Welcome to this presentation of CVS Group PLC's full-year financial results for the year ended 30th of June, 2025. I am Richard Fairman, CEO, and later, we will also hear from Robin Alfonso, our Chief Financial Officer, and Paul Higgs, our Chief Veterinary Officer. I'm delighted to report on another successful year of growth across our group, with improved UK operations and continued expansion of our platform in Australia. We have successfully navigated some significant challenges over the past 12 months, and the strong market fundamentals remain attractive. We enter the new financial year with a strengthened company, which is well positioned for further success. Revenue increased by 5.4% to GBP 673.2 million, following a start to the year that was impacted by softer market conditions in the UK, with like-for-like sales growth of -1.1% for the first six months.
It was pleasing to see a significant improvement in the final quarter, leading to positive full-year like-for-like growth and improved trading, which continued into the first two months of the new financial year. Adjusted EBITDA increased by 9.4% to GBP 134.6 million from both acquisitions and disciplined cost management. An adjusted EBITDA margin increased by 70 basis points to 20%. The sale of our crematory business in May 2025 was at an attractive 10x EBITDA multiple, and the capital generated from the divestment provides additional firepower for continued selective organic investment in the UK and expansion in Australia at multiples that are value accretive to the group. The crematory business has been treated as a discontinued operation and has therefore been excluded from the revenue and EBITDA numbers shared today, including the comparatives for the previous financial year, which are now shown for continuing operations only.
We did have an improved adjusted operating cash conversion, which at 76.9% for the year is ahead of our stated target of circa 70%. In light of these strengthened operating cash flows and the proceeds received from the sale of our crematory business, net borrowings decreased to GBP 131.4 million at 30th of June, 2025, and leverage reduced to 1.18 times. We completed a further seven Australia veterinary practice acquisitions in the financial year, comprising 15 practice sites, and a further two acquisitions since the year end, comprising eight practice sites, bringing our total footprint in Australia to 51 sites. It is also pleasing to see an improvement in both our client and colleague Net Promoter Scores, which Paul will expand on later. We are also expecting to have further clarity on the Competition and Markets Authority review with the publication of their provisional decision later this month.
We have a clear strategy for growth focused on continued high standards of clinical care, delivering excellent client service, and supporting a highly skilled team of colleagues to provide this care and service. I am pleased with the progress made over the past financial year, which positions CVS well for future growth. Our focus is to provide a great veterinary experience, which we believe is centered around the trust shared between us, the client, and their animals. That trust is underpinned by understanding the client's requirements, the care which is provided, and the quality of service. We continue to look at ways to reinforce those values and improve on the client experience. We are confident that this focus on people and clinical care will continue to drive organic growth.
This will be augmented through further acquisitions with significant opportunity in Australia and the UK post the conclusion of the CMA investigation. We continue to operate in two attractive markets which offer significant further opportunity. In the UK, there remains white space where we can augment our current footprint with further high-quality acquisitions following the conclusion of the CMA process. In Australia, I'm delighted that within the past two years, we have firmly established our presence and now operate 51 sites across major urban conurbations. Our investment is delivering returns with good like-for-like performance and adjusted EBITDA margins in excess of 25%. Importantly, we have built on our reputation as a people-focused business committed to high-quality clinical care. We have focused on acquiring larger, high-quality, small animal first opinion practices with strong management teams, great facilities, and an excellent reputation.
As already mentioned, since the financial year end, we have completed a further two acquisitions comprising eight sites, one of which is the marquee acquisition of Sydney Animal Hospital, a multi-site practice group in Sydney, which has a fantastic reputation. Throughout the CMA market investigation, we have adopted a proactive approach in liaising with the CMA. This is to both help the CMA understand the sector and some of the challenges we face, but importantly, to ensure an appropriate outcome in the best interests of consumers. We have sought to engage proactively with the CMA at every opportunity. The CMA formally extended its timetable in the summer and initially said it planned to publish its provisional decision in September 2025.
In light of this, we consciously decided to delay the announcement of these results so that we could both digest its provisional decision and also discuss the proposed remedies in our forthcoming investor roadshow. It's disappointing that there has been a further delay, with a provisional decision now expected in the middle of this month, but we look forward to reviewing this shortly. We will continue to support the CMA in the remainder of its investigation and have advanced plans in place to implement the final remedies package, which we anticipate will include joint branding of our practices and the publishing of standardized price lists. I will now pass over to Robin, who will provide an update on our financials.
Thanks, Richard. I'm pleased that 2025 marked another year of growth and a year in which continued investment places the group well for the future. Revenue grew 5.4% to GBP 673.2 million, benefiting from acquisitions made during the current and prior year, and like-for-like sales growth of 0.2%. Our like-for-like sales growth is adjusted for working days and on a constant currency basis. 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. Like-for-like sales performance for much of the year was impacted by softer market conditions in the UK, most notably within our online retail business division and our laboratory services division, which experienced a loss of a major customer.
Our veterinary practices division was also impacted by continued economic pressures, the CMA investigation, and the COVID-19 puppies and kittens now in their young, healthy adult stage of life. It was pleasing, however, to see a return to like-for-like growth in the second half of the year, and this positive momentum has continued into full year 2026. Adjusted EBITDA grew 9.4% to GBP 134.6 million, benefiting from top-line revenue growth and disciplined cost management. Adjusted EBITDA margin of 20% was up 0.7 percentage points versus prior year, despite the increase in national living and national minimum wage, alongside increases in employer national insurance contributions from April 2025. CVS estimates the annualized impact of these to be in the region of GBP 3 million and GBP 8 million, respectively, but is confident that cost synergies and growth will help to offset the impact of these on the group.
During the year, GBP 15.1 million was recognized in respect of net research and development expenditure tax credits, which was up to GBP 12.8 million in the prior year. Free cash flow increased 22.2% to GBP 72.2 million due to favorable adjusted operating cash conversion, offset by an increase in interest expense of GBP 4.6 million, following an increase in both the cost of borrowing and average drawn debt during the year in support of our continued commitment to invest in our practices and acquisitions. Operating cash conversion was 76.9%, which was up 6.8 percentage points on the prior year and ahead of our stated ambition of greater than 70% operating cash conversion.
With a robust cash generation coupled with the proceeds received for the divestment of the crematory business, only partially offset by the GBP 63.8 million spent across acquisitions and capital expenditure, leverage fell to 1.18 times, with a decrease in net bank borrowings of GBP 36.6 million to GBP 131.4 million. Leverage is well below our two times target ceiling and provides adequate firepower to continue with our ongoing expansion in Australia. An adjusted EPS of GBP 80.1 was down GBP 3.2, impacted by an increase in the effective tax rate, an increase in depreciation from capital investment in recent years, and an increase in finance expense from increases in both cost of borrowing and average drawn debt during the year.
We continue to invest in our practice facilities, clinical equipment, and technology, with total capital expenditure of GBP 33.2 million for continuing operations, in line with our Capital Markets Day commitment to invest between GBP 30 million and GBP 50 million per annum. Included in this is our work to modernize our IT infrastructure to support modern cloud-based IT solutions. Consideration for acquisitions of GBP 30.6 million primarily represents continued momentum in Australia, with a further seven acquisitions of 15 practice sites with performance in line with expectations. The group's short-term expansion focus will be in Australia, where there is a strong pipeline of exciting opportunities, and there is an expectation that UK acquisitions may open up following the end of the CMA investigation. Revenue increased to GBP 673.2 million from GBP 638.7 million, benefiting from acquisitions. GBP 52.1 million of revenue in the year was generated from Australia.
The veterinary practice division comprises our companion animal, referrals, farm animal, and equine veterinary practices, as well as our buying groups, Vet Direct, and MyPet Insurance. This division delivered 6.7% growth in revenue, benefiting from acquisitions. Performance in the year was impacted by continued economic pressures, the CMA investigation, and the COVID-19 puppy and kitten cohort in its young, healthy adult stage of life. It was pleasing, however, to see a return to like-for-like growth in the second half of the year, and as the COVID-19 puppies and kittens age, the more veterinary assistance they will require. The laboratories division provides analyzers in practice, which supports testing in-house, for which we supply the reagents for the tests and diagnostic testing services. Revenue in this division decreased 0.6%, impacted by a reduced volume of diagnostic testing of circa 14% following the loss of a key client.
Concentration is weaker across our remaining external clients, and it is pleasing to see a return to growth post that client loss. Our online retail business had a challenging year, impacted by customers trading down for more expensive clinical and life stage diets and disruption from migration to a new website. I'm pleased to say the momentum seen across the group in the second half has continued into full year 2026. We've seen good EBITDA performance, with adjusted EBITDA increasing 9.4% to GBP 134.6 million from GBP 123 million, benefiting from increased revenue from acquisitions alongside disciplined cost management. Adjusted EBITDA margin increased to 20% from 19.3%, both benefiting from increased revenue in the year, coupled with disciplined cost management and a GBP 2.3 million increase in net research and development expenditure tax credits recognized.
Employment wage inflation, additional national insurance costs, and investment in colleagues resulted in employment costs as a percentage of revenue increasing to 52.2% from 51.9%. Other costs as a percentage of revenue decreased to 6.2% from 6.5%, with inflationary pressures partially offset by a GBP 2.3 million increase in net research and development expenditure credits to GBP 15.1 million. The group is targeting further cost synergies and efficiencies to protect adjusted EBITDA margin following the UK budget changes in November 2024, which resulted in increased employment costs. I'm pleased with the underlying progress made across full year 2025, as pets age, they will require more medical intervention, alongside improved customer experience and potential new revenue opportunities opened up with our new practice management system. We look forward to delivering further growth over the medium-longer term, and full year 2026 is off to a good start.
We have a healthy balance sheet with GBP 350 million of debt facility and headroom within our leverage target ceiling, and therefore capital available to support our investment opportunities. Our stated ambition is to invest GBP 30 million- GBP 50 million per annum on capital investment and over GBP 50 million on acquisitions, which for now continues to be focused in Australia. The group continues to generate healthy cash flows with full-year operating cash conversion of 76.9% ahead of our Capital Markets Day ambition of 70%. With robust cash generation, coupled with the proceeds received from the divestment of the crematory business, only partially offset by the GBP 63.8 million spent across acquisitions and CapEx, leverage fell to 1.18 times, with a decrease in net bank borrowings of GBP 36.6 million to GBP 131.4 million. Leverage is well below our two times target ceiling and provides adequate firepower to continue with our ongoing expansion in Australia.
We have committed bank facilities to February 2028, and I've also hedged GBP 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 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 deliver an attractive return on investment in excess of our cost of capital. Our investment unlocks opportunities. Investment in facilities and equipment support retention and ability to attract clinical talent, as well as allowing us to provide the care our clients require. In addition, we've built our new cloud-based practice management system, launching online booking across our companion animal practices with the ability of one-click repeat prescriptions and reminders. We look forward to enhancing the client's experience further with technology in the year to come.
I will now pass to Paul , our Chief Veterinary Officer, to update you on our strategic progress.
Thank you, Robin. Across our practices, both in the UK and Australia, we are focused on supporting our trusted and compelling client proposition, helping us to provide the best possible care to animals. This trust is based on providing fantastic care for our clients and their animals, ensuring that we take the time to build strong relationships between professionals and owners and show that we care for them and how their experience with us feels. Ensuring that our owners feel the value of this care through transparency and a contextualized care approach, and demonstrating that we have a consistent quality of service where we provide the right clinical expertise in the right way to meet individual owner needs.
This approach builds on the clinical excellence of our colleagues and ensures it caters for every owner's needs so that we are the trusted partner for any pet and owner. We have undertaken various consumer surveys and focus groups over the past 12 months to better understand how UK pet owners want to access care for their pets. Although there is a perception of a difference between corporate and independent vets, there is a clear view that pet owners understand that there are benefits when their vet has access to and support from the resources and broad clinical expertise available in a larger group. CVS has an opportunity to showcase these benefits over the coming year.
Indeed, ensuring that we combine the perceived strengths of both the corporate and independent models can further enhance our client satisfaction, which I'm proud to say excelled further with a client Net Promoter Score now 78.9. We believe our focus on enhancing the client's experience and approach to shared decision making in the consultation room is driving this excellent score. We're pleased that clients continue to value the service that we provide. Our focus on high quality but contextualized clinical care, along with investment in our practice facilities, provides a safe and reassuring environment for our clients and exceptional care of their animals that is reflected in our strong client Net Promoter Score. We remain committed to our vision to be the veterinary company people most want to work for, and our colleagues set us apart.
As we continue to grow our business, we have once again increased the number of vets that we employed. We've seen an increase in the average number of vets we employed in financial year 2025 compared to financial year 2024 of 4.5%, excluding acquisitions. At CVS, we are renowned for the support we provide our practice teams. During the year, we launched a handy pocket resource called My Guide. This clinical resource sits in a well-structured portal that can be accessed easily on a phone. It provides our clinical colleagues with instant access to clinical guidelines, advice on emergency care, and tools to support decision making. My Guide improves confidence in evidence-based recommendations to clients, and most importantly, should help our colleagues to improve clinical outcomes and also that client experience.
Given the challenges across the veterinary sector, alongside the continued negative publicity from the CMA investigation, we are pleased to see that our employee Net Promoter Score improved in the year to +3.1. Although we are pleased with this improvement, there is always more that we can do. Myself and my executive colleagues continue to work with our practice teams to improve their experience of being part of the CVS team, and we are looking for a further improvement in FY 2026 to +5.0. I'm also pleased to say, in the backdrop of continued sector scrutiny, that our colleague attrition has remained stable over the year, showing that we continue to provide the support our colleagues are looking for. Our facilities not only provide great working spaces for our teams, but also welcoming areas for our clients.
In the year, we spent GBP 33.2 million on capital investment, of which GBP 10.8 million was spent on property relocations and refurbishments. On this slide, we want to demonstrate the benefits of this investment. As Robin mentioned, all of our investment opportunities are assessed against a disciplined hurdle rate of greater than 10% IRR. However, it's not just financial returns that our investments deliver. A practice-wide refurbishment, or where required, full relocation can benefit the clinical offering that practice teams and clients experience over the long term. We typically see larger footprints providing additional space to address the client demand for our services, improved clinical activity, for example, through imaging equipment or dental equipment or endoscopy. These new facilities provide a positive environment for our clinical teams to work in, which not only can improve their well-being, but also attract further clinicians and provide secure business continuity over the longer term.
A sometimes smaller investment, but one just as exciting for our practice teams, is new state-of-the-art equipment. It's rewarding for all involved to enhance what could be an underserved clinical provision to their local area, potentially improving patient outcomes. A simple upgrade of an ultrasound machine can transform a team's ability to care for their patients. We remain committed to spending between GBP 30 million- GBP 50 million per annum on CapEx to further improve our facilities, equipment, and technology. Our investment provides an opportunity for growth, improves well-being and satisfaction across our teams, and provides a pleasant and welcoming environment for our clients and their animals, and helps us to deliver individualized clinical care. Our fourth strategic pillar is that we take our responsibilities seriously. This spans across everything that we do as a company and as a profession.
Today, we release our fourth sustainability report, updating our stakeholders on our progress against our four sustainability pillars: care for our planet, care for our people, care for our clients and their animals, and care for our communities. Our global team of environmental champions have once again helped us to reduce our carbon and energy use. We've created new career pathways across many roles, and we are piloting AI technology to help write clinical notes, which frees up time to focus on clients' needs alongside seeing a sustained reduction in prescribing the highest priority, critically important antibiotics. I'll now pass over to Richard for some closing remarks.
Thank you, Paul. Whilst the past year has had its challenges, we have successfully laid the foundations for further growth, and CVS is well positioned to continue to compete successfully and to deliver enhanced value to all stakeholders. Our established platform in Australia is delivering, and we are confident of making further acquisitions in the current financial year in line with our strict investment criteria. We have already completed two further acquisitions this year for a combined consideration of approximately GBP 23 million. We are well capitalized with a healthy balance sheet, headroom in both our committed and dorm facilities and on leverage, and we have continued strong operating cash flows.
The new financial year is off to a solid start, and on the assumption of an improved economic backdrop, certainty following the conclusion of the CMA market investigation, and as the COVID-19 cohort of puppies and kittens age and naturally require increased veterinary care, our medium-term ambition remains to deliver a like-for-like growth of between 4% and 8%. The financial results announced today and our future growth opportunities reflect the continued dedication and professionalism of our colleagues. I would like to take this opportunity to thank them all for their support and commitment to providing great client and animal care, and I look forward to sharing further success in 2026 and beyond.
Hello, and thank you for joining the CVS Management Team in their full year 2025 results presentation. We are joined in the room by Richard Fairman, Chief Executive Officer, Robin Alfonso, Chief Financial Officer, and Paul Higgs, our Chief Veterinary Officer. We will now be asking questions from the webcast. Please continue to ask questions through the webcast functionality. All right, thanks, team. What is the current leverage, and what is the management's target for leverage or deleveraging path?
At the year end, our leverage was 1.18x . I think we've said in the past that we want to maintain leverage at less than 2x . Our banks are comfortable leveraging up to 3.25x , but we've said we want to keep leverage at less than 2x . From a deleverage perspective, when we stop investing, we are cash generative, and therefore, when we stop investing, we delever quickly. However, having said that, we have good uses for our capital. We want to invest between GBP 30 million- GBP 50 million per annum on capital investment, and also, we've got fantastic inorganic growth opportunities, and we've said we want to spend more than GBP 50 million per annum on acquisitions, which we believe are accretive to the group.
Thanks, Robin. Australia appears to be a growth engine. How mature is that market for CVS , and what gives you confidence about margins and competition there?
I'll pick that one up. Australia, we've been really pleased with the entry and our success so far. We now operate across 51 practices in Australia. We've been quite selective in the acquisitions we've made. We've focused very much on large, typically four or five vet practices. We've focused on companion animal practices, and we've focused on buying good facilities and teams that share our commitment to providing great care. We've also focused on buying practices in large urban areas, so there's lots of people with lots of pets, and those happen to be the areas where vets also want to live. So far, we've been really pleased with that entry. In terms of the scale and how mature it is, we're still in the very early stages. We're very confident we can make further accretion acquisitions.
We've been paying around seven or eight times EBITDA multiples, and we believe there's a great opportunity to continue that growth at similar multiples. The level of consolidation in Australia is much lower than it is in the UK. We believe between 15% and 20% of practices are under corporate ownership, and we have a great pipeline and opportunity ahead. The answer is immature, but growing, and we're very pleased with performance.
Thank you. Will you continue acquiring in the UK, and will you be considering divesting any of your clinics in the short and medium term?
There are no plans to divest any of our clinics, and absolutely, we do believe there's an opportunity to return to acquisitions in the UK post the CMA announcement this morning. The UK market, we understand, is around 60% consolidated. We know that there are a number of independent practice owners who have probably been frustrated over the last few years that they haven't been able to sell their practice, partly because of the CMA process, partly because of the fact that there haven't been corporate buyers, as there were prior to the CMA process. We feel there's pent-up demand. We know the CMA mergers team have been very consistent in their view of what's acceptable from a local competition perspective, and they've said consistently that provided groups have less than a 30% share in a local market, that's fine.
We have a less than 9% share of the UK market nationally, and therefore, there's lots of white space where we don't own any practices, and therefore, lots of potential opportunities for us to acquire. We don't want to lead the market back to higher multiples that we've seen in the past. Historically, we were paying around a 10x EBITDA multiple in the UK, and whilst we probably get more synergies from the UK because we've got labs and referral hospitals, and we're paying lower multiples in Australia, we do think there is an opportunity to acquire successfully in the UK, but we don't want to rush into acquiring and drive multiples higher ourselves.
Thank you. The Australia expansion is going well, and clearly, you have shown you can execute overseas expansion. Are there any further geographical markets you would consider?
Possibly in due course. I think for now, we've got plenty of opportunity in the UK and Australia, and as we said earlier, the Australian market is immature, and we absolutely want further scale. Absolutely, there will be other international markets we can enter. We've done work in the past that informed our entry into Australia. Certainly, there are other markets, and Paul may comment on that as well. Australia, we selected because of the very similar trends we're seeing in the UK in terms of high pet populations, owners wanting to spend on care, and also a very similar approach to clinical care. I'm sure, Paul, there are other markets where the approach to clinical care is very similar to the UK and Australia.
Absolutely, and you know, we've had a real focus on ensuring that the consistency of the kinds of what we would consider to be great quality care are shared by the practices that we acquire. That's been very important to us in the research that we did around Australia, and similarly, if we're looking at other markets, we'd be keen to be exploring similar kinds of standards.
Thank you. Your like-for-like sales are muted in full year 2025. What has the average like-for-like growth been over the past 5- 10 years?
I think over the last 5- 10 years, our average like-for-like revenue growth has been around the kind of 3%- 5% mark. It was muted over the last 12 months. I think there are reasons for that performance. There are specific reasons around Animed Direct, and that's our online retail business. What we have seen is people trade down from, so Animed Direct that sells drugs, but also premium pet food, predominantly now premium pet food, and we have seen some people trade down from premium pet food to cheaper alternatives. We have a laboratory business that lost a key client in the year. I'd rather have kept that key client, but the remaining kind of third-party clients that we service, there's no kind of concentration, so we're not exposed to that anymore, and we're seeing good growth now in both our Animed and laboratory business.
Through our kind of veterinary services, we have been impacted by, you know, cost of living is still very much a thing. We've seen some impact from the CMA and confidence of our vets within the consulting room, and that kind of COVID puppy and kitten boom, we definitely saw an increase, but they're in their healthy young adult stage right now, so that's a bit of a headwind. As that cohort ages, we're going to see some good growth because as pets age, they need more veterinary intervention, and we're expecting some kind of tailwinds over the next few years.
Thank you. Moving on from that, how resilient are veterinary practice consumer spending pressures?
We've always said the sector, and we've all seen actually, the sector has been pretty resilient to economic downturns. That said, we're not immune to consumers and their spending power, and we've definitely seen an impact in the last 18 months with less consumer confidence and actually some households having less disposable income, and that manifests itself in two ways. Firstly, clients may visit practices less often, and particularly some of the preventative care, particularly flea and worming treatments and annual vaccinations, compliance levels can fall. Where pets get severely ill or injured, clients inevitably bring them in for treatment, but they may then make different decisions in the consulting room. The sector is pretty resilient, but we're not immune, and we've definitely seen an impact in the last 18 months.
Having said that, we're starting to see consumer confidence improve, and we are seeing visits to our practices improve and increase as are other practices in the UK.
Thank you. Will you see any headwinds from insured-owned veterinary networks, and is there any concern that insurers may steer customers to particular corporates?
I think in reality, our pet owners choose our practices for lots of different reasons. We haven't seen any of that, and at the moment, I wouldn't suggest that that's any of our concerns underlying our activities. Most important to us is that we deliver the right care at the right time. The decisions that pet owners make in the room are not always down to finances and insurance. A lot of that is down to the confidence that they have in the clinicians, the relationships that they have with the clinicians, and making sure that we're giving them the right advice at the right time.
Thank you. With wage inflation and clinical shortages, how are you incentivizing and recruiting and retaining your vets, veterinary nurses, and technicians?
I'll ask Paul maybe to talk about some of the retention initiatives and the support we provide to our vets. In terms of wage inflation, a few years ago, there was a chronic shortage of vets in the UK, and that definitely contributed to some more significant wage inflationary pressures in the UK. The supply of vets in the UK, the position has improved, and particularly within CVS , our retention of our vets has significantly improved, and the engagement of our clinical teams and all of our colleagues has also improved. We are seeing less inflationary pressures now than we've seen before, and also, the supply of vets has increased. There are more university vet schools in the UK producing more graduates, and therefore, we're seeing less pressures there.
The Royal College of Veterinary Surgeons have undertaken what they've called a workforce summit over the last few years because they were concerned about the shortage of vets in the UK. Interestingly, the RCVS modeling now suggests that there won't necessarily be a shortage of vets in the UK for companion animal practices within the next five or six years, so those pressures have eased. In terms of what we've done, maybe, Paul, you can expand.
Yeah, and I think it's clear, you know, we have done work around our salaries both for our nurses and for our vets, and that's something which we'll continue to always keep under review. What's really important is that our colleagues also recognize that there are other things that you get as value from being an employee at CVS, and we focus on making sure we give the right support both clinically, but also around the other benefits that they would get and the support that they have for their health and their mental health. We see that they really value the opportunities that they have for progression within CVS, and no matter what job role you start in the company, there are opportunities to progress and make new learnings, and alongside that, the development opportunities, again, both within the clinics and also in our non-clinical activities.
Finally, something which I believe our colleagues really value is that we are clinically led. We do try to make the best decisions for our patients all of the time and to ensure that our colleagues have access to the best equipment, the best facilities, but also the best expertise that we have. We have a collective brain within the company, a large number of vets, 2,500 vets or so, which contribute to our capabilities in providing the best quality of care.
Thank you. Do you pay vet retention bonuses or sign-on incentives, and if you do, are these treated as exceptional or within normal operating costs?
Any costs in relation to the remuneration for vets is not exceptional. It's included within normal operating costs. I'm not aware of any significant kind of golden handshakes in terms of sign-on bonuses, so that's not something that's common practice for us.
The number of vets is increasing in the UK, and in five years, there will be no shortage. At the same time, COVID pet demand will have gone. How do you think about the future imbalance of supply to demand?
Actually, as Robin touched on earlier, I think the COVID demand will increase gradually from here. What we saw in peak COVID when we saw more puppies and kittens is a short-term increase in things like initial vaccinations, neutering procedures for some animals. That tended to be high-volume activity, but pretty low value. We're now in that kind of early healthy adult years, but as those pets age, they will require more complex treatments that are much more time-consuming and frankly more valuable to veterinary businesses. That demand actually will increase. The supply of vets improving is helpful, but we will keep those vets very busy given that kind of likely demand increase that's going to come.
That will vary depending on the type of species and breed that we have as clients, but large dogs tend to live shorter lives than small cats, but some of that demand is already starting to come through. Particularly large pedigree dogs, we're starting to see them approach their later years of life, and therefore, that kind of demand is already improving, but actually, there's a long runway of increased demand to come.
Thank you. What percentage of your vet and nurse workforce are non-UK nationals, and are you sensitive to changes in visa or immigration policy?
Paul, maybe you can also talk about the Australia supply of vets as well.
Yeah, absolutely. In terms of percentage, I honestly couldn't tell you off the top of my head. It's a relatively small proportion of our workforce. We obviously have recently been through the process of Brexit and the recent changes around visa rules. At the current stage, that hasn't had a significant impact for us, and we're confident, as we said, around the workforce moving forwards in the UK. We do have an exchange program with our Australian colleagues, and that's starting to really come into effect and has been really helpful in both directions, particularly, we have a number of colleagues going out to Australia to support our teams over there. Similarly, there is a workforce challenge broadly within the veterinary profession in Australia.
However, our practices that we've been acquiring are focused within large urban areas, areas where both pet owners but also vets would like to live, and therefore, we don't experience the severity of that workforce shortage in the same way.
Thank you. It looks like CVS has absorbed a lot of inflation in the past 12- 24 months with limited passed on in price increases. Do you plan to pass on some of that cost increases in the future?
I'll answer that. Inflationary pressures, absolutely, we've seen more inflationary pressures in the last few years. Utilities costs have increased. They're now reducing again, which is helpful. We employ a number of vets and nurses, and we've seen lower inflationary pressure for some of those colleagues more recently. This summer, we actually made higher awards to our nurses than we probably have historically. We also employ a number of patient care assistants or junior receptionists at or close to the national minimum wage, and we've seen significant increases in the national minimum wage or national living wage in the last few years. Last year, we also saw the government announce a national insurance increase for employers.
That alone costs us GBP 8 million on an annualized basis, so we've had to work hard to absorb those inflationary pressures in the last few years through efficiencies and synergies, particularly new synergies in Australia and also some efficiencies in the UK. We've seen good performance despite some of those challenges. Going forward, further inflationary pressures, we absolutely believe we can pass on in higher prices. Price, though, is one aspect of like-for-like growth. Volume and the amount of work we do for our clients and their animals is obviously a more important part of that like-for-like growth.
Thanks, Richard. If you can expand on that further, how will you improve organic growth across the UK veterinary practices in the future?
There are a number of levers to organic growth. One is price, and we've touched on that. The other is obviously volume, and that volume probably comes through in three forms. One is how many animals are under our care, and we've seen an increase in the animals under our care during the peak COVID period, and it's now plateaued, but the population under our care has improved, and as those COVID cohort of puppies and kittens age, that naturally benefits us. A second is how often clients bring their pets into our consulting rooms. We've seen a decline in client footfall over the last 18 months, as has the entire industry, but we're now seeing that improve again, and clients, hopefully with increased confidence in their disposable income and increased confidence in the economy, will see that continue.
I guess the other element is what we do for those clients, and what's the average transaction value when clients do visit us and bring their pets in. Paul, maybe you can touch on that because that comes back to the focus we have on providing great clinical care and also the conversations our vets have in the consulting room.
When we make clinical decisions, we are absolutely focused on making the right decisions, the right decisions for that particular animal and that particular owner. What we know is that actually, if we communicate well, if we create good rapport, good trust, and we give confidence in our recommendations, our owners will be more likely to engage with those recommendations. It's critical, though, that the right recommendations are given specifically for those owners. We know that the best communication generally leads to the best outcome.
Thank you. Can you please elaborate on your medium-term CapEx plans, distinguishing between maintenance and replacement and growth CapEx, and share some information on what investments are driving this?
I think I said earlier that we're keen to invest between GBP 30 million-GBP 50 million per annum on CapEx. Our maintenance CapEx runs about GBP 10 million-GBP 12 million, so the remainder is investment CapEx. I suppose there's two elements to that investment CapEx. There's investment in technology. We've recently moved all of our practices to one common practice management system that has open APIs. It allows us to provide some enhancements in terms of how we provide the care and how we want to communicate with our clients, and we think that's super important and also will help underpin some of that like-for-like growth that we mentioned earlier. The other element is capital investment in equipment and our property and facilities. I think we've said in the past that we have a range of practices.
As a business, we've been acquiring practices since 1999, and at one end, we have shiny hospitals that are purpose-built, that are conducive to providing great clinical care and also conducive to attracting and retaining talent. At the other end, we still have former terraced houses, which in itself can be really profitable when you have mature established vet teams, but often, if those clinical teams or someone retires or someone leaves, it's that much more difficult to attract and retain talent. What we see is when we invest either in renovating those sites or even relocating them, almost immediately post that investment, with the same team, you can deliver improved revenue, and that's because the improvement in workflow enables those teams to provide better clinical care.
Over the longer term, our ability to attract and retain talent and therefore grow the clinical teams and serve as increased demand also improves, and therefore, we're keen. I think we've, over the past few years, stated that we want to spend between GBP 30 million-GBP 50 million. We've been within that range, and there's opportunity for us to continue to invest between that GBP 30 million-GBP 50 million in the coming years.
Thank you. Congratulations on an excellent client Net Promoter Score. This initiative ties in nicely with one of the CMA's proposals announced this morning. Was there anything in that announcement that took you by surprise?
Nothing that took us by surprise. We're pleased finally to have cited the CMA's provisional decision. All we've seen so far is actually the summary of that provisional decision, and we expect the full provisional decision to be published very shortly. The CMA have undertaken significant work in the sector over the last couple of years. They've published various working papers in the past few months, and they've set out some of the initial thoughts from the CMA and some of their findings. Back in early May, they published their Remedies Working Paper, which set out a broad range of remedies that we had a further discussion with them on and others have also fed back on. The CMA is pleased to see have reined in some of those remedies, and today's remedy package, there's no surprises.
Equally, there are some things that we feel are not fully justified by the CMA's findings. Nonetheless, the package they've outlined today we feel is workable, and actually to have the clarity that comes today is super helpful. From here, there'll be further discussions with the CMA. We have a further hearing with them in December. We understand the CMA will also be having hearings with other interested parties, other corporate groups, industry bodies, independent practices, and the CMA have said they'll publish their final decision by March next year, and we hope the CMA may rein in some of those remedies further. If they don't, we're happy with the package as is. It's workable. We just feel some of the remedies won't necessarily add to the client's experience, and also some may impact independent practices more than the corporate groups, and that could lead to unintended consequences.
Thank you. What is your initial view of the financial impact of the remedies announced today, and do you think you prematurely divested the crematory business?
I think the devil will be in the detail. When we look at the remedies as they're set out, I would like to think that the financial impact would be minimal. From a crematory business perspective, at the time that we, it was probably early on in the market investigation, we had a conversation with a third party who, at the time, we were concerned about potential divestment, and we entertained a conversation. When it came to the final disposal, I think it was clearer that it was unlikely the CMA would be forcing divestment. However, during those conversations with the third party, they were a credible third-party provider with expertise in providing crematory services, and we felt that that was a potential good home for that business. Also, it was at a relatively attractive multiple for us that allowed us to delever, but also provide us firepower to invest.
I think, as we said outlined earlier, as well as the CapEx investment opportunity, we have significant opportunity to invest that capital in Australia at low multiples, and we also believe that post the CMA we'll also have the opportunity to invest that capital in the UK, also at attractive multiples, which will be accretive to CVS .
Thank you. In the announcement today, it quotes, "We found the LVGs earned profits that materially exceeded the cost of capital over a sustained period." Is this the case with CVS , and if not, how do you think the other LVGs are achieving this?
We can't comment on the other LVGs, but essentially, the CMA have done analysis of profits reported by all of the groups compared to their capital base. We feel some of that analysis is flawed in that fundamentally, the CMA are not using the entire capital base in that calculation, and clearly, if you use a return that's generated and published and use a lower capital base as the denominator, you'll get a higher implied return. We don't agree with the CMA's approach. Most of the corporate groups who operate in the sector have grown through acquisitions, Pets at Home probably being the exception, and where we've acquired practices, we are required under accounting standards to fair value the assets and liabilities required. That tends to be a smaller number given most of the buildings are leased and most of the equipment is depreciated.
The balance has to be an intangible asset of some form, and that is either a patient list that we do capitalize. That tends to be depreciated or amortized over 10 years, but nonetheless, there tends to be a significant goodwill balance that's left that's recognized. The CMA's approach is that that goodwill number shouldn't be used as the capital that forms the basis of the calculation. We fundamentally disagree with that approach as do our economists, but the CMA have failed to take account of the views that we've expressed, and the economists we're using, they are very reputable. They are actually used by the CMA in other work, but they've disregarded their comments. We feel that analysis is flawed. I suspect on that basis, our returns are healthy based on the CMA's analysis, but we think that calculation is flawed.
Thank you. Looking forward to the strong fundamentals in the sector, can you share the building blocks to get back to your 4% to 8% growth guidance?
Absolutely. We've talked about price. That's definitely one factor. I think we and others in the sector have probably been more cautious on price in the last couple of years given the CMA scrutiny, but owners are looking to provide great care to their animals, and post kind of cost of living pressures, we believe that pricing power returns. The other is volume, as I said earlier, the ability to provide services to a bigger portfolio of pets that we currently have, particularly those COVID cohort of pets. As they age, they will naturally drive more demand for us, and that's a driver of growth to come, then providing more services to clients. Paul is a specialist vet working in one of our referral specialist hospitals. We're seeing really strong demand for our premium referral services, so that demonstrates that client demand is there for great quality care.
Post CMA, post those cost of living pressures easing, we're very confident we will return to the 4% to 8% guidance that we've given.
Thank you. What do you think CVS 's true economic return on capital is, and given the group's valuation is still well below prehistoric levels and the uncertainty of the CMA is dissipating, is there a worry that CVS could be a target for private equity?
I think if you look at a number of analysts who will publish numbers on CVS , if you ever look at their return on capital employed for the last year, it was probably around 16% return on capital employed. I think at the moment, we all believe that we are undervalued and therefore, on that basis, vulnerable to PE. Having said that, I'd like to think that once the investor community get a chance to digest the CMA news and understand the kind of impact on CVS and also get a chance to digest the fact that we have significant growth opportunities going forward, we're seeing some return to like-for-like performance, and we see good inorganic growth opportunity, that we'll very quickly see an improvement in our share price, which will reduce the vulnerability that currently exists.
Thank you. The growth story looks super exciting. How will you look to allocate capital over the next 12 to 18 months?
I guess the good thing is we've got low leverage. We've got capital to deploy. We have committed undrawn bank facilities through to February 2028. We have great CapEx opportunities to drive growth in the UK, and Robin's talked through those. We've got great acquisition opportunities in Australia. We believe UK acquisitions are back on the table shortly, and therefore, plenty of options to deploy capital. We've also talked about the technology investment that we've made so far. That positions us really well for further growth, and there's further bolt-on investment we can make to improve the client experience further. Plenty of positives to come, and we feel really well positioned to capitalize on that.
Thank you. Thank you to the CVS Management Team for joining us today. This concludes our CVS Group Investor Presentation. Please take a moment to complete a short survey following this event. The recording of this presentation will be made available on the Engage Investor. I hope you enjoyed today's webinar.