CVS Group plc

Hello, everyone, and welcome to this presentation of our interim results for the half year to December. I'm Richard Fairman, Chief Executive, and I'm joined by Robin Alfonso, CFA and Ben Jacklin, Chief Operating Officer. It's a shame we can't meet face to face and Robin, Ben and I are all in separate locations, but we will run through a presentation and we will then have time for questions. I will open with an introduction to the half year and a strategic overview robin will talk through the numbers and then ben will provide an operational update linked to our strategy before i conclude with some comments on our outlook i will start with the key financials as set out on slide five for the first half of our financial year we generated a 9.4 percent increase in total sales Reflecting growth across all of our divisions, our like-for-like revenue growth was 7.8%. And this resulted in a 19% increase in EBITDA, all in comparison to the equivalent half one period in the previous year. Our adjusted EBITDA margin increased to 18.4%. We maintained our vacancy rate at 7.4% and we saw a 3.6% increase in the membership of our preventative health scheme, the Healthy Pet Club, with 430,000 members at the end of December. There are some favourable market trends which provide a strong platform for our services over the longer term. Industry reports are now providing evidence of an increase in the pet population. Cats and dogs are referred to as companion animals, and the restrictions in the past year on social interaction have seen an increased demand for pets, breeders charging significantly more for puppies and kittens, and increased demand reported by rehoming centres. Results from a recent PDSA survey indicate that there are now 21 million cats and dogs in the UK. Separately, the Pet Food Manufacturers Association, in their recent report, put this number at 24 million, and they said that 3.2 million UK households had bought a pet since the start of the COVID-19 pandemic. This clearly highlights there's no definitive industry view, but all the evidence points to a growth in the number of pets in the UK. We are also benefiting from favourable spend dynamics. with a trend over a number of years of increased humanisation of pets. For example, more dogs sleeping in bedrooms. As with human health, better clinical diets and advances in the clinical treatments available should lead to an increased life expectancy. And it's also worth mentioning the social and wellbeing benefits of pet ownership. Again, in the recent PDSA survey, 94 percent of pet owners said that owning a pet makes them happy with 86 percent saying pet ownership improves their mental health we are well positioned to benefit from these tailwinds we have a fully integrated model with first opinion veterinary practices at the core of our business supported by specialist-led multi-disciplinary referral hospitals our own diagnostic laboratories, our network of crematoria and Animed Direct, our online retailer of food and drugs. Through this fully integrated model, we can provide high-quality end-to-end care to our clients and their patients 24-7. This also gives us scale, which is particularly important for purchasing synergies, and we have strong barriers to entry. Through our referral hospitals, our laboratories and our crematoria, we also provide these services to independent third-party practices. We are a highly cash-generated business with continued prudent capital allocation. We will continue to invest in our clinical equipment and our practice facilities in support of organic growth, and we have the opportunity to make further acquisitions. So I'm confident that we are well positioned as a business to benefit from the favorable market dynamics and to deliver further growth in shareholder value. The growth in pet ownership is not only good for our business in the short term, but also in the medium to longer term. In the early years of a pet's life, there are some obvious additional veterinary procedures required, such as neutering, first vaccinations, and in some cases, microchipping. Puppies and kittens can also be overly exuberant at times, leading to injuries which also require treatment. Cats and dogs typically then lead healthy adult lives. However, we will continue to provide a full range of services to adult pets, including routine checks, preventative health services, regular dental treatments, and clearly we can provide additional services as and when required. However, As with human health, it's the later senior years when pets typically require much more veterinary intervention. For example, for the management of chronic disease, remedial dentistry, lumps and bumps requiring examination, and in some cases removal, and the increased need for specialist prescription diets. Through our fully integrated model, we can provide services to patients throughout their differing life stages. We focus on providing great clinical care and by working up cases fully in our first opinion practices, this inevitably results in more diagnostic tests for our laboratories and also increased referrals to our specialists. And through Anomed Direct, we are well positioned to benefit from increased food sales online. And we also provide compassionate cremations following end of life. Hence, we are well positioned to benefit from increased pet ownership and increased consumer spending on pets. And that's not only in the short term, but in the medium and longer term, when these new puppies and kittens reach their senior years. Whilst we're now seeing the benefit from COVID-19 in the form of increased pet ownership, we have, of course, alongside many businesses, faced considerable challenges in the past year. A year ago this week, we entered into the first UK lockdown and we were restricted for a period to only performing urgent and emergency work in our first opinion small animal practices. In light of this, we saw revenue in our small animal practices fall by roughly a half and our light for light revenue for that half year was 6.9% lower than in the previous year. The client demand, though, remained strong throughout the lockdown. And as restrictions eased, we saw a strong recovery, such that by July, revenue had recovered and was ahead of the pre-lockdown level. Whilst we've seen new lockdown restrictions imposed, firstly through the circuit breaker lockdown in November, and more recently in January this year, the Royal College of Veterinary Surgeons have imposed far less severe restrictions And we have seen limited impact to our operations such that revenue has continued to improve. This is a reflection of the strong client demand and the favorable market dynamics and demonstrates the resilience in our business and the sector as a whole. This is also credit to our fantastic team of people who have worked tirelessly over the past year. And I would like to take this opportunity to thank them all for their support. Our people are rightly at the heart of our strategy for growth, and our vision is to be the veterinary company people most want to work for. Sustainability and ESG are a key focus, and we have set out further detail on this in an appendix. Investing in our people is a key element of our social focus, and we have implemented a number of initiatives to provide support to our colleagues. I personally chair our wellbeing group, and this is important at any time, but particularly in the past year of COVID-19 destruction. We are the first major veterinary group in the UK to offer enhanced maternity pay. We continue to invest in learning, education and development, and we encourage employee shareholding through our Save As You Earn scheme. Our practices also play a pivotal role in their local communities. And this includes employee fundraising for local charities. We match this with a CVS donation to VetLife, a charity which plays a key role alongside our own focus on wellbeing and positive mental health support. The feedback that we receive from our colleagues is that this focus on our people is a real differentiator of why our colleagues want to work for CVS. We are also well positioned for further acquisitions to augment this organic growth. we have strengthened our acquisitions team we have implemented a new proactive and targeted approach to lead generation we have accelerated our completion time scales through more focused due diligence and our integration planning starts with our very first discussion on a new target we have completed eight acquisitions in the year to date and we have a pipeline of opportunities with a focus on small animal practices so that we realise the synergies of our fully integrated model. I will now hand over to Robin to cover the financials.

Thank you, Richard. As set out on slide 13, we've seen a 9.4% increase in revenue with like-for-like sales growth of 7.8%. Our like-for-like sales growth adjusts for working days. It excludes current year acquisitions and only includes prior year acquisitions from the same month this year as it was acquired in the previous year. For an established business, the like-for-like growth sales was pleasing, giving the strong H1 comp, the circuit breaker lockdown in November, and our annual small animal price increase being delayed from 1st July 2020 to 1st Jan 2021. The operating leverage of the P&L means that a large proportion of the revenue increase drops through to improved EBITDA. So typically, circa 25% of revenue is paid out for cost of drugs and goods, circa 50% for employees, and that's relatively fixed, and circa 8% for general overheads and establishment costs, which are also largely fixed. This has resulted in EBITDA margin improvement of 1.5 percentage points to 18.4%. Free cash flow benefits from improved EBITDA and working capital benefits. H1 benefited from lower drug costs carried over from Q4 last year during the first lockdown. leverage of 0.72 times is an improvement from 1.14 times that 30th of june 2020 although we still have 15 million of that deferral from q4 last year still to pay and adjusted eps benefits from improved ebitda and on acquisitions we spent 10.6 million in the first half on four acquisitions or small animal all at a proforma adjusted multiple including synergies of less than 10 times revenue growth of 9.4 percent was delivered across all our divisions the veterinary practice division comprises our small animal referrals farm animal and equine veterinary practices as well as our buying groups vet direct and my pet insurance this benefited from the continued focus on delivering quality clinical care, stable vet vacancy rate, and growth in our Healthy Pet Club. The Healthy Pet Club not only grew 3.6% in the half from 415,000 members to 430,000 members, but we also put through a 6% price increase in October, which will take a full 12 months to roll through the book. The laboratory division benefits from the increased volume of analyzers in practice, which supports testing in-house. which we supply the reagents for the tests we also saw increased volume of tests in our laboratories driven by the focus on clinical care and diagnosis of the complaint in first opinion practices the laboratories also benefited from private covert testing which we were able to do in half one the crematoria division benefited from an increase in customers choosing individual cremations And Alamed Direct, our online food and farmer business benefited from increasing demand for pet food online. Onto slide 15, which sets out our EBITDA growth. The 9.4% revenue growth coupled with a 1.5 percentage point improvement in EBITDA margin resulted in a double digit growth in EBITDA from 37.9 million to 45.1 million. Given the timing, which was towards the end of the half, the contributions from the four acquisitions was relatively small. The EBITDA margin improvement was mainly from improvement in employment costs as a percentage of revenue, with stable gross margins offset by increases in central costs for COVID-19 and one-off property surveys. CVS benefits from favourable working capital dynamics. Clients typically pay for services before they leave. Circa 40% of our active client base are HPC members and pay monthly on direct debit. And drugs costs typically have delayed payment terms. Our revenue is also relatively predictable. 12% of our revenue from HPC members paying monthly. There is a small amount of seasonality, particularly in equine and farm. And small animal is impacted by holidays, especially bank holidays and weekends where we run a reduced service over reduced hours. We've proven in the past that when we stop investing in acquisitions, we deliver quite quickly. From a leverage position of 2.4 times at December 2018, when focus moved to organic growth, leverage has fallen circa 0.4 of a turn every six months. We refinance our debt facilities, and they're committed through to January 2024, and we have ample financial headroom in covenants. We have a strong balance sheet with 170 million of committed facilities and low leverage at 0.72 times. Our favourable working capital profile means we have high cash conversion at 92.5% and therefore free cash flow of 31.5 million after tax and interest. The strong balance sheet and good cash dynamics means we have capital available to invest in growth, either through acquisitions where we spent 10.6 million in the first half or through capital investment where we spent 6.2 million in the first half. there is scope for further investment in both these areas. I will now hand over to Ben who will cover the strategic and operational updates.

Thanks Robin. On slide 19 we lay out our company strategy which sets out our purpose to give the best possible care to animals which we're delivering through our clear vision to be the veterinary company people most want to work for. Both our focus on the critical KPI of vacancy rate and our monthly tracking of employee satisfaction are reflections of this vision. Beneath our purpose and vision are four strategic pillars. Firstly, that we recommend and provide the best clinical care every time. Secondly, that we're a great place to work and to have a career. Thirdly, that we provide great facilities and equipment. And finally, that we take our responsibilities seriously. Starting with that first pillar, the quality of service we're now offering is driving significant client value and our commitment to recommending and providing the best clinical care is paying dividends. We are absolutely committed to ensuring that when owners bring us their pets, they'll have the best diagnostic and treatment options recommended to them. And our focus on supporting our clinical teams to deliver this has continued, particularly through our network of hub clinical leaders across our business. These efforts have driven a circa 6% increase in spend per client over the first half of the year, despite the postponement of our annual July price rise. As well as offering first-class care to sick or injured animals, we are continually improving the levels of preventative healthcare through our Healthy Pet Club, which offers routine flea and worming treatments and vaccinations, as well as twice-yearly health checks, which allow us to identify disease processes and recommend the best diagnostics and treatments. The scheme membership has grown by 3.6% over the first half to around 430,000 members, representing roughly 40% of our companion animal client base. We've also worked hard to improve our processes to attract more cases into our referrals division through internalisation of our own referrals and attracting those from third-party practices, reflected by a 21% increase in caseload in our referral hospitals compared to H1 in 2020. The expansion of our network of advanced practitioners has also continued, which enables us to capture advanced procedures in our first opinion practices where a referral to a tertiary referral hospital is not merited. Slide 21 is a great example of our work in the area of clinical excellence, as this month we published our annual quality improvement report. This industry-leading report reflects our commitment to patient safety and consistent clinical improvement and has gained a significant recognition in the profession, not least by our regulator the RCVS. The report provides a clear and measurable account of ways in which we are improving clinical care, including areas such as antimicrobial stewardship and improving animal welfare, both areas in which we take our responsibilities extremely seriously. Richard spoke of the critical importance of our people, and this slide speaks to the continued work we do to engage with our colleagues, not least during the COVID-19 pandemic. Amongst a range of initiatives, we've partnered with the University of Nottingham to deliver a unique four-year accredited graduate programme, which we launched this autumn. Supporting and mentoring a pipeline of talented graduates is a central tenant to our ongoing commitment to reducing our vacancy rate, which has remained stable. This has also been supported by a large number of roles filled by internal candidates and a significant number through our highly successful Refer a Friend scheme during H1. On the following slide, we outline our continued efforts to build the best learning, education and development platform in the profession, the Knowledge Hub, which has over 2,300 users per week so far in 2021. On the platform, we now offer over 130 live courses and programmes. And impressively on the platform, we have had over 12,000 webinar views since March, all of which reflects the critical role continued professional development has in the retention and recruitment of talented colleagues. We are committed to enhancing the specialist services we offer, particularly in the quality of our on-site facilities. And as such, we've completed six refurbishments in H1 and intend to complete a further eight in H2. The quality of practice facilities is directly related to our ability to recruit vets and the ability of our clinical teams to deliver the best possible care. Therefore, refurbishment is a fantastic investment opportunity for us. We're also deploying new industry leading techniques across our practices, including dental radiography and keyhole surgery for neutering, which is now in operation in 38 practices across the group. The rollout of our contact centre to ensure outstanding access to our services for clients, paused during the pandemic, has resumed with 33 practices calls now handled through Careline. The majority of our clients phone our practices seeking an appointment, and when practices transition to Careline, we see a greater than 80% improvement of conversion of calls to appointment, thus providing our clients with best-in-class access to our services. And finally, on slide 25, we've shared an example of a recent refurbishment of the Grove Veterinary Clinic in Deerham to a state-of-the-art site with dedicated parking and outstanding clinical facilities. Investments such as these enable us to offer the best possible care to our clients and patients, ensure we can attract the clinical teams we need and represent a great return on investment. I'll now hand over to Richard for some closing remarks.