Cvs Group Plc

Welcome everyone to this presentation of our full year results for the year ended 30th June 2021. I will open with an introduction to the full year results and provide an overall update on our business. Robin will then talk through the financial results in more detail and Ben will provide an operational update linked to our strategy. I will then conclude with some comments on our outlook. We will then invite questions from analysts following our presentation. As set out on slide five, we have delivered a strong financial performance in the past financial year. We achieved total sales of 510.1 million, representing an increase of 19.2% over the prior year. And this reflects growth across all our divisions. Within this, like-for-like revenue growth was 17.4%, albeit this is partly flattered by a softer final quarter in the year to 30th of June 2020, due to the significant COVID-19 impact which we then experienced. Adjusted EBITDA increased to 97.5 million, representing a 37.3% increase over the prior year. Adjusted EBITDA margin also increased to 19.1% for the year, up from 16.6% in the previous year again will be impacted by the final quarter of covid 19 disruption we now employ more vets with an increase of 10.2 percent in the average number of vets employed in the financial year to june 2021 in comparison to the previous financial year that said we would like to employ even more vets to service the increased demand which we're seeing for our services and in light of this we have advertised more vet vacancies leading to an increase in our vet vacancy rate Ben will provide more colour on this later. This strong performance is entirely due to the dedication and commitment of our outstanding team of colleagues and I would like to take this opportunity to thank them all for their contribution over the past year. Turning to slide six, this revenue growth has been delivered through our integrated veterinary services model. Our first opinion practices are at the core of our business and we continue to focus on the provision of first-class care to our clients and their animals. The benefits of our integrated model are that the service offering and our first opinion practices is complemented by out-of-hours clinics, our specialist-led referral hospitals, our diagnostic laboratories and our crematoria. The growth we have achieved in our first opinion practices and our continued focus on collegiate working across our group have helped us to drive an increase in referral cases, leading to an increase in referral revenue in the financial year. Because we are undertaking more diagnostic procedures in our first opinion and referral practices, our laboratories are also benefiting from an increase in diagnostic tests performed, an increase in analyser revenue, which includes sales of reagents to our practices, and hence an increase in our total laboratory revenue. Our crematory division is also benefiting from a new approach under which clients are given more time to choose the appropriate way to commemorate their pet post-euthanasia. This is leading to a better client service and has driven an increase in both individual cremations and revenue in the financial year. Turning to slide seven, we continue to enjoy favourable market trends The pet population in the UK has increased with a recent survey by the Pet Food Manufacturers Association indicating there are now over 24 million cats and dogs in the UK with 3.2 million UK households having bought a pet since the start of lockdown restrictions. The benefits of having a companion animal are widely recognised and pets are increasingly seen as a key part of the family household. with consumers naturally then being willing to spend more on their care. Advances in veterinary care mean that more treatments are now available, some of which will be covered by insurance. We have also benefited from an increased demand for pet food being purchased online. This increase was originally triggered by COVID-19 lockdown restrictions. As consumers get used to the convenience of buying pet food online and having it delivered direct to their door, we are confident this trend will continue. These overall trends have resulted in an increased level of new client registrations and an overall increase in our active client base. We expect to see continued benefits from this in the medium term, particularly as puppies and kittens will typically require increased veterinary care as they reach their later maturely years of life. Turning to slide eight, we remain very well positioned to benefit from these tailwinds. We have seen the benefit from our fully integrated model in the past year, and through continued collegiate working we are well placed to benefit from the increase in the pet population our model also gives a scale which is particularly important for purchasing synergies and we have strong barriers to entry we are a highly cash generated business with continued prudent capital allocation we are recommending the payment of a final dividend of 6.5 pence per share which reflects our confidence in the future success of this business We will also continue to invest in our clinical equipment and practice facilities in support of organic growth alongside selective acquisitions where we are confident of accretive value being delivered. Turning to slide nine, we've previously set out four strategic pillars which underpin our purpose to provide the best possible care to animals and our vision to be the veterinary company people most want to work for. These strategic pillars remain unchanged and underpin our focus. We are committed to providing high quality, joined up and integrated care to our clients and their animals. and as seen earlier this is key to our performance in the past year by offering clients choices and recommendations they are able to make informed decisions on the appropriate care for the animals people remain at the heart of our strategy and we are committed to making cvs a great place to work and have a career we've had success in the past year in recruiting more vets and Ben will outline later a number of measures we have recently taken to help further position us as an employer of choice in the sector. We recognise the importance of investing in our practice and clinical facilities as this drives our ability to improve clinical care. It is also key to attracting and retaining the best talent in the profession. Again, Ben will give more colour on the investments we have made in the past year and our plans for the future. We also take our responsibilities seriously, and this includes wellbeing support to our colleagues, as well as a broader range of initiatives to make CVS a sustainable and successful business in the longer term. Moving to slide 10, we are a business which cares about our wider impact on the world around us. We believe strongly that we have a duty to do our very best for our colleagues, our clients and their animals, and the communities in which we work. And by doing the right thing, this will ultimately lead to value creation for shareholders. Our approach to ESG is both commercial and the right thing to do. And we've described a virtuous circle under which the more we focus on these areas, the more good we do and the greater the benefit for all stakeholders. We have set out in our annual report additional detail of the initiatives we have in place already and the various KPIs which we will measure to track our progress. These are linked to the UN's sustainability development goals, and we have selected the ones which are most relevant to our operations. I look forward to sharing further detail on our sustainability and ESG progress in future reports. I will now hand over to Robin to cover the financials.

Thank you, Richard. As you can see on slide 12, we've delivered strong growth in financial performance with revenue up 19.2%. adjusted EBITDA up 37.3%, and EBITDA margin up 2.5 percentage points. Coupled with strong underlying cash conversion, robust underlying free cash flow, and leverage at 0.68 times, we are well-placed for future investment. I like to like growth, adjust 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. It's worth noting that like-for-like sales growth of 17.4% is flattered by the softer comps in the final quarter of 2020, which was the first COVID-19 lockdown period in which we were most impacted. In subsequent lockdowns, however, revenue performance has been resilient. Underlying sales growth therefore was still strong and has continued into the first two months of this financial year ending June 2022 where like-for-like sales growth has been 14.4%. The operating leverage of the P&L means that a large proportion of the revenue increase drops through to improved EBITDA. So typically 25% of revenue is paid out for the cost of drugs and goods and that's variable Circa 50% of employees 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 2.5 percentage points to 19.1%. Included within adjusted EBITDA of 97.5 million is 2 million research and development expenditure tax credit, which is our first claim under this scheme. Free cash flow in the year and operating cash conversion was impacted by the 15 million of VAT payments which were deferred under the COVID-19 VAT deferral scheme and 2 million of taxes in the Netherlands deferred from the prior year paid in the current year. Adjusted for this, underlying free cash flow increased by 46% and underlying operating cash conversion increased by 0.8 percentage points. Leverage fell to 0.68 times from 1.14 times as a result of strong EBITDA growth and reduction in net debt and adjusted EPS of 75.1 pence increased from 42 pence also benefiting from improved adjusted EBITDA. During the year 16.6 million was invested in capital expenditure an increase of 4.2 million versus the prior year, as we continue to invest in our facilities and equipment to deliver future organic growth. And 19.4 million was spent on nine acquisitions, all in the UK, mostly all in small animal, which is where we see the greatest synergies from our integrated model. Turning on to slide 13, Revenue growth of 19.2% was delivered across all our divisions. Overall, the group continues to benefit from favourable market dynamics, from the trend in humanisation of pets and increasing pet ownership. The veterinary practice division, which comprises our companion animal, referrals, farm animal and equine veterinary practices, as well as our buying groups, VetDirect and MyPet Insurance. This division continues to benefit from the focus on delivering quality clinical care and growth in our Healthy Pet Club membership, which grew from 415,000 members to 450,000 members. The 18% growth in revenue in this division was delivered despite delaying a planned companion animal price increase during the year. The laboratories division continues to benefit from the increased volume of analysers and practices which supports testing in-house for which we supply the reagents for the tests we also saw increased volume of test laboratories driven by that focus on clinical care and diagnosis of the complaint in first opinion practices the laboratories also benefited from a small amount of private covert testing which we were able to do in half one the crematoria division benefited from an increase in the number of customers choosing an individual cremation and our online retail business continues to benefit from increasing demand for pet food online. On to slide 14, which sets out our EBITDA growth. The 19.2% revenue growth coupled with a 2.5 percentage point improvement in EBITDA margin resulted in a double digit growth in EBITDA from 71 million to 97.5 million. EBITDA margin increased to 19.1% from 16.6%, benefiting from operating leverage and strong revenue growth, both underpinned by collegiate working across the group, as well as the 2 million research and development expenditure tax credit. Central overhead costs, which did increase during the year, included costs for COVID, one-off property surveys and professional fees. Turning to slide 15, the group delivered strong underlying free cash flow and underlying operating cash conversion in the year. The 17.6 million increase in underlying free cash flow benefited from the increase in adjusted EBITDA, partly offset by an increase in deferred consideration payments and increased taxation. As noted earlier, the difference in reported and underlying free cash flow and operating cash conversion is the 17 million of taxes which ordinarily would have been paid in the prior year but were deferred and paid in the current year. Net cash flow and therefore reduction in net bank debt is after investment capex and investment in acquisitions. On to slide 16, capital allocation. We have a strong balance sheet with 170 million of committed facilities and low leverage at 0.68 times. Our favourable working capital profile means we have good underlying cash conversion at 78.1% and underlying free cash flow of 56 million. And the strong balance sheet and good cash dynamics means we have capital available to invest. And as Richard noted, finally on this slide, following the decision in the prior year not to declare a dividend due to the COVID-19 support received and in light of financial performance and the continued strong cash generation, we've recommended a return to our progressive dividend policy, the payment of a final dividend of 6.5 pence per share. Turning to slide 17, investment for growth. There is a broad range of investment opportunities in our people, our practices in equipment, in technology, and in further acquisitions. And on this slide, we've set out some of the actions and opportunities. Our experience based on those actions across the range is that returns are consistent and accretive. With our balance sheet and committed facilities, we are therefore well placed to deliver further growth from future investments. I'll now hand over to Ben, who will cover the strategic and operational update.

Thank you, Robin. On slide 19, when it comes to the operational implementation of our strategy, our integrated model is central to the delivery of all, but not least our first strategic pillar to recommend and provide the best clinical care. At the heart of our model is a successful and growing cohort of primary care veterinary practices. And during the year, we saw a 23% increase in the number of new client registrations, which led to us seeing around 8% more patients than we did in the prior year. This successful group of primary care practices with a growing client base supported an extremely successful year for our referral hospital division, which saw a 31% increase in caseload. We focus during the year on internalising CVS referrals as well as growing third party referrals through initiatives such as online CPD and direct marketing of the expertise available within our hospitals. Our vet oracle business, as well as providing specialist vet-to-vet image interpretation, also allows us to deepen relationships between the referral division and primary care practices, both within CVS and outside. We also saw significant growth in our preventative health scheme, the Healthy Pet Club, growing by 8.4% to around 450,000 members. As both clients and our colleagues have returned to waiting rooms and consulting rooms as the pandemic restrictions have eased, Our ability to share the benefits of the scheme and sign up clients has supported the growth in membership. Additionally, the ongoing humanisation of pets places preventative health care as an ever more important part of our proposition. Our focus on providing the highest quality clinical care to our patients centres around outstanding diagnostic work. And this has a direct benefit to our laboratories division, which saw a 32.7% revenue growth during the year, as we submitted more samples to our referral laboratories and made more use of desktop analyzers in practice. Alongside this growth in internal work were our efforts to grow our provision of services to third party practices, which similarly support revenue growth in both the referral laboratories and our desktop analyzer business. Revenue in the division was enhanced by human PCR COVID testing during the year to the tune of around £1 million of revenue, but the impact on EBITDA for the year was not material given the associated costs of testing implementation. As the number of patients we care for has grown, the number of pets for whom we provide end-of-life care has also grown, and we've seen strong performance in the crematory division with 11.1% revenue growth. This was enhanced by the launch of our direct pet cremation project in Q4. This sees owners given more time to consider their options following the passing of their pet, including a consultation directly with the crematoria where the full range of options available can be explained. In this new model, we see owners making a wider range of choices, including more owners opting for individual cremation. Direct pet cremation represents a good opportunity in the forthcoming financial year to drive further growth as we roll out the process across all our practices. Slide 20 is focused on our second strategic pillar, that we are a great place to work and to have a career. our colleague satisfaction is a critical measure of our progress against this and i'm pleased to say we saw further growth in our employee net promoter score during the year rising to 2.9 the colleague experience is at the heart of all our decision making in cvs but specific initiatives during the year have included advancing a proportion of year-end bonuses to our frontline colleagues launching a thank holiday giving colleagues an additional day's leave in december and continuing to grow our industry-leading wellbeing programmes. Since year end, we've also implemented a number of additional changes to ensure we stay ahead of the market with our employee proposition. These improvements have all been funded within the net 4% price rise we implemented in July, and include accelerating our annual pay review to July from January to align with the financial year, focusing more on fixed income and less on bonuses for clinical colleagues and enhancing holiday allowances for long service by adding an additional day's holiday for every year served up to a maximum of five years. These changes were in response to both market research and feedback from our colleagues and we're pleased to say have been very well received. On slide 21, alongside our employee satisfaction, the number of clinicians we employ is equally a critical measure of how successfully we're growing. And at the end of this financial year, I'm delighted to say we employ more than 10% more vets and 8% more nurses than the 12 months previously. Additionally, the attrition of colleagues has remained stable despite our rapid growth since the marked improvements we saw by the beginning of financial year 20. We continue to see significant opportunity to grow the business and as such advertise further vacancies to capitalise on the growing market. And as a result, we've seen a slight rise in our vacancy rate during the year. On slide 22, we highlight one of the key initiatives of this summer as we've launched CVS Summer Camp and hosted 115 of our new graduates in Surrey University. Feedback has been excellent from our new colleagues who will now arrive into our practices better equipped with the key skills they need to succeed from the start. On the following slide, we highlight our efforts on our third strategic pillar, providing great facilities and equipment for our colleagues. We completed 13 practice relocations and refurbishments during the year, and we continue to see significant opportunity for returns in refurbishment and relocation of our veterinary practices. Great facilities allow us to do the highest quality clinical work in an environment that attracts the best clinical talent whilst providing the very best client experience. Alongside our facilities, we continue to invest in clinical equipment, which we did to the tune of around 4 million during the year. One example of a practice relocation shared on the following slide, where we have relocated our Rose Mullion veterinary practice in Falmouth from a converted residential building, which was cramped with limited parking, to a state of the art hospital with significantly more consulting room space, fantastic parking for clients and colleagues, and the installation of advanced imaging equipment. On slide 25, we highlight a flagship project we're progressing in the coming year, the relocation of Bristol veterinary specialists into an industry leading multidisciplinary referral hospital. This relocation will include the installation of a state of the art radiotherapy unit, which will be the first of its kind in England, offering cancer treatment previously unavailable to patients. And we hope to open the doors in the second half of 2022. Investments in relocations and refurbishments like these are a fantastic opportunity to continue organic growth within both our primary care and referral divisions. And we look forward to pursuing more of these opportunities in the coming year. I'll now hand back to Richard for a few words on how we see the outlook for our business.

Thanks, Ben. On slide 27, I've set out some key financials for the first few months of the new financial year, covering July and August. We have seen total sales growth over the equivalent period last year of 17.5%. And within this, life flight growth was 14.4%. This reflects the deferred price increase for last year, eventually applied on the 1st of January 2021. and a further price increase applied on the 1st of July, which sees us return to increases being applied at the start of our financial year. Leverage remains flat and was 0.7 times at the end of August. Ben has explained that we brought forward our annual pay increase to the 1st of July so as to coincide with the start of our financial year, and Ben also outlined some other changes we've made to further position us as an employer of choice in the sector. It is pleasing to see that our EBITDA margin remains strong, notwithstanding these changes, and we've achieved an EBITDA margin of 19.5% in the two months. We continue to seek to employ more VETs, and given the increase in roles we have advertised, Our vacancy rate now averages 8.8% for the last 12 months. It's also pleasing to see a continued increase in our healthy pet club with 455,000 members as at the end of August. Although our expectations for the full year are not just based on attaining annual growth for the high levels of the first two months, this very positive start to the new financial year is encouraging. Finally, as summarised on slide 28, I remain confident that we have the foundations in place to drive future growth. We operate in an attractive sector and are benefiting from a growing market. Our business has proven resilient despite the challenges of COVID-19 and our teams have worked tirelessly and in a collegiate way over the past year. We have further strengthened our management team and the benefits of our integrated model have been seen over the past year as all areas of the business are benefiting from our focus on clinical care, with our online retail business also benefiting from a shift to buying pet food online. We have the opportunity to augment organic growth through further investment in our practices, our clinical equipment, and in expansion through acquisitions or greenfield sites. So that concludes our presentation. I'd like to thank you all for attending. Just to summarise, we have delivered a strong set of results for the financial year to June, and it's pleasing to see that this momentum has continued into the first two months of the new financial year. We have five favorable market dynamics and through our integrated model, we are well positioned to deliver future growth. So we're excited about the future for CVS. If you have any follow-up questions, please approach us directly. We will respond. But thank you for attending today.