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.

The day begins. Cold feet, goose bump skin. Close the front door quietly. Everybody is asleep within. This small holding has one dirt track. Backpack packed with anorak suture pack cords and ropes. Hope the calf survives delivery. Glittery and new. Cold breath. Warm chest. This is the best job I can do. Sunrise across the countryside driving yard to yard in a mud-strewn car with bandages, x-rays and ultrasound machines. Horses in the gallops waiting to be seen. Afternoon at the practice in the town square. A reptile awaiting endoscopy. Vaccinations for an older puppy. A rabbit needing medication for an arthritic knee and Blue, who is 16 years of age and coming to the end of her days. Hazy-eyed and slow in her bones, phone the owner to tell them time is shorter than ever. Whisper to Blue that she will be loved forever. Clever girl. Good old Blue. And we will be here until the end, looking after you. Some shifts we think, could we have done more? Hand on paw, dim the lights, close the door. This work is hard. After a rest, a thank you card lifts our spirits. That and the receptionist on the desk reminding us that we have done our best. We are vets and veterinary nurses traversing farms and stables, able to calm and soothe a car-struck pup, rescue a frightened fox, a heron with its foot stuck. We are vets and veterinary nurses not doing this to fill our purses. If only our clients could see the years of training at university, the adversity of long hours, animals too sick and beyond our medical powers. We know times are tight, but all of us are working our hardest to try and do what's right. We are vets and veterinary nurses. Universe says we were born to do this. Missed family dinners to be on shift, performing emergency surgery, removing stitches, taking obs, counting swabs, feeding animals and cleaning cages. Skip lunch on our feet for ages. We are vets and veterinary nurses. We love all that we do. And if our animals could talk, we hope they would be saying thank you.

We continue to invest in our people and remain wholly committed to our vision to be the veterinary company people most want to work for. We continue to recruit more clinicians and now employ more vets and nurses than ever before. We've seen an increase in the average number of vets employed in calendar year 23 versus 22 of 8.4% and an increase in nurses of 8.5%. Our well-understood, people-focused strategy is delivering positive momentum in CVS, becoming the employer of choice, and we continue to grow our numbers of colleagues significantly faster than the profession as a whole. Our colleague engagement continues to be strong, with ENPS of plus 11.9 well ahead of industry benchmarks. We're especially pleased to see such a high number maintained, despite a challenging six months for the profession. Aside from our passion for creating a great culture in CVS, there are a wide range of activities we undertake to support engagement with colleagues. 87% of our colleagues report they have regular check-ins with their line managers, while 86% have regular interactive team meetings. We know that these regular touchpoints contribute to colleague satisfaction and have a direct impact on reducing attrition. Ensuring we have development opportunities for every stage of a clinician's career is essential to ensure we continue to attract and retain the very best talent in the profession. A number of years ago, we launched the Knowledge Hub, built a physical training centre and have for many years run the leading new graduate programme in the profession. Our new graduate programme continues to attract an increased share of the available new graduates to CVS every year, with over 200 graduates employed from the summer 2023 graduate pool. We're continuing to deliver on our commitment to investment in our existing facilities with investment in H1 of £17.2 million. We continue to see benefits in this commitment with improved clinical care, improved colleague retention and improved client experience. But to be clear, these are great investment opportunities and we continue to see good returns. As a result, we're committed to continue this investment spending between £30 and £50 million per year. We continue to pilot our new practice management system, ProVet Cloud, and are rolling this out to our practices alongside a wider IT modernization project, improving connectivity across our infrastructure. Its leading cloud-based system has the potential to unlock a range of benefits for both our own clinicians and our clients. We've been pleased with this rollout so far as we continue to optimize and customize the product to best serve our stakeholders. The full-scale rollout will take place over the course of 18 months or so, and we're excited for the opportunities that will give us. I'm also pleased to update you that we've opened our brand new flagship state-of-the-art multidisciplinary referral hospital, Bristol Vet Specialists, in October 2023. The new hospital, which covers 30,000 square feet, was custom built with uniquely designed facilities, working closely with our clinical colleagues to accommodate the very best workflow and patient care. The facilities include 14 consultation rooms set up to be engaging with the patient and their owners, bringing the owner on the journey of their pet's recovery, designated accident and emergency, five operating theatres including a dedicated interventional theatre, advanced imaging and a linear accelerator capable of performing stereotactic treatments, advancing cancer treatment available to pets. We'll now show a video led by the Clinical Director of Bristol Vet Specialists showcasing this fantastic facility.

Hi, I'm Delphine Oliver-Doran, the very proud Clinical Director of Bristol Vet Specialists, and I'm very happy to say that we are now open and ready to serve. In this state-of-the-art hospital, we have combined cutting-edge technology with the passion and expertise of our skilled veterinary staff. Our five spacious theatres are fully equipped with advanced facilities, new anaesthetic machines, ventilators, multi-parameter monitoring systems and intra-operative camera systems. Our diagnostic imaging suite boasts a 64-slice CT scanner and a 1.5 Tesla high-field MRI scanner. And the real jewel in the crown is our advanced radiotherapy facility, the linear accelerator. This puts BDS at the forefront of cancer treatment for small animals. But the brilliance of this hospital is not just its facilities. It's also the people who work tirelessly within its walls, providing the very best care they can to the animals they treat every single day. So to them and everyone who has been involved in this monumental project, I would just like to say a huge thank you and Now, let the adventure begin.

As Richard has already said, in July 23, we announced our entry into the Australian veterinary services market. Over the last year, our belief that Australia is a fantastic market for us has only strengthened. And in H1 2024, we completed 13 acquisitions of 15 small animal practice sites, all of which offer outstanding levels of clinical care. The veterinary market is a good size and with low levels of corporate consolidation provides a long runway of potential opportunities to augment our strong pipeline. We focused our efforts on the major cities that are highlighted here, and we now have representation across Sydney, Melbourne, Brisbane and Perth. As we shared in September, we typically see the EBITDA multiple paid lower than that of the UK, but the IRR is in line with our other investments. This is due in part to us not baking in synergies until we have experience in their delivery, and is in part more structural as the rate of corporation tax is higher at 30%. The acquisitions made today to performing well and in line with expectations. These acquisitions together with our strong pipeline provide a meaningful platform for our operations in Australia. And as we've reached this more meaningful size of business, we've started to explore opportunities to get practices working together and benefiting from the synergies of being part of a group. We held our first clinical advisory committee there in January and as a result have committed to a single wholesaler in Australia and are exploring further synergies to help deliver margin improvements as we grow our platform. I continue to spend regular time in Australia supporting our local management team and we've got good oversight of performance. We've invested in seconding highly experienced CVS colleagues to Australia, which is bringing real benefit, bolstered by the UK support teams. We'll continue to invest in local resource and support the growth of our businesses as necessary and as we grow. I'll now pass back to Richard for some closing remarks.

Thanks, Ben. As you have seen, we have made considerable progress in the first half and are delivering against our clearly defined strategy for growth. Key to our continued success is our ability to attract, retain, develop and engage the best talent in the profession. And we have seen continued progress in increasing the number of vets and nurses employed. Our purpose to give the best possible care to animals is at the heart of our company and we continue to focus on driving improved standards of care in the profession. Our entry into Australia and the strong momentum achieved in completed acquisitions and our pipeline of further acquisition opportunities positions as well for further inorganic growth in the second half and beyond. We continue to maintain our disciplined approach to investment with a minimum 10% internal rate of return. The strong half one results, our further bank facility extension and this continued investment discipline mean that we continue to have a strong balance sheet with leverage at 1.15 times. We continue to be mindful of the wider macroeconomic backdrop and the potential impact on demand, as well as continued inflationary pressures on margins over the near term. However, the Board remains confident that full-year results will be in line with market expectations and the strategy remains appropriate to deliver long-term sustainable growth in value. These results are all due to the passion and commitment of our outstanding team of colleagues and I would like to take this opportunity to thank them all for their continued dedication and support. I'm immensely proud of their achievements in providing the very best care to our clients and their animals.