this includes cost synergies arising from shared support functions and buying power synergies. Goodwill includes the recognition of deferred tax in respect of the acquired patient data records and customer lists.
Post-acquisition revenue and post-acquisition EBITDA were GBP47.0m and GBP5.5m respectively. The post-acquisition period is from the date of acquisition to 30 June 2019. Post-acquisition EBITDA represents the direct operating result of practices from the date of acquisition to 30 June 2019 prior to the allocation of central overheads, on the basis that it is not practicable to allocate these.
Goodwill and intangible assets recognised in the year relating to business combinations are not expected to be deductible for tax purposes.
The acquisition costs incurred in relation to the above business combinations amounted to GBP2.8m for the year and are included within administrative expenses in the statutory financial statements.
Included within the table above are the acquisitions of Slate Hall Veterinary Group, Vet Direct Holdings Limited and Endell Veterinary Group which are each considered to be material for the purposes of the financial statements. Separate disclosure of these acquisitions is provided in the statutory financial statements.
The fair values of the assets and liabilities are provisional.
Business combinations in previous years
Details of business combinations in the comparative year are presented in the consolidated financial statements for the year ended 30 June 2018.
Business combinations subsequent to the year end
Subsequent to the year end, the Group has made two acquisitions which are summarised as follows:
-- the trade and assets of Lissenhall Veterinary Hospital, a three-site practice based in Dublin, Ireland, on 8 August 2019.
-- the trade and assets of Dierenkliniek Gooiland, a single-site practice based in Weesp, Netherlands on 19 September 2019.
This acquisition was purchased for a total cash consideration of GBP2.7m. Assets acquired comprised principally goodwill and intangible patient data records with a provisional fair value of GBP2.7m.
6. Dividends
2019 2018
GBPm GBPm
---------------------------------------- ------ ------
Amounts recognised as distributions in
the year in respect of:
Ordinary shares 3.5 2.9
---------------------------------------- ------ ------
The Directors have proposed a final dividend of 5.5p (2018: 5.0p) per share, total: GBP3.9m (2018: GBP3.5m), payable on 6 December 2019 to shareholders on the register at the close of business on 22 November 2019. The dividend has not been included as a liability as at 30 June 2019. During the year a dividend of 5.0p per share amounting to GBP3.5m was paid
7. Borrowings
Borrowings comprise bank loans and are denominated in sterling. The repayment profile is as follows:
Group 2019 2018
GBPm GBPm
------------------------------ ------ ------
Within one year or on demand 0.3 0.5
Between one and two years - 0.1
Between two and three years 114.2 83.4
114.5 84.0
------------------------------ ------ ------
The balances above are shown net of issue costs of GBP0.8m (2018: GBP1.0m), which are being amortised over the term of the bank loans. The carrying amount of borrowings is deemed to be a reasonable approximation to fair value.
In September 2019 the Group increased its available bank facilities through exercising the accordion contained within the November 2015 bank facility agreement. Total facilities of GBP190.0m are available to support the Group's organic and acquisitive growth initiatives over the coming years. These facilities are provided by a syndicate of three banks, RBS, HSBC and AIB, and comprise the following elements:
-- a fixed term loan of GBP95.0m, repayable on 23 November 2021 via a single bullet repayment; and
-- a six-year revolving credit facility ("RCF") of GBP95.0m that runs to 23 November 2021.
In addition the Group has a GBP5.0m overdraft facility renewable annually.
The two financial covenants associated with these facilities are based on Group borrowings to EBITDA and Group EBITDA to interest. The Group borrowings to EBITDA ratio must not exceed 3.25. The Group EBITDA to interest ratio must not be less than 4.5. The facilities require cross guarantees from the most significant of the CVS Group's trading subsidiaries but are not secured on the assets of the Group. EBITDA is based on the last twelve months' performance adjusted for the full year impact of acquisitions made during the period.
Interest rate risk is also managed centrally and derivative instruments are used to mitigate this risk. On 1 March 2017, the Group entered into a three-year interest rate fixed swap arrangement to hedge fluctuations in interest rates on GBP45.0m of its RCF facility. The swap reduced to GBP40.0m on 1 March 2018, followed by a further reduction to GBP35.0m on 1 March 2019.
At the balance sheet date GBP35.0m of the term loan was hedged using an interest rate swap. The remainder of the debt is not hedged.
Undrawn committed borrowing facilities
At 30 June 2019 the Group has a committed overdraft facility of GBP5.0m (2018: GBP5.0m) and an RCF of GBP95.0m (2018: GBP85.0m). The overdraft facility was undrawn at 30 June 2019 and 30 June 2018. GBP75.0m of the RCF was undrawn at 30 June 2019 (2018: GBP68.0m).
8. Cash flow generated from operations
2019 2018
GBPm GBPm
----------------------------------------------- ------ ------
Profit for the year 8.2 10.7
Taxation 3.5 3.4
Total finance costs 3.9 3.6
Amortisation of intangible assets 22.2 18.4
Depreciation of property, plant and equipment 9.2 8.0
(Increase)/decrease in working capital:
Inventories (1.0) 0.3
Trade and other receivables (3.6) (4.9)
Trade and other payables 9.6 5.9
Share option expense 0.1 1.3
----------------------------------------------- ------ ------
Total net cash flow generated from operations 52.1 46.7
----------------------------------------------- ------ ------
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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