Welcome to this live stream of the CVS Group analyst presentation following the release of our full year financial results earlier this morning. I am Richard Fairman, CEO, and alongside me are Robin Alfonso, our CFO, and Paul Higgs, our Chief Veterinary Officer. The results we have announced this morning demonstrate another year of growth and strategic progress. We delivered results in line with market expectations with improved like-for-like revenue growth versus the prior year, further strengthened the business, and we enhanced our platform for future growth. Revenue increased by 5.9% to GBP 712.8 million, reflecting positive momentum across the business with all three divisions driving growth. That was despite softer market conditions in the final quarter as a result of continued softer consumer confidence in the U.K. and the exceptionally hot spells of weather at the end of May and again at the end of June.
Adjusted EBITDA increased by 5.1% to GBP 141.5 million, with margins being maintained despite continued inflationary pressures in the financial year. Adjusted earnings per share increased by 6.9% to 85.6 pence, benefiting from the improved financial performance, and also from the reduction in our average number of shares, following shares which were canceled as a result of our share buyback program. We further increased our presence in Australia, completing six acquisitions in the financial year, comprising 14 sites for consideration of GBP 43.3 million. Since the new financial year, we have completed a further two acquisitions in Australia. We have signed a further two contracts for acquisitions in Australia, and I am delighted to announce that we have signed a contract for our first acquisition in the U.K. for some time. We will continue to be selective in our acquisition approach.
We now have certainty following the conclusion of the CMA process, with a number of remedies implemented and others in hand. We have seen a solid start to the new financial year and expect to perform in line with market consensus, and we remain confident in our ability to drive growth in shareholder value over the coming years. I would now like to open the call and invite analyst questions. As this event is being live streamed, as you ask your questions, it would be helpful if you can state your name and firm. So, Kane.
Good morning, Kane Slutzkin in Deutsche Bank. Just quickly on the start to FY 2027, you say it is positive. Could you give us a little more than that, given we are nearly three months in, Robin? Maybe just some view as to what the exit rate could be by the end of the half. That will be the first one.
Yeah. I think for what we said at back end of last year, we delivered like-for-like growth of 2.1%. We saw a stronger first half than we did second half. The second half was mainly impacted in the final quarter by the extreme weather that we experienced, particularly in the U.K. That extreme weather continued into July, so there was some impact from weather in July. But pleasingly, we saw August performance back in line with what we were seeing in the first half of last year.
Which first half?
The first half, so closer to 3%.
To 2.7%
Seven. Yes, yeah.
Okay, got it. Lovely. Can we just talk a little bit about the RDEC release, the tax credit release? If I look at it on my calcs, it looks like that incremental was about GBP 3 million or so year on year and might sort of explain nearly half of the EBITDA growth. Just want to get a sense, what should we be expecting sort of going forward for both the income and a sort of provision release?
Yeah. The RDEC recognition for last year was GBP 15.1 million. For the prior year, the RDEC recognition for this year was GBP 15.7 million. So it is a consistent RDEC number year on year. Moving forwards, we would expect that RDEC income to be similar. Slightly less, but similar actually in the region of GBP 15 million. So we recognize GBP 15 million in 2024, GBP 15 million for 2025, GBP 15 million in 2026. We expect a further GBP 15 million-ish in 2027. So it is consistent. In terms of the provision release, it is just I think we take a quite prudent approach for our RDEC claims, so we do provide for uncertainty. Each year we make a claim. Each year we raise with HMRC. That uncertainty unwinds because we are more confident that we will have that money come in from HMRC. Therefore, it was right that we reduced that provision.
I expect that provision to reduce further next year. I suppose the critical thing is in terms of run rate, GBP 15 million, GBP 15 million, close to GBP 15 million again.
Okay. Thank you.
Andrew?
Hi. Thanks. It is Andrew from Investec. Two questions, if I may please. I see you are appointing a Chief Client Officer.
Yeah.
Do you mind just describing what their role might be and how that might work going forward? Then I will come back to the second.
Yeah. I guess we recognize that now that we have a joint brand, and the investment we have made in technology, improving the client journey. There is more we can now do in terms of central marketing and CRM activity. Clearly, the economic backdrop has been challenging the last couple of years. The CMA process has had an impact. But there are things within our gift to drive client footfall, and through enhanced marketing and CRM activity, we believe we can drive improved footfall and improve the client service generally across the business. So that new role will be part of our executive committee and will be very much focused on that activity.
Thank you. U.K acquisitions, I see you've not completed, but exchanged contracts. It's a relatively material number. It's GBP 15 million
Yeah
F or that acquisition, and I think you've got GBP 50 million earmarked for acquisitions across the geographies.
Yeah.
There's loads to go after in Australia as well. I know it's a value creation or capital allocation consideration that you're doing, but that GBP 15 million quid is quite a big chunk of your future spend.
Yeah.
Is that a comment on just the opportunity? Are we expecting more of that in the future? I'm just curious on the balance sheet and where that sort of leverage can get to.
Yeah. We have made it clear that we were keen to return to U.K. acquisitions where we saw accretive opportunities, and this is a very good quality practice over two sites. The GBP 15 million, I think, will be well spent. The multiple we have not disclosed, but we have said the multiple is accretive to the group in terms of value. We are still very keen on Australia. We see a strong pipeline of opportunities, so I am hoping we can do more acquisitions in Australia alongside U.K. acquisitions. We will continue to be selective as we always have been.
Okay.
Andrew, if that means spending more than GBP 50 million, provided we have got the capital to do so, then absolutely.
You said previously you might nip over that 2 x balance sheet.
Yeah. We have said that investor appetite for leverage is mixed, but obviously we have said 2 times is our kind of stated ceiling. We have said that if we have accretive acquisition opportunities, given that we generate cash and we know we delever quite quickly, we may temporarily go above 2 times if we see the right opportunities. That is an option.
Brilliant. If I could just ask a little one at the end.
Yeah.
Just related to what you are seeing maybe in the industry from your peers, just post CMA, are you feeling a more constructive environment? Are you seeing like on price, maybe something like that? How is that industry bit moving? Is that being more supportive now that CMA's finished?
Yeah, Paul, maybe you will pick that up. I think for me, having certainty, there were obviously no surprises in the CMA announcement this week as we knew there wouldn't be. But now that we have got the absolute clarity of how the remedies have to be implemented, that's super helpful.
Yeah, I think the clarity's been great, and I think for the profession, it's a moment in time where now we know what we are going to be dealing with. But I think for most practices, and ourselves, we have been pretty aware of what was going to happen next and been preparing for that for the last six months since we have seen the final remedies come out. It's just the detail that was in this week. I do think that there is work to be done as a profession together to rebuild trust, to make sure that we are creating that best environment to be seen as the providers of great veterinary care. I think there's work to be done for that, and I think we are really well positioned as a really respected veterinary provider to do that.
And in response partly to your question earlier on about the CCO role, we have a really, really strong internal identity of what it means to be under the care of CVS. And actually, part of that role is going to be helping us to show now for the first time ever with a national-facing brand, what does it mean to be under the care of CVS as a client rather than under the care of CVS partly as a client of CVS, but also as a local brand we had previously. Now it is what does it mean to be under the care of CVS as a client. It is a really, really important opportunity for us.
Thank you very much.
Thanks, Andrew. Seb has got his hand up behind you, so.
Thanks. Seb Jantet with Panmure Liberum. So just first question is just on like for likes and just trying to understand what the component of like for like might be as we go into 2027. So getting a sense of how much of that might be coming from pricing, how much might be coming from footfall, and by that I mean new clients effectively coming in the door, and how much is from the efforts you have got to capture more value from your existing clients?
Yeah. So an element of all three I think will contribute to like for like. Pricing, we put prices up in the summer as we said we would. The price increases this year were slightly above the levels we've seen in recent years. Footfall is still a challenge across the profession, but it's mixed. Mixed across our practices, but also mixed in terms of what we've said previously, which continues to be the case, is where animals get ill or injured, clients invariably bring them in for treatment. That's reflected in the strong growth we saw in our laboratory business last year, reflected in the strong growth we saw in our referral business, and also some of our first opinion practices that provide that more advanced level of care.
Where we've seen footfall challenges is in the more routine preventative treatments, and that's where I think, again, the appointment of a Chief Client Officer can help us drive that footfall further. Hopefully the economy improves and consumer confidence improves, and that will undoubtedly help with that aspect. In terms of the value per client, we've seen good growth in ATV over recent years. That reflects, I guess, Paul, the level of care we can now provide, which continues to get enhanced. Clearly, we can do more now for animals than we could 20 years ago, but we invest in facilities and technology, in clinical capability, but most importantly in people, because we're a people business. Clearly, having a highly skilled team of vets and nurses and support colleagues is critical to our growth, and we've seen good progress there as well.
The supply of vets has obviously improved in recent years. We spend a lot of time focusing on training and developing our vets and colleagues and supporting them.
Thanks. Second question is just on Healthy Pet Club numbers. I saw the numbers had gone down. I just wonder, A, first of all, understand whether that includes Healthy Pet Club Advanced or whatever it is you're calling it. Really, whether you can see any trends in terms of the people who are canceling the subscriptions. Is it a particular kind of cohort of people, or is it just kind of across the board?
Healthy Pet Club Advanced we launched on the 1st of July, and we've seen good growth in that scheme. We have a Healthy Pet Club core offering, which we've had for a number of years, and that is a preventative health scheme, as you know. For a monthly fee, clients get the benefit of regular checkups with a vet or a nurse, an annual vaccination as part of that scheme, and also regular flea and worming treatments. The advanced version comes with an additional monthly fee, but for that, there are unlimited consultations, and that's been very popular with clients. We trialed that offering across a number of practices before we launched it across the board, but we've seen really good take-up of Healthy Pet Club Advanced since we launched it.
In terms of the numbers last year, we've seen, I guess, a slight reduction in the overall volume of HPC clients. But in terms of retention rates, they're pretty sticky. Some of the growth we saw leading up to this year has been through the acquisitions we've made in the U.K. in past years, and we've migrated clients onto our core HPC offer over recent years. So that migration of previous acquisitions probably drove the growth that we saw. I think underlying performance, Robin, is pretty similar in terms of retention rates.
Yeah. I suppose that small reduction has stabilized. In answer to your question, it does include Healthy Pet Club Advanced members as well.
Thanks.
Charles. Sorry, Charles, we'll come to you in a second. You've been very patient, Charles.
Charles Weston from RBC. First question, I love taking an illustrative chart and trying to put numbers on it. On page 10, you showed the longer-term expectation of like-for-like growth rates. You showed the history and then the potential dotted line future. That 2027 bar pretty much was at the bottom of the 4%-8% medium-term target range. But historically, you've said that 2027 probably wouldn't quite get there. Just wondered if you had any further thoughts on like-for-like growth and how it might look for 2027 as a whole.
Yeah. I guess we don't know what the outcome will obviously be. We're only two and a bit months into the year, but we were encouraged by the improvement we saw in August, as Robin said. We are very confident in our ability to get back to the 4%-8% range. I think we've said in the past, the building blocks to that are clearly price, volumes stabilizing, and then continue to do a great job in treating clients when they bring their pets in. That's obviously across the group. We've seen good growth in our labs and referral hospitals. We've seen good growth in the second half of last year in Animed Direct. You recall that first half earnings were flat. Second half we returned to EBITDA growth as well as revenue growth.
We're confident in our ability to get back to that level. We just can't put a date to when we'll get back to that 4% level.
Okay. Thank you. Second question, just picking up on both of those points.
Yeah.
Lab was amazing growth last year.
Yeah.
Does that signify a new trend or would that present tougher comps? To some extent, Animed similarly, but the other way around. We have got a recovery perhaps in the underlying performance, underlying growth, and easier comps next year. If you could just help us think about that from a modeling perspective, that would be-
Yeah. Maybe Robin can pick up Animed. In terms of labs, we provide our services to our own practices and also to a number of third-party practices in the U.K. We have seen good growth in case volume across both CVS practices and third parties, and also average transaction values. Most lab tests are obviously performed in support of ill or injured animals, and that goes back to my earlier comment that where clients have sick or injured animals, they invariably bring them in for treatment and are willing to spend on their care. The growth in the lab business, I guess, reflects what we have seen elsewhere, and we are confident that will continue. In terms of the percentage growth rates, performing in line with EBITDA in labs last year went up by 25%.
I think that is probably more challenging to repeat this year, but certainly we are confident in further growth and we are expecting further growth in labs this year.
On Animed, we saw good growth. We have re-platformed the website. We have launched a new customer enablement in terms of online payment or pay as you go, sorry, subscribe and go, Apple Pay, Google Pay. We now have next-day delivery. So we have seen some good development within our website and good improvements to the customer experience. In terms of the softer comps, I would say the first half, we saw adverse EBITDA performance, or we broke even in the main. That was off the back of some price elasticity tests where we reduced price and actually eroded margin. So actually, revenue was strong in the first half, but EBITDA less strong because there was a margin erosion.
I think we are not facing into softer revenue comps for Animed, but potentially we are facing into softer EBITDA comps for Animed, because I am not expecting that first-half performance to continue, if that makes sense.
It does. Thank you. If I could just finish off with one more. Any view from the board on timing of a new CEO appointment announcement?
I have made it clear to the board I am retiring, but I have also made it clear that I am very keen and committed to continue to lead the business until we are ready to appoint a successor. We are making good progress, but the board is undertaking a thorough search, and we will announce my replacement in due course. But for now, I am very keen and committed to continue to drive performance.
Thank you.
Thanks, Charles.
Charles Hall from Peel Hunt. Could you just comment a bit about the trends in vacancy rate for vets and nurses, and also what you are seeing on the cost side, both in people cost and other costs?
Yeah. Paul maybe can talk about the trends. In terms of the costs, we have seen significant inflationary pressures, you know, in recent years. A combination of increased national insurance costs for employers. We said at the time of that increase, that was an annualized GBP 8 million impact to our business. We have also seen increases in national minimum wage and national living wage in recent years. I guess our forecasts are for no further national insurance surprises and a return to more sensible levels of wage inflation. Not seeing any kind of signs of further impact there. Obviously, we have higher utility costs and other costs we continue to face into, but I think the inflationary pressures there are easing somewhat. But in terms of the supply of practitioners, that is.
I think over the past couple of years, we've been identifying that actually we're seeing an improvement in the availability of vets in the profession. I think we're definitely seeing that now. Plus, we've been working very hard around our ability to retain great vets and to ensure that they have good working environments, that we find the places to work the way they want to stay and they want to live. So actually, what we're seeing is, I think, an accumulation of both great supply in the market for vets and also our ability to retain. The result of that is that we are seeing a consistent reduction in our vacancy rates for vets.
I think that just really demonstrates for our teams, something I'm really proud of for our teams, that they're working really, really hard to create a great working environment for our vets. I think we remain an employer of choice in the market.
Lovely. Just going back to Healthy Pet Club Advanced. Strong take-up so far. Is that people, new customers, or is that people upgrading from Core to Advanced?
Both, actually. So it's proven popular from both new clients to practices, but also we've seen a number of clients upgrade as well, and they see the benefits of, I guess, removing that kind of obvious cost of a consultation every time they see. We have clauses to protect ourselves from unfair usage, but we actually don't see that, and we didn't see that in the trial. I think Paul also, I know the client has paid for the visit through the higher monthly fee, but I think when they do then visit, we also see that maybe clients are willing to spend slightly more because they don't have the obvious cost of the consultation there and then.
That is right. Also what we do know is that a large number of pet owners don't recognize some of the symptoms of early disease that we will recognize when we see them, when we take a good clinical history, when we do a good physical examination. We can't do that unless they come in the building. It is a really good opportunity for us to do that. It is great for animal welfare, because we pick up disease early. It is great for our colleagues because they like the fact they pick up disease early and can intervene early. Clients like that as well, because actually we are increasing longevity of life, longevity of health, and actually they get their pets to live with them for longer. Our colleagues really like this scheme, because it enables them to have that conversation, which is the most important conversation that we can have.
I think it is a really fantastic scheme for us.
How is it being marketed to the customer base?
Robin, you mind cover the marketing side, but in practice, because the teams love it, they will talk about it very significantly. Then we have our external marketing, which Robin is probably better off to cover.
So in terms of our existing base, clearly when clients come in, often they have annual vaccinations. The Healthy Pet Club Advanced scheme will be discussed with them. That is one opportunity. We have currently built an online digital journey, sign-up journey. We are just finessing that, because once we believe that is efficient, then the opportunity for us is every year, because it is an annual scheme. As we write to clients, we can give them their annual renewal for Healthy Pet Club, but also provide them a very simple link to if you would like Healthy Pet Club Advanced for [inaudible] sum of money per month extra, then we can push them online and through the digital journey. We are not currently writing to our existing clients, but that will come.
Thanks, Charles. James. James, do you mind passing it on?
Morning, all. James Bayliss from Berenberg. Two, if I may. On Australia, you make comments about performance of acquired practices being slightly ahead of expectations at the time of acquisition. Just wondering, is that better performance as a result of them being part of the CVS network? Or is that perhaps indicative of a more supportive backdrop than you imagined?
I think we've been very selective in Australia. We are deliberately acquiring very good quality practices, and the business cases assumed very few synergies and modest revenue growth. We were quite conservative in our business cases. I think the performance reflects a combination of factors, really good quality practices, very engaged teams of vets and nurses doing great work. I'd like to think we've supported them in improving. Equally, the economic backdrop in Australia is also that bit stronger than the U.K. as well. I think it's a combination of factors.
My second question, on the client and employee NPS scores, do you have enough data points now to take a steer on what the difference is in terms of absolute numbers or trends between the U.K. and Australia?
Increasing number of data points, and we see good client feedback across our group, whether it's the U.K. or Australia. The fact we've improved further in the year, I think is great. I think as the CMA found from their consumer surveys, clients tend to trust their vet practices. In our case, we work hard to build trust with our clients, and we focus very much on providing great care, value, and service to those clients. I think the fact we've improved client NPS, and we survey all of our clients post a consultation, save where it's a euthanasia, for obvious reasons. We're obviously sensitive to those clients. The fact we've seen a further improvement there I think is really positive.
In terms of employee Net Promoter Score, I think literally anything above zero is considered positive because I think employers are probably a bit more honest in their feedback sometimes. But the fact we've seen a further improvement there I think is encouraging as well.
I think really importantly for eNPS in particular, the absolute number is less important than the trend. We are really, really clear that we look carefully at what the trend is. If the trend is improving, then we try to understand what it is that we have been doing that has improved that. Where the trend is downwards, we try to understand that, and we look at different individual groups of our employees as well to understand. We have vets, nurses, et cetera, leaders, non-clinical teams. The trends can be different, and it is really important we understand those. We have enough data points to help us understand that.
Thanks.
Thanks, James. We have, I think, actually, Charles.
Thanks. Charles Weston again. A couple of follow-ups, please. On the multiples that you are paying, you talked about 6x in Australia, you talked about less than group in the U.K. I think in Australia historically, you have not included any synergies within that multiple. Historically, you used to include synergies in the U.K. multiple. Are you still including U.K. synergies, cost synergies in that sub 8x?
The multiples we quote are year one multiples, and both in the Australia and the U.K., we expect synergies to improve with time. In the U.K., we will get synergies in due course above improving this multiple from our laboratory offering, hopefully increased referrals, and obviously benefits from the scale buying that we can achieve. This is a consistently quoted multiple, and I would hope that improves over time with synergies. Yeah.
Thanks. Then just in terms of deal structure, again, I think in Australia it is more common to have deferreds. In the U.K., I think historically you did not really have as much, but you have talked about an initial GBP 15 million. Is there a change in structure in the U.K. now?
Yes. So that deal is slightly different from historic structures. But yeah, incentivizing vendors to stay with us and deliver performance is obviously important in both markets.
It is one deal. We will have to see a series of these before we understand what the market is looking for. But we have historically done upfront and deferred in the U.K. It is just in Australia it is very consistent, whereas in the U.K., typically some would have deferred, others would not. But this one does have a deferred element to it.
Is there an idea of the total potential? I am sure you have an idea, but what is the total potential cost of that U.K. acquisition?
Well, it will be similar to what we are seeing in Australia. I think in Australia we said it was roughly 80/20 upfront, deferred.
Thank you.
Thanks, Charles. Charlotte, I think we have a question from the call.
Yeah. Thank you. Robin, we note that disciplined investment IRR of greater than 10% statement has been dropped from the investor presentation. Can you confirm whether this minimum return target still applies, or has there been any changes to your IRR expectations?
No, it still. Yes, it still applies. We have a minimum hurdle rate of 10% returns. There has been no changes to how we view the returns from investments that we make.
I think we went into quite considerable detail in July in terms of our capital allocation framework and approach, and the returns we were both achieving but also targeting, and there has been absolutely no change to that since. Okay. Thank you. I think that concludes the questions. I would like to thank you all for joining today's presentation and also for all of our shareholders and banks for their continued support. It is much appreciated. I would also like to close by thanking our team of CVS colleagues for their continued dedication and professionalism in providing outstanding care, value, and service to our clients and their animals. We look forward to reporting on further growth and success in the future. Thank you.