CVS Group plc

Good morning and welcome to our interim results presentation. We are pleased to have delivered a strong set of results with CVS remaining on track to deliver against the ambitions which we outlined in our November 2022 Capital Markets Day. We delivered revenue of £329.9 million in the first half and this represents growth of 11.4% over the prior half year. Like-for-like revenue growth was 6%, remaining comfortably within our ambition of between 4% and 8% per annum. EBITDA was 63 million, an increase of 8.9% over the prior half year. EBITDA margin was 19.1%. And whilst this remains within our stated ambition, it was adversely impacted in the first half, from continued inflationary pressures in utilities and employment costs, alongside our conscious investment in improving support functions. We continue our focus on improving our existing business with £17.2 million capital investment in the first half, within our guidance of investment between £30 million and £15 million per annum. We entered the Australian veterinary services market in July and we completed 17 small animal first opinion practices acquisitions in the first half for consideration of £63.1 million, of which 13 acquisitions were in Australia with the remaining four in the UK. we remain on track to achieve 70% operating cash conversion for the full year, and leverage, which closed the half at 1.15x, remains comfortably below our 2x stated maximum. These first half results reflect the continued execution of our strategy, which is clear and unchanged. Our purpose is to give the best possible care to animals and our vision is to be the veterinary company people most want to work for, underpinned by four strategic pillars and our ESG focus. The first half results demonstrate that this strategy is working and we will continue to execute it. We are fortunate at CVS to employ a highly skilled and dedicated team who are passionate about providing high quality end-to-end care to our clients and their animals. Our strategy continues to focus on the recruitment, retention and development of our clinicians and we have developed what we believe to be the best learning and development and career progression support within the profession. Alongside this investment in training and career development, we continue to invest in providing our colleagues with appropriate facilities, clinical equipment and technology to support them in their day-to-day activities. We are confident that this focus on providing great care and the investment we are making will continue to drive organic growth with additional investment in acquisitions and greenfield sites driving incremental inorganic growth. We are delighted with our entry into the Australian vestry market with our first acquisition in July. Our focus is on acquiring high quality small animal first opinion practices with strong management teams and great facilities. We completed 13 acquisitions in the first half and we have developed a great pipeline of further opportunities with a number of additional acquisitions expected to complete in the remainder of the financial year. We also acquired four small animal practices in the UK in the first half, with a further acquisition completing earlier this month. We submitted briefing papers to the CMA in respect of these acquisitions and will continue to do so for future UK acquisitions. Total consideration for the 13 acquisitions in Australia and the four in the UK was £63.1 million. I'm delighted to welcome colleagues from all of our newly acquired practices to CVS. Alongside these strong results and the continued execution of our strategy, there are a number of other key developments. We continue to support the CMA with their market review. The CMA have previously announced that they plan to issue an update in early 2024 and we look forward to this. We are conducting a search for a new chair and now have a shortlist of candidates. We expect to make an announcement in the second half. You will recall that we refinanced and extended our bank facilities in February 2023 on the same terms. At that time, we agreed an option of a further one-year extension, which we have exercised on the same terms. Our facilities now run to February 2028 and we have an interest rate swap in place to hedge 100 million of this debt. Through our focus on recruitment, retention and development, we continue to see an increase in the number of vets and nurses employed. And we recruited over 200 graduate vets from last summer's pool of graduates, our largest ever intake. In November 2023, Paul Hicks, our Chief Veterinary Officer, launched our new clinical governance framework. This is a first in the UK veterinary profession and reflects our continued commitment to driving standards of care in CVS and across the sector. Lastly, in September, we published our second sustainability and ESG report, setting out the progress we have made and announcing targets we have set for each of our focused working groups. I will now hand over to Robin, our CFA. Thank you, Richard.

I'm pleased to share another set of positive results with continued progress towards our five-year plan to double adjusted EBITDA by full year 2028. We continue to focus on delivering the very best care to animals and executing on our acquisition strategy and are pleased with the continued growth in revenue and adjusted EBITDA, notwithstanding the wider economic challenges. Revenue grew 11.4% to £329.9 million from £296.3 million, with like-for-like sales growth of 6%, revenue from acquisitions made this year and annualisation of revenue from acquisitions made in the prior year. Our like-for-like sales growth is adjusted for working days, it excludes current year acquisitions and it only includes prior year acquisitions from the same month this year as they were acquired in the previous year. Adjusted EBITDA grew 8.9% to £63 million from £57.8 million, benefiting from top-line revenue growth. Adjusted EBITDA margin, however, was down 0.4 percentage points half-on-half at 19.1%. impacted by inflation, investment in greenfield sites and poor performance in the Netherlands and in Republic of Ireland. Free cash flow grew 25% to 31.8 million from 25.4 million, benefiting from the improvement in adjusted EBITDA and operating cash conversion of 63.7%, which was also up from 62.1% in H1 2023. The first half of the year is structurally lower in operating cash conversion due to annual payment of colleague bonuses and seasonality of cash flows. As in the prior year, we expect full year to be in line with our capital markets day ambition of circa 70%. Strong free cash flow was offset by continued investment capex and acquisition investment totaling circa 80 million, an increase from 41 million in the prior half year. During the half, net bank borrowings increased 55.2 million to 129.2 million. Leverage also increased to 1.15 times from 0.73 times at 30th June 2023, remaining well below our two times target ceiling. Adjusted EPS of 44.5 pence was down 1.1 pence versus H1 2023 of 45.6 pence as a result of the increase in UK corporation tax rate to 25% from 19% in April 23. Adjusted profit before tax was 4% up half on half year, with adjusted EBITDA growth partially offset by an increase in depreciation as a result of increased capex spend and an increase in interest as a result of higher sonia rates and a larger facility. We continue to invest in our practice facilities, clinical equipment and technology with total capital expenditure of 17.2 million remaining within our Capital Markets Day commitment to invest between 30 to 50 million per annum. Included is a programme of work to modernise our IT infrastructure to support cloud-based IT solutions and I will touch on returns from this investment shortly. In November 2022, we announced our intention of building a sustainable and meaningful business overseas and in July 2023, we entered the Australian veterinary market. In H1 2024, we acquired 13 first opinion small animal practices, 15 practice sites, with a healthy pipeline of opportunities. This is alongside the continued activity in the UK with a further four small animal first opinion practices joining the group. The combined consideration paid was 63.1 million. The pipeline for acquisitions remains strong and we have completed a further acquisition in the UK in H2 2024. Revenue increased to £329.9 million from £296.3 million with good performance across our divisions. CVS continues to benefit from our ability to deliver high-quality clinical intervention with like-for-like sales growth of 6%, which was comfortably within our stated range of between 4% and 8% per annum. Acquisitions have also performed in line with expectations. The veterinary practices division comprises our companion animal, referral, farm animal and equine veterinary practices, as well as our buying groups, VetDirect and MyPet Insurance. This division has performed well with 11.9% revenue growth, benefiting from the continued focus on delivering quality clinical care, an increase in the average number of vets and nurses we employ, and we now proudly have over half a billion members of our preventative healthcare schemes, Healthy Pet Club and Horse Health Programme. The Laboratories Division provides analysers and practices which supports testing in-house for which we supply the reagents for the tests and diagnostic testing services. Revenue in this division increased 14.4% benefiting from an increased volume of tests performed and an increased volume of analysers in practices. The crematoria division, which provides both individual and communal cremation services, as well as clinical waste disposal, continues to benefit from an increase in the number of customers choosing an individual cremation and a more bespoke service, despite lower cost options being available. and our online retail business has benefited from increased basket values, with volume growth expected in full year 25 post the launch of the new website. We've seen resilient EBITDA performance across all of our divisions. The 11.4% revenue growth was the main driver for an increase in adjusted EBITDA to 63 million from 57.8 million. Adjusted EBITDA margin, however, decreased 0.4 percentage points to 19.1% from 19.5%, with gross margin improvement offset by inflationary pressures. Employment wage inflation and investment in support colleagues resulted in employment costs as a percentage of revenue increasing to 52.3% from 51.7%. And establishment costs, inflation, resulted in other costs as a percentage of revenue increasing to 6.7% from 6.4%. Included in other costs was 6 million net recognition of research and development tax credit, up marginally year on year from 5 million. Other factors impacting margin was the operation of our new multidisciplinary referral hospital, Bristol Vet Specialists, and investment in greenfield sites, and poor performance across the Netherlands and the Republic of Ireland. Bristol Vet Specialists will continue to impact margin during the early months post-opening as it establishes itself and builds a full caseload. While impacting over the short term, we expect EBITDA margin to improve as we continue with our programme of investment in CapEx and acquisitions, and as wider inflationary pressures start to ease. The group continues to generate healthy cash flows, with full-year operating cash conversion expected to be in line with our Capital Markets Day ambition of 70%. Free cash flow of £31.8 million benefited from increased adjusted EBITDA, partially offset by increased interest due to high Sonia rates and lease payments as we grow our business. Notwithstanding the step up in investment, capital expenditure and acquisition investment, resulting in a net cash outflow of 55.2 million, leverage remained in line with management expectation at 1.15 times. And although an increase from 30th June 2023 at 0.73 times, leverage remains well below our target leverage ceiling of less than two times. As Richard has mentioned, we have extended our bank facilities on the same terms for an additional year to February 2028. We have also hedged £100 million of debt, swapping variable Sonia to fixed, securing an interest rate including current margin of circa 5.5% through to February 2028. We have a strong balance sheet with £350 million of debt facility and low leverage at 1.15 times and therefore capital available to support our investment opportunities. We continue to assess each of our investment opportunities against our disciplined investment criteria, ensuring long-term returns remain above 10% IRR. Over the past 18 months, we have invested nearly £50 million in investment capital expenditure, such as relocations and renovations, and over £100 million on 28 practice acquisitions in the UK, and more recently, Australia. Our track record of investments continues to deliver returns against our key investment appraisal metrics. Returns are above our incremental borrowing rate, currently between 6% and 7%, with IRR comfortably above 10%. This represents a return on capital employed of between 9% and 15%, which increases over the term of the investment. We remain pleased with the returns from our investments and will continue to appraise performance against these metrics to ensure long-term sustainable growth is delivered. I will now hand over to Ben for a strategic and operational update, along with bringing to life the Australian opportunity. Thank you, Robin.

We continue to focus on providing access to the best possible care to our clients and their animals as part of both our commitment to clinical excellence but also by being a company with that ambition we deliver on our vision of being the veterinary company people most want to work for. For several years now we've led the way in clinical governance and quality improvement and have been well recognised in the profession for doing so. This commitment to quality has become a key tenet of our employee value proposition. In November, we took another major step forward and launched a new clinical governance framework, the first in the veterinary profession. This is a system through which we'll continue to hold ourselves accountable for improving the quality of care we deliver and embrace a culture in which clinical care will continuously improve. This framework, with six clinical priorities, are clinical effectiveness, research and development, ethical integrity and sustainability, information sharing and collaboration, education and training, and quality improvement and patient safety. To deliver against these six pillars, we need to commit to the right culture and behaviours. And in November, the business adopted a new set of company values. Just culture, accountability, inclusive leadership, teamwork and systems thinking. We know how valuable our vets, veterinary nurses and support colleagues are and the amazing work they do day in and day out. It's been a tough six months for the profession amidst the CMA review and associated press coverage. We see CVS having an important role in supporting clinicians across the profession and we wanted to share a recent video we've created to celebrate the amazing work they do.