CVS Group plc

Welcome to this presentation of CVS Group's interim financial results for the six-month period ended 31st of December 2024. I'm Richard Fairman, CEO, and I'm joined by Robin Alfonso, CFA, and Paul Higgs, Chief Veterinary Officer. I am pleased to report that the Group has delivered further growth in both revenue and adjusted EBITDA in the first half, proactively managing the current weaker consumer demand for veterinary care in the UK, whilst focusing on increasing CVS footprint and growth in the Australian veterinary market. We delivered revenue of £341.8 million in the first half and this represents growth of 6.6% over the equivalent period in the previous financial year. Like-for-like sales declined 1.1% in the period, impacted by softer market conditions in the UK, most notably in our online retail and laboratory businesses. Performance across our core veterinary practices division was flat, although we expect to deliver year-on-year growth in this division and across the group in the second half of the year. Adjusted EBITDA was 67.4 million, an increase of 4.5% over the corresponding period in the previous year. Adjusted EBITDA margin was 19.7%, benefiting from acquisitions in Australia, which offset inflationary pressures in the UK. In light of the uncertainty in the UK, due to the ongoing CMA market investigation, we have reprioritised investment activity into Australia, where there is a more stable and supportive regulatory environment around the sector. UK investment in facilities, equipment and technology will be undertaken on an exceptionally disciplined basis with no UK acquisitions. We invested £16.8 million in the first half under this disciplined approach. We completed a further five Australian small animal first opinion practices acquisitions in the first half for consideration of £23.3 million. We have exchanged contracts for the acquisition of a further six practice sites in Australia, with completion expected in the coming weeks. We remain on track to achieve 70% operating cash conversion for the full year, with leverage, which closed the half at 1.66 times, remaining comfortably below our two times stated maximum. Our strategy for growth remains unchanged and I am pleased with the progress we are making as we continue to lay the foundations for growth over the medium term. Our purpose and vision are centred around providing great care to our clients and their animals through our exceptional team of passionate and highly skilled colleagues. This purpose and vision are underpinned by four strategic pillars, our ESG focus and our company values. We continue to focus on organic growth through providing appropriate care in accordance with our clients requirements and we remain focused on recruiting, retaining and developing our colleagues and in providing them with appropriate facilities and clinical equipment. We are confident that this focus on people and clinical care will continue to drive organic growth. This will be augmented through acquisitions with our current focus on growing our presence in Australia. We operate in a resilient market where clients continue to seek high quality care. We are focused on enhancing our client offering with new technology which Paul will comment on later. The health and wellbeing benefits of animal ownership are well recognised, and well over half of UK households own pets. We continue to see growth in our preventative health scheme, the Healthy Pet Club, and we are exploring opportunities to develop this offering further. We first entered the Australian veterinary services market in July 2023 and have invested over £100 million in the past 90 months acquiring 27 practices operating across 36 sites. We made five acquisitions in the first half. In addition, we have now exchanged contracts for the acquisition of a further six sites. We now have presence in and around six major urban areas, and we continue to focus on acquiring larger, high-quality, small animal first opinion practices with strong management teams, great facilities, and an excellent reputation. Multiples are lower than in the UK, and our acquisitions are performing well in line with business cases. We expect annualised revenue of circa £55 million from the practices acquired to date. In addition, we expect to benefit increasingly over time from additional advantages of scale as our expansion continues, including improved drug purchasing terms and laboratory and crematoria synergies from preferred suppliers. Importantly, we have established a local management team led by our Australian MD who is supported in-country by our experienced acquisitions director, an operational team and finance, legal and HR resource. We have launched a number of people-focused initiatives in Australia which are helping us attract talent and further acquisition leads. We naturally have an attractive reward and benefits package. And taking learning from the UK, we have introduced a new two-year graduate induction course and provided access to a wealth of online courses, programmes, and webinars. We have recently formed a clinical advisory committee which is focused on advancing clinical care and is chaired by an experienced Australian vet. We continue to build the reputation of CVS as a people and clinical focus business, which differentiates us from our competitors in Australia. And I'm proud to say we now have over 600 colleagues in Australia, including 200 vets and 300 nurses. We continue to support the CMA with their market investigation. The CMA recently published a summary working paper alongside five detailed working papers which set out their observations so far and the areas in which they intend to undertake further work. The CMA have announced that they will publish three further working papers in the spring covering pricing analysis, profitability and possible remedies. It was pleasing to see the CMA state in their summary working paper that they have been hugely impressed by the dedication and commitment to pet owners and their animals shown by individual vets and vet nurses and that this was reflected in their pet owner survey. I remain immensely proud of all CVS colleagues for the care they provide to our clients and their animals. Under the CMA timetable, we expect their provisional decision to be announced in May or June this year. The statutory deadline for the completion of the CMA's investigation is the 22nd of November 2025. I will now pass over to Robin who will provide an update on our financials.

Thanks, Richard. I'm pleased to share another set of results that demonstrates continued progress towards our five-year plan to double adjusted EBITDA by full year 2028, with growth in both revenue and adjusted EBITDA underpinned by acquisitions. We continue to focus on delivering the very best care our clients require for their animals, notwithstanding the wider economic challenges and softer demand in the UK, and executing on our acquisition strategy in Australia. Revenue grew in the half by 6.6% to £341.8 million, benefiting from acquisitions made during the current and prior year, offset by like-for-like sales reducing by 1.1%, primarily impacted by performance in our laboratories and online retail business. 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 4.5% to 67.4 million, benefiting from top line revenue growth. Adjusted EBITDA margin of 19.7% was down 0.4 percentage points versus prior year, impacted by inflation, mainly in wages, as well as continued investment in people. During the period, 7 million was recognised in respect of net research and development expenditure tax credits, which was up from 6 million in the prior half. Free cash flow reduced to 31.4 million from 33.7 million, with the increase in adjusted EBITDA offset by an increase in finance expense. From increases in both cost of borrowing and net debt support our strategy of investment in acquisitions. Operating cash conversion was 72%, remaining in line with our stated ambition of greater than 70% operating cash conversion. Despite strong cash generation, the acquisition investment of 23.3 million and continued capex investment resulted in an increase in net bank borrowings to 182.9 million and an increase in leverage to 1.66 times, which remains well below our two times target ceiling. Adjusted EPS of 40 pence was down 8.3 pence, impacted by an increase in depreciation from capital investment in recent years, in finance expense from both higher costs of borrowing and net debt and by an increase in the effective tax rate. In line with the Group's strategy to provide the best possible facilities and infrastructure for its clients and staff, the Group has invested £16.8 million in the first half in technology, clinical equipment, practice refurbishment and relocations. Following the accelerated investment made into the Group's technology platform in 2024, The group has also launched its new website for Anamed Direct in February 2025, which improves both speed and usability. The group is also piloting several client engagement projects on a number of trial sites facilitated by the group's cloud-based technology platform. Consideration for acquisitions of 23.3 million represents our continued expansion into Australia with a further five acquisitions completed in the half. The Group's short-term expansion focus will be in Australia, where there is a continuous strong pipeline of exciting opportunities. Revenue increased to £341.8 million from £320.5 million, underpinned by investments and acquisitions and our ongoing commitment to deliver the care our clients require. This primarily benefits the Veterinary Practices Division, comprising our companion animal, referrals, farm animal and equine veterinary practices, as well as our buying groups, VetDirect and My Pet Insurance. This division delivered 8.1% growth in revenue. Like-for-like performance in this division was flat, with performance impacted by a more challenging economic environment and lower footfall, but I'm pleased that we have seen the number of members of our Healthy Pet Club membership increase to 507,000. 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 decreased 4.3%, primarily impacted by lower diagnostic testing volumes following the loss of a key client in H1 of the prior year. The crematory division grew 3.3%. This division provides both individual and communal cremations, as well as clinical waste disposal services. Revenue growth was underpinned by the direct pet cremation service which puts customers directly in contact with the crematoria to make pet aftercare arrangements and allows them more time to consider their range of options which have resulted in significant changes to customers choice and improved customer care. And our online retail business had a challenging period with the revenue decline of 6% with the economic environment impacting demand for our premium life stage and veterinary diet ranges. Whilst this is a much smaller part of our group, we are confident that the launch of our new website in February 2025 will bring future growth. We've seen good EBITDA performance, with adjusted EBITDA increasing 4.5% to 67.4 million from 64.5 million, benefiting from increased revenue from acquisitions. Adjusted EBITDA margin decreased 0.4 percentage points to 19.7% from 20.1%, with gross margin improvement offset by inflationary cost pressures. Employment wage inflation and investment in colleagues resulted in employment costs as a percentage of revenue increasing to 52.4% from 51.5%. And other costs as a percentage of revenue stayed flat at 6.6%. UK budget changes in November 2024 will result in an annualised increase in employment costs of circa 8 million from increased national insurance contributions and circa 3 million from increases in national living and national minimum wage, both from April 2025. We aim, where possible, to protect adjusted EBITDA margins through cost efficiencies, margin benefits from previous investments and synergies from Australia. Whilst we are experiencing some short-term headwinds, I'm pleased with the underlying progress made and expect to return to organic revenue growth in H2 2025. As pets age, they require more medical intervention alongside the new client engagement and revenue opportunities opened up with our new practice management system and enhancement in offering from our new Anamed website. We look forward to delivering further growth over the medium-longer term. We have a healthy balance sheet, a 350 million debt facility, headroom within our leveraged target ceiling, and therefore capital available to support our investment opportunities. Our stated ambition is to invest between 30 to 50 million per annum on capital investment. We expect this to be towards the lower end for full year 2025, and over 50 million on acquisitions, which for now will be focused in Australia. We continue to assess each of our investment opportunities against our disciplined investment criteria, ensuring long-term returns remain above 10% IRR. Our investments are value-accretive and delivers an attractive return on investment in excess of our cost of capital. The group continues to generate healthy cash flows, with operating cash conversion for the half being 72%, ahead of our capital markets down ambition of 70%. Notwithstanding the continued investment in capital expenditure and acquisitions resulting in a net cash outflow of £40.1 million in the half, leverage remained well below our target leverage ceiling of less than two times at 1.66 times. I will hand over to Paul, our Chief Veterinary Officer, to update you on our strategic progress.

Thanks Robin. Providing the right clinical care remains a key focus of ours and is at the heart of what we do. We know that culture, ownership, leadership support, alignment and visibility promotes clinical care and we encourage this within our operations to ensure our clinicians feel empowered to provide great clinical care. This is championed throughout our clinical governance framework which we introduced to you last February. We launched a campaign in the autumn, Let's Learn From Mistakes, where colleagues are encouraged to complete a learning review after an adverse event and to record these on VetSafe, the Veterinary Defence Society's confidential adverse event recording platform. Supported by over 500 clinical improvement advocates, this not only improves psychological safety amongst our teams, but we can learn from trends, disseminating learnings as appropriate to continually improve the care that we provide. Our responsible focus on antimicrobial stewardship continues to see reductions in the prescribing of the highest priority critically important antibiotics with an average reduction of 1.1% in 2024 compared to the benchmark which equates to about 35,000 fewer prescriptions of these types of antibiotics. We voluntarily adopt the Practice Standards Scheme across all of our UK operations, adhering to the highest consistency of standards expected of our profession. This voluntary scheme allows the Royal College of Veterinary Surgeons to review our practices and provide recommendations where appropriate. We currently have 103 awards where we are recognised for going above and beyond the standard expected across the categories, primarily in client service. We remain committed to our vision to be the veterinary company people most want to work for. As we continue to grow our business, we have once again increased the number of vets that we employ. We've seen an increase in the number of vets employed in calendar year 2024 versus calendar 2023 of approximately 3%, excluding acquisitions. Our colleague satisfaction is important to us and in the prior year our employee net promoter score reduced to its lowest level since September 2019 due to specific factors in quarter four financial year 2024 including a cyber incident, our consequential accelerated rollout of our cloud-based systems and ongoing CMA review. I'm delighted that this was short term and this score has bounced back to positive 3.8 and well on its way to our target for full year 2025 of positive 5. Continuing to celebrate our people and the great place to work that we've created, we hosted over 1,100 colleagues at our 25th anniversary conference, celebrating their achievements and looking forward to what we will achieve for 2025 and beyond. Some of this I'll touch on shortly. And I'm pleased that despite the challenges on our profession, our total colleague attrition has remained stable during the period. In H1 2025, we invested £16.8 million in comparison to H1 2024 of £16.9 million in capex. Of this, £10.4 million was on practice relocations, refurbishments, clinical equipment and IT modernisation, including the launch of our new AniMed Direct website in February 2025. An investment in a programme of modernisation, building cloud-based system foundations within our new practice management system, aimed at enhancing client experience. Our investment provides an opportunity for growth, improves wellbeing and satisfaction across our teams, provides a pleasant and welcoming environment for our clients and their animals, and helps us deliver individualised clinical care. At our Capital Markets Day in 2022, we committed to spending between £30m to £50m per animal on CapEx to further improve our facilities, and over the medium to longer term we will continue to do this. In light of the uncertainty in the UK due to the ongoing CMA market investigation, the group continues to be more selective about investment in the UK with a very disciplined and selective capital investment in facilities, equipment and IT. As part of our disciplined investment, we are building on our cloud-based system foundations and focusing on improving the client journey. With enhancements to our local practice websites, we will be piloting online booking for reminder-led appointments in HT2025, launching more convenient ways to pay and providing digital product and prescription reminders with home delivery available to improve convenience for our clients. The step forward in technology also benefits our practice teams, with improved usability and flexibility of the system and trialling artificial intelligence that turns veterinary consultations into clinical notes, improving efficiency in the consulting room. We also launched our new Animed Direct website in February 2025, our e-commerce platform. This improves the shopping experience, provides enhanced product ranges and comes with a complete brand refresh to bring the consumer proposition up to date with consumer expectations. Our fourth strategic pillar is that we take our responsibilities seriously. This spans across everything that we do as a company and as the veterinary profession. Encompassing into this is our sustainability and ESG initiatives, for which we updated you on our progress in September when we released our third sustainability report. On the slide, we have shared various initiatives within our operations, from helping diagnose complex cases, to extending animals' quality of life with their families, and where this is not possible, helping children process and understand a pet bereavement. We do this whilst balancing animal welfare requirements of the wider environment, public health and with our continued focus on antimicrobial stewardship. I'll now pass back to Richard for some closing remarks.

Thank you, Paul. I remain confident in our ability to deliver further growth and to benefit from the sizeable market and continued humanisation of pets. We have adapted our capital allocation given the uncertainty surrounding the CMA market investigation but our strategy for growth remains unchanged. Our Australia operations continue to go from strength to strength and we have a strong pipeline of further acquisition opportunities including the six practices for which we have exchanged in the past few days. Our migration to new cloud-based technology and investment in improving our client journey will make it easier for clients to engage with us and should lead to efficiencies for our vets and nurses. We have maintained a healthy balance sheet with capital to invest. I and the wider board remain confident of our delivery of full year results in line with market expectations. I would like to take this opportunity to thank all CVS colleagues for their dedication and support in providing great care to our clients and their animals. Thank you.