TIDMCVSG
RNS Number : 6180K
CVS Group plc
23 September 2016
For Immediate Release 23 September 2016
CVS GROUP plc
("CVS", the "Company" or the "Group")
Preliminary Results for the year ended 30 June 2016
CVS, one of the UK's leading providers of veterinary services,
is pleased to announce its preliminary results for the year ended
30 June 2016.
Financial Highlights
Year ended Year ended
30 June 30 June Increase(4)
2016 2015 %
Revenue (GBPm) 218.1 167.3 +30.4
Adjusted EBITDA (GBPm)(1) 32.8 23.0 +42.5
Adjusted profit before income
tax (GBPm)(2) 24.9 18.2 +36.2
Adjusted earnings per share
(pence)(3) 32.4 24.7 +31.2
Operating profit (GBPm) 11.8 9.8 +20.0
Profit before income tax
(GBPm) 9.1 8.5 +6.0
Basic earnings per share
(pence) 11.6 11.6 -
Proposed dividend (pence) 3.5 3.0 +16.7
-- Revenue up 30.4% to GBP218.1m
-- Like-for-like sales growth for the Group of +4.8%
-- Healthy Pet Club members up 18% to 253,000
-- Adjusted EBITDA up 42.5% to GBP32.8m
-- Adjusted earnings per share up 31.2% to 32.4 pence per share
-- Acquired and integrated 67 surgeries during the year
-- 3 surgeries acquired after the year end
-- Now operate 363 surgeries
-- Acquired 3 crematoria during the year
(1) Adjusted EBITDA (earnings before interest, tax, depreciation
and amortisation) is profit before income tax, net finance expense,
depreciation, amortisation and costs relating to business
combinations.
(2) Adjusted profit before income tax is calculated as profit on
ordinary activities before amortisation, taxation and costs
relating to business combinations.
(3) Adjusted earnings per share is calculated as adjusted profit
before income tax less applicable taxation divided by the weighted
average number of ordinary shares in issue in the period.
(4) Percentage increases have been calculated throughout this
document based on the underlying values.
The Company's annual report and financial statements for the
year ended 30 June 2016 will today be uploaded to the Company's
website, www.cvsukltd.co.uk.
This announcement contains inside information for the purposes
of Article 7 of EU Regulation 596/2014.
Contacts:
CVS Group plc
Simon Innes, Chief Executive 01379 644
Nick Perrin, Financial Director 288
N+1 Singer - Nominated Adviser &
Broker 020 7496
Aubrey Powell / Liz Yong 3000
Chairman's statement
An outstanding Group performance
Results
I am delighted to report an outstanding performance by CVS with
a record year for revenue and operating profits across the Group.
Organic growth was enhanced by further acquisitions in our
Veterinary Practice and Crematoria Divisions. We increased
investment in the development of our services, our staff and our
premises, and further improved our customer service in all
areas.
Revenue grew by 30.4% to GBP218.1m (2015: GBP167.3m). Adjusted
EBITDA increased by 42.5% to GBP32.8m (2015: GBP23.0m) and adjusted
EPS grew by 31.2% to 32.4p (2015: 24.7p).
Operating profit rose by 20.0% to GBP11.8m (2015: GBP9.8m), cash
generated from operations increased 51.1% to GBP33.6m (2015:
GBP22.2m) and profit before tax increased by 6.0% to GBP9.1m (2015:
GBP8.5m). Basic EPS was unchanged at 11.6p (2015: 11.6p) due to the
increase in the number of Ordinary shares in issue.
Business initiatives
In 2016 we acquired 67 surgeries, three crematoria, the VetShare
buying group and the VETisco instrumentation business. This is much
more than we have ever completed in a year before. In total these
businesses are expected to generate revenue of approximately
GBP50.0m per annum. The acquisitions included the Highcroft
business which includes a strong and rapidly developing referrals
business in Bristol, and the Dovecote referral centre in Castle
Donington. These, together with the opening of our state of the art
Lumbry Park referral centre in October 2015 moved our referral
strategy forward significantly.
Subsequent to the year end a further 3 surgeries have been
acquired.
Like-for-like sales grew by 4.8% (2015: 6.8%) with growth in all
areas except Animed Direct which had a difficult year.
Our "MiPet" own brand label is unique in the veterinary industry
and as well as giving us a pricing advantage it helps to bond our
customers to our practices. The launch of our own brand flea and
worming treatments in the spring of 2015 significantly improved our
margins in the Practice Division. Further products have been added
under the MiPet name including pet food and waiting room retail
accessories. These additional products are lower volume than the
flea and worming treatments and so will not improve the margin to
the same extent.
Our Healthy Pet Club scheme continued its strong growth with an
additional 40,000 (18.8%) members over the year.
The Laboratory Division grew very strongly for a second
consecutive year with revenue increasing by 12.8% to GBP14.8m
(2015: GBP13.1m).
The acquisition of three crematoria in Larkhall, Durham and
Scunthorpe has improved our geographic coverage greatly. This will
allow us to improve the service to customers and to achieve greater
benefits of scale.
Our people
The Group remains the largest employer in the UK's veterinary
profession with approximately 4,300 staff as at today (2015:
3,400), including around 1,040 vets (2015: 822). It is a credit to
all of our people that they have delivered the increased scale of
acquisitions and, at the same time, continued to develop the
like-for-like business. I would like to thank them all, including
those new to CVS, for their expertise and professionalism in
providing the best possible care and service to all our customers
and their animals.
The development of our staff and of our clinical and
non-clinical training continues to be a priority. No other
veterinary group has the knowledge, expertise and ability to
provide so much training internally and this is an area where CVS
distinguishes itself from our competition.
Dividends
It is proposed to pay a dividend of 3.5p per share in December
2016, a 16.7% increase on the 3.0p per share paid in 2015. Our
pipeline of acquisitions remains strong and the Board believes that
there remain significant opportunities for organic growth. The
increased scale and growth of our business can support a meaningful
increase in the level of dividend whilst retaining sufficient funds
to continue to grow the business.
If approved at the Annual General Meeting, the dividend will be
paid on 9 December 2016 to shareholders on the register on 25
November 2016. The ex-dividend date will be 24 November 2016.
Outlook
The Group's exposure to the potential impacts of "Brexit"
appears to be limited and, whilst the referendum vote to leave the
EU creates some uncertainty for the pace of growth in the UK
economy over the next couple of years, the Board believes that the
characteristics of our business make it relatively resilient.
Investment in a number of longer term initiatives will have a
slightly negative impact on our profits in the short term before
generating positive returns. These include the development of a
small number of greenfield sites, the introduction of our own brand
insurance and the introduction of an additional layer of management
in the Veterinary Practice Division in order to enhance the support
of the practices and maximise their potential.
Like-for-like sales growth in the second half of the year ending
30 June 2016 was strong and pleasingly this has continued into the
early part of 2017. Initiatives such as the benefits arising from
the introduction of our own brand products, the expansion of
out-of-hours sites and the development of Lumbry Park, will
continue to deliver benefits in 2017. In addition the acquisition
pipeline remains buoyant.
The Board therefore believes that the outlook for CVS remains
very promising.
Richard Connell
Non-Executive Chairman
23 September 2016
Business review
Excellent progress on our strategic priorities
Introduction
CVS Group is managed across four divisions: Veterinary Practice,
Laboratory, Crematoria and Animed Direct, our on-line dispensary
and retailer. The Veterinary Practice Division is the core of our
business but all areas of the Group made excellent progress towards
our strategic priorities during 2016.
Veterinary Practices
2016 2015
GBPm GBPm
Like-for-like
revenue 148.1 139.8
2015 acquisitions 22.7 7.7
2016 acquisitions 25.9 -
------------------- --------- ---------
Total revenue 196.7 147.5
------------------- --------- ---------
Adjusted EBITDA
GBPm 35.6 25.3
EBITDA margin
% 18.1 17.1
------------------- --------- ---------
Revenue amounted to GBP196.7m (2015: GBP147.5m), an increase of
33.4% on the prior year. Adjusted EBITDA increased by 40.9% from
GBP25.3m to GBP35.6m and profit before income tax increased from
GBP15.4m to GBP21.3m. These increases include the impact of
acquisitions in both 2015 and 2016.
In the year CVS acquired 67 surgeries operating as 18 practices
as well as the VetShare buying group and the VETisco
instrumentation business. These businesses contributed GBP25.9m of
revenue and GBP4.1m of EBITDA in the year.
Adjusted EBITDA as a percentage of sales increased by 1.0% from
17.1% in 2015 to 18.1% in 2016. This was primarily due to an
improvement in the gross margin percentage, from 83.8% to 84.7%,
which was particularly helped by the introduction of the MiPet own
brand range of treatments.
Like-for-like sales grew by 5.4% for the year as a whole (2015:
5.6%), with the second half showing significantly higher growth
than in the first half.
The development of our referrals business, and the expertise
that this requires, has been and remains a key strategic priority
for CVS. In October 2015 we opened Lumbry Park. This 13,000 square
foot greenfield development is a state of the art, major,
multi-disciplinary referral centre in Alton, Hampshire providing a
full range of specialisms, using the most modern equipment
including both a CT ("Computerised Tomography") and an MRI
("Magnetic Resonance Imaging") scanner. Revenue is developing
steadily with referrals being obtained from both CVS and
third-party practices.
Early in the year we acquired the Dovecote referral centre in
Castle Donington and, in December 2015, the acquisition of the
Highcroft business with its rapidly developing referral centre in
Bristol. These new locations provide us with excellent teams and
facilities to service our customers' needs rather than referring
them to specialists outside of CVS. As a medium term objective the
Group will be seeking other locations around the UK in which to
establish further referral centres. The refit of our Chestergates
referral site is planned for 2017 as is the opening of Manchester
Veterinary Surgeons. These developments will further enhance our
referral abilities in the North West of England.
In the last quarter of 2015 we extended our "MiPet" own brand
range to include high volume flea and worm treatments. With other
smaller own brand medicines launched around the 2016 year end we
now have fourteen own brand medicines. This had a beneficial impact
on our margins after drugs costs. We began the roll out of our own
brand pet food and waiting room retail range during the year and
will complete this in the first half of 2017. Further product
launches are planned.
The own brand range has been well received by both our customers
and our staff. MiPet products are available only in our surgeries
and those of our buying group members and, hence, they
differentiate CVS in the market. It both protects our margins and
helps us retain our competitiveness by limiting price
increases.
The Healthy Pet Club loyalty scheme continued its excellent
growth in the year. Over 40,000 pets were added to the scheme
increasing membership by over 18.8% and bringing the total
membership to 253,000. The scheme provides preventative medicine to
our customers' pets as well as a range of discounts and benefits.
We gain from improved customer loyalty, the encouragement of
clinical compliance, protecting revenue generated from drug sales,
and bringing more customers into our surgeries. Monthly
subscription revenue generated in the year increased to GBP24.0m
(2015: GBP18.8m). At the year end, the monthly run rate represented
12.3% (2015: 13.0%) of practice revenue; however in the
like-for-like practices the figure was 16.3% (2015: 13.5%),
demonstrating the potential for further subscription revenue within
the more recently acquired practices into which Healthy Pet Club is
also being introduced.
We now have 8 out-of-hours sites and plan to open several more
during 2017. These reduce our reliance on third parties for the 24
hour cover that vets are required to provide to their customers.
Satisfying the requirement ourselves significantly improves the
experience of our customers and their pets and, except for the most
recently opened site, all of our out-of-hours centres are now
profitable. We continue to perform out-of-hours work for other
veterinary practices and will seek to develop further centres as
our growing density in an area makes this effective.
Our acquisitions during the year helped us further develop our
large animal and equine businesses. In particular, the
Alnorthumbria practice has substantial large animal and equine
custom and Valley Equine, in Lambourn, will link well with our
existing Scott Dunns practice near Wokingham.
Our investment in our surgeries was at record levels during the
year. In addition to the GBP3.3m spent on fitting out Lumbry Park,
we have spent GBP1.4m on new practice sites and GBP3.6m
refurbishing and maintaining sites. We opened two small surgeries
at Beccles (part of the Coastline practice) and Lawley (part of the
Haygate practice). Both are trading well. Amongst many other
developments, we extended the Beaumont site at Kidlington and the
Nine Mile site at Wokingham and completely redeveloped the Oaklands
equine and small animal site in Yarm providing it with a state of
the art equine theatre and stabling.
In addition to refurbishments, we spent GBP2.2m on new equipment
in our practices, including expenditure on installation of a CT
scanner at Beechwood Doncaster, a further 50 installations of
digital x-ray equipment and further installations of in-house
analysers. This equipment improves our diagnostic capability and
our ability to serve our customers in a professional
environment.
The development of our buying group has been dramatically
enhanced by the acquisition of VetShare as part of the Albavet
group acquisition. Since completing this acquisition, we have
already negotiated additional annual rebates for members of over
GBP0.3m and have begun to sell our own brand products to members.
VetShare provides the opportunity for us to offer members a two
tier buying group with MiVetClub being somewhat more restrictive,
in that it requires members to adhere to our dedicated and
preferred list of medicines, but providing a greater return to
members. MiVetClub also now has the ability to allow its members to
purchase from two wholesalers.
Our strategy in the Veterinary Practice Division is dependent on
our team which will always be one of our most valuable assets and
one that we aim to continue to develop. The growth of the
Veterinary Practice Division has necessitated the further
development of its management structure in order to enhance the
support of the practices and maximise their potential. This will
lead to some additional fixed costs although in the medium term
these will be offset by the available margin opportunity and will
better support the further expansion of the Practice Division. The
new structure has been substantially recruited through promotion of
our own staff previously working in practice.
We have continued to develop our staff training and career
opportunities. Our Nurse Academy, successfully launched in January
2015, is now well into its second year with a further 270 nurses
learning specialised skills. The Academy provides nurses with
advanced training in one of four areas: medicine, surgery,
emergency and critical care, and clinical nursing. It is designed
to fill a gap which exists across the profession in the
post-qualification training of nurses.
Our vet graduate training scheme continues to grow and 240
graduates have gone through the scheme in the past three years. The
scheme is designed to assist newly qualified vets make the
challenging transition from university to day-to-day practice.
Clinical development remains a core aspect of our training. All
of our vets and nurses are provided with a wide range of training
on surgical procedures, nutrition and drugs, both through in-house
expertise and external courses. We also sponsor further
qualifications for vets such as Advanced Veterinary Practitioner
and diplomas. Increasingly, this training is carried out in-house
by our own experts.
Laboratory
2016 2015
GBPm GBPm
Revenue 14.8 13.1
----------------- --------- -------------
Adjusted EBITDA
GBPm 3.1 2.2
EBITDA margin
% 20.9 17.0
----------------- --------- -------------
The Laboratory Division generated revenue of GBP14.8m, a 12.8%
increase on the prior year figure of GBP13.1m. Adjusted EBITDA grew
by close to 40.0% from GBP2.2m to GBP3.1m and profit before tax
increased from GBP1.7m to GBP2.5m. In the past two years EBITDA has
nearly trebled.
The growth reflects both further development of the diagnostics
business and the introduction of the in-house analyser business in
2014. During the year the diagnostic business introduced polymerase
chain reaction testing and aims to grow this business
substantially. Work has also progressed towards obtaining the ISO
accreditations necessary to allow us to substantially increase the
amount of large animal testing performed. The sales of analysers
and related consumables to third parties grew strongly during the
year, albeit from a low base, and further progress is anticipated
in 2017.
The Laboratories gross margin percentage remained stable at
73.3% (2015: 73.4%). EBITDA as a percentage of sales showed growth
from 17.0% to 20.9%, reflecting the greater rate of growth in the
in-house analyser business, which has a higher EBITDA percentage
than the diagnostics business.
Crematoria
2016 2015GBPm
GBPm
Like-for-like
revenue 3.2 2.5
2015 and 2016
acquisitions 1.8 0.1
------------------ --------- ----------------
Total revenue 5.0 2.6
------------------ --------- ----------------
Adjusted EBITDA
GBPm 1.7 0.8
EBITDA margin
% 34.2 29.6
------------------ --------- ----------------
The Crematoria Division almost doubled revenue from GBP2.6m in
2015 to GBP5.0m. The acquisition of four crematoria in the space of
twelve months has considerably enhanced the geographic coverage of
the Division with important new locations at Larkhall, near
Glasgow, Durham and Scunthorpe. This has allowed collection routes
to be organised more efficiently between locations. Like-for-like
sales growth of 26.6% arises not only from higher third-party sales
but from the benefit of our Crematoria Division becoming the
supplier to veterinary practices that we have acquired in both the
current and prior year.
The full benefits of this expansion are yet to be seen, with the
two Pet Crematorium sites, at Larkhall and Durham, acquired in
December 2015 and the Green Acres crematorium at Scunthorpe just a
few days prior to the year end.
Adjusted EBITDA more than doubled in the year to GBP1.7m (2015:
GBP0.8m) and it has increased fourfold in the last two years.
EBITDA as a percentage of sales improved from 29.6% to 34.2% as the
leverage of the increased revenue continued. Profit before tax
increased from GBP0.7m to GBP1.4m.
Animed Direct
2016 2015
GBPm GBPm
Revenue 9.8 10.3
----------------- --------- -------------
Adjusted EBITDA
GBPm 0.3 0.5
EBITDA margin
% 3.2 4.8
----------------- --------- -------------
Animed Direct, our on-line dispensary and retailer, had a tough
year. Revenue fell by 4.6% to GBP9.8m (2015: GBP10.3m) and adjusted
EBITDA fell to GBP0.3m (2015: GBP0.5m). Profit before tax fell from
GBP0.5m to GBP0.3m. Sales have suffered due to the poor performance
of our website on mobile phones and tablets while transactions
shifted rapidly to these channels. Our website will be relaunched
and further developed during 2017.
The business focusses on prescription and non-prescription
medicines where the Group's buying power allows it to be extremely
competitive. The business now has a customer database of over
335,000 (2015: over 322,000) people, with the average value of each
purchase during the year up at GBP31.00 (2015: GBP28.94).
Head office
Central administration costs include those of the central
finance, IT, human resource, purchasing, legal and property
functions. Total costs were GBP7.9m (2015: GBP5.8m), representing
3.6% of revenue (2015: 3.5%).
The significant growth and development of the Group requires
additional investment to maintain an appropriate level of control
and to support further growth over the next few years. Our head
office was relocated into larger premises in Diss during 2016 and
Animed Direct will relocate to the same site, which includes a
50,000 sq. ft. warehouse, in the current year.
All central functions have taken on additional staff to assist
with the integration of acquisitions and the ongoing management of
the enlarged business. More support staff are being based in the
regions, where they can more easily provide the close support that
the operations teams require. Focus has remained on developing our
support systems to improve efficiency, effectiveness and
resilience.
Development of our planned own brand insurance offers exciting
potential for the Group. The central administration costs include a
small amount of initial set up costs for our proposed insurance
business. The detailed specification of products and systems is in
progress and we hope to launch our own brand insurance in 2017.
Simon Innes
Chief Executive Officer
23 September 2016
Finance review
Growth in revenue, profits and earnings per share
Financial highlights
CVS has continued to deliver growth in revenues, profits and
earnings per share. Key financial highlights are shown below:
2016 2015 Change
%
Revenue (GBPm) 218.1 167.3 30.4
Adjusted EBITDA
(GBPm)* 32.8 23.0 42.5
Adjusted profit
before tax
(GBPm)* 24.9 18.2 36.2
Adjusted earnings
per share (p)* 32.4 24.7 31.2
Operating profit
(GBPm) 11.8 9.8 20.0
Profit before
tax (GBPm) 9.1 8.5 6.0
Basic earnings
per share (p) 11.6 11.6 -
------------------- ------ ------ -------
* Adjusted financial measures are defined on page 1 of this
Annual Report and reconciled to the financial measures defined by
International Financial Reporting Standards ("IFRS") below and on
page 56 (adjusted profit before tax and adjusted earnings per
share.
Management uses adjusted EBITDA and Adjusted earnings per share
("EPS") as the basis for assessing the financial performance of the
Group. These figures exclude costs relating to business
combinations and hence assist in understanding the performance of
the Group. These terms are not defined by IFRS and therefore may
not be directly comparable with other companies' adjusted profit
measures.
An explanation of the difference between the reported operating
profit figure and adjusted EBITDA is shown below:
2016 2015
GBPm GBPm
Operating profit
as reported 11.8 9.8
Adjustments
for:
Amortisation
and depreciation 18.9 12.0
Costs of business
acquisitions 2.1 1.2
------------------- --------- ---------
Adjusted EBITDA 32.8 23.0
------------------- --------- ---------
The GBP9.8m (42.5%) improvement in the adjusted EBITDA figure
compared with the prior year arises primarily from the underlying
organic growth within Veterinary Practices Division (GBP4.0m) and
Laboratory Division (GBP0.9m), acquisitions during the year
(GBP4.5m) and the full year effect of previous year acquisitions
(GBP2.5m), offset by an increase in central administration costs
(GBP2.1m).
Adjusted EBITDA as a percentage of revenue (adjusted EBITDA
margin) increased from 13.8% in 2015 to 15.0%. This was driven by
an increased margin in the Veterinary Practice Division but there
were also increases in the Laboratory and Crematoria Divisions.
Profit before tax for the year increased from GBP8.5m to GBP9.1m
(6.0%). Basic earnings per share was unchanged at 11.6p (2015:
11.6p) due to the increase in Ordinary Shares in issue.
Adjusted profit before tax showed a 36.2% increase in the year
from GBP18.2m to GBP24.9m. Adjusted earnings per share (as defined
in note 11 to the financial statements) increased 31.2% to 32.4p
(2015: 24.7p). Adjusted profit before tax and adjusted earnings per
share exclude the impact of amortisation of intangible assets and
business combinations costs.
The increase in profit before tax is relatively small compared
to the substantial increase in the adjusted figure. This reflects
the increase in the amortisation of intangible assets due to the
acquisitions during the year. The amortisation charge also includes
the write off of GBP0.7m of intangible assets in respect of one
underperforming business acquired in 2013.
Long term growth
The Group has generated consistent growth in the scale of its
business and profits over recent years. A summary of the compound
annual growth rates ("CAGR") over the past five years in key
financial figures is as follows:
2016 2011 CAGR
%
Revenue (GBPm) 218.1 101.5 16.5
Adjusted EBITDA
(GBPm) 32.8 14.1 18.4
Adjusted profit
before tax
(GBPm) 24.9 7.9 25.8
Adjusted earnings
per share (p) 32.4 14.0 18.3
------------------- ------ ------ -----
New bank facility
In November 2015 the Group entered into a new bank facility
agreement which provides the Group with total facilities of
GBP115.0m to support the Group's organic and acquisitive growth
initiatives over the coming years. These facilities are provided by
a syndicate of three banks: RBS, HSBC and AIB. They replace the
existing banking arrangements on more favourable terms, including a
lower interest rate, and comprise the following elements:
-- A fixed term loan of GBP67.5m, repayable on 23 November 2021
via a single bullet repayment; and
-- A six year Revolving Credit Facility ("RCF") of GBP47.5m that runs to 23 November 2021.
In addition the Group has a GBP5.0m overdraft facility renewable
annually.
Cash flow
Cash flow from operating activities was GBP33.6m (2015:
GBP22.2m). The increase reflects the growth in EBITDA.
Net debt increased by GBP46.9m to GBP93.1m (2015: GBP46.2m)
largely as a consequence of higher acquisition activity and
continued investment in the business. The movement in net debt is
explained as follows:
2016 2015
GBPm GBPm
Cash generated
from operations 33.6 22.2
Capital expenditure
- maintenance (5.1) (4.4)
Taxation paid (3.3) (2.3)
Interest paid (2.4) (1.3)
--------------------- --------- ---------
Free cash flow 22.8 14.2
Capital expenditure
- development (6.4) (2.1)
Acquisitions (61.3) (25.3)
Proceeds from
ordinary shares 0.2 0.3
Dividends paid (1.8) (1.5)
Debt issuance
costs movement (0.4) (0.5)
Increase in net
debt (46.9) (14.9)
--------------------- --------- ---------
Cash available for discretionary expenditure ("free cash flow")
increased from GBP14.2m to GBP22.8m.
The analysis of capital expenditure in the table reflects a
broad split between expenditure that we expect to increase profit
and that which we believe will primarily maintain profit. This
split can only ever be approximate. Development capital expenditure
includes expenditure on new sites, relocations, significant
extensions and significant new equipment. All other expenditure is
included as maintenance.
Development capital included GBP3.3m spent on the fit out of the
Lumbry Park major multi-disciplinary referral centre, GBP0.9m on
two new surgeries at Beccles and Lawley, GBP0.5m on a new site
under development at Smethwick, GBP1.4m on major refurbishments
including at Kidlington, Nine Mile and Oaklands.
GBP61.3m was paid (including GBP7.8m repayment of acquired bank
debt) for the 67 surgeries, the VetShare buying group and three pet
crematoria which were acquired during 2016. GBP2.3m of
consideration is payable at 30 June 2016 in respect of completion
net asset adjustments and deferred consideration. The acquired
businesses are trading as expected.
No corporation tax relief is received on the majority of the
amortisation and transaction costs which are deducted in arriving
at the unadjusted profit before taxation figure. Therefore,
taxation paid increases broadly in line with the adjusted profit
before tax of the Group. The interest payment of GBP2.4m was higher
than last year (GBP1.3m) reflecting the overall higher debt levels
of the Group due primarily to the higher level of acquisitions.
Proceeds from Ordinary shares were primarily from the exercise
of options under the Group's approved SAYE scheme which allows
staff to save regular amounts each month over a three year period
and benefit from increases in the Group's share price over that
time.
GBP1.3m of costs were incurred to raise the new bank facility
(see below). GBP0.4m of debt issuance costs were amortised during
the year.
Net debt and borrowing covenants
The Group's net debt comprises the following:
2016 2015
GBPm GBPm
Borrowings repayable:
within one year 30.4 14.1
after more than
one year 69.4 35.1
----------------------- ------ ---------
Total borrowings 99.8 49.2
Cash in hand
and at bank (6.7) (3.0)
----------------------- ------ ---------
Net debt 93.1 46.2
----------------------- ------ ---------
The GBP99.8m of borrowings principally consists of:
-- the GBP67.5m term loan (net of unamortised issue costs) and
GBP2.5m loan notes. The term loan is repayable in one bullet
payment in 2021 and the loan notes in 2018; and
-- GBP30.5m drawn down under the RCF (net of unamortised issue
costs). The RCF is available until 2021.
GBP17.0m of the RCF remained unutilised at 30 June 2016 but is
available to fund business development including further
acquisitions. The Board remains committed to expanding the Group
through further acquisitions in all divisions, as well as through
organic growth. The opportunities for acquisitions in all areas of
the Group's business remain strong.
The two main financial covenants associated with the Group's
bank facilities are based on Group borrowings to EBITDA and Group
EBITDA to interest ratios. EBITDA is based on the last twelve
months' performance adjusted for the full year impact of
acquisitions made during that period. The EBITDA to interest ratio
must not be less than 4.5. At 30 June 2016 it was 13.5.
The new covenant levels allow a maximum Group borrowings to
EBITDA ratio of 3.5 until 31 December 2017 and 3.0 thereafter. The
high level of larger acquisitions during the 2015 calendar year
increased the level of debt and this gearing ratio significantly.
At 30 December 2015 the ratio was 2.9 but reduced to 2.5 at 30 June
2016. Without further acquisitions we expect the gearing ratio to
moderate through a combination of organic growth and the
realisation of the full benefits of recent acquisitions. However,
we aim to continue to expand the business, have a strong
acquisition pipeline and sufficient capacity to fund it. If the
level of acquisitions remains high, appropriate action will be
taken to reduce the gearing level.
The Group manages its banking arrangements centrally. Funds are
swept daily from its various bank accounts into central bank
accounts to optimise the Group's net interest payable position.
Taxation
The Group's effective tax rate was 23.3% (2015: 20.1%). The
principal reason for the significant increase is the high level of
acquisitions during the year leading to a high level of acquisition
costs that are not an allowable deduction for corporation tax. A
reconciliation of the expected tax charge at the standard rate to
the actual charge in millions of pounds and as a percentage of
profit before tax is shown below:
GBPm %
Profit before tax 9.1
------------------------- -------- -------
Expected tax at
standard rate of
tax 1.8 20.0
Expenses not deductible
for tax 0.4 4.4
Adjustments to
prior year tax
charge 0.1 1.1
Benefit of tax
rate change (0.2) (2.2)
------------------------- -------- -------
Actual charge/
Effective rate
of tax 2.1 23.3
------------------------- -------- -------
All of the Group's revenues and the majority of expenses are
subject to corporation tax. The main expenses which are not
deductible for tax are costs relating to acquisitions. Tax relief
against some expenses, mainly depreciation, is received over a
longer period than that for which the costs are charged in the
financial statements.
The tax charge has increased by GBP0.4m to GBP2.1m (2015:
GBP1.7m) whilst profit before taxation has increased GBP0.6m from
GBP8.5m to GBP9.1m.
The benefit of the tax rate change reflects the impact of the
reduction in corporation tax rates from 20.0% to 19.0% in April
2017 on the intangible assets deferred tax liabilities.
Share price performance
At the year end the market capitalisation was GBP467.1m. (782p
per share) compared to GBP382.5m (646p per share) at the previous
year end.
Key contractual arrangements
The Directors consider that the Group has only one significant
third-party supplier contract which is for the supply of veterinary
drugs. In the event that this supplier ceased trading the Group
would be able to continue in business without any disruption in
trading by purchasing from alternative suppliers.
Forward looking statements
Certain statements in this Annual Report are forward looking.
Although the Board believes that the expectations reflected in
these forward-looking statements are reasonable, it can give no
assurance that these expectations will prove to be correct. Because
these statements involve risks and uncertainties, actual results
may differ materially from those expressed or implied by these
forward-looking statements.
Key Performance indicators
The Directors monitor progress against the Group strategy by
reference to the following financial KPIs. Performance during the
year is set out in the table below
KPI 2016/2015 Definition Changes in 2016
----------------- ----------- --------------------------- -------------------------------
Revenue GBP218.1m Total revenue Total revenue increased
GBP167.3m of the Group. GBP50.8m.
Revenue before the
impact of prior year
and current year acquisitions
was GBP175.8m, a GBP10.2m
increase compared
with 2015. Factors
contributing to the
increase are noted
in the like-for-like
sales performance.
Acquisitions in the
year and the full
year impact of the
prior year's acquisitions
generated additional
revenue of GBP42.6m.
Inter-company sales
eliminated on consolidation
increased by GBP2.0m,
principally due to
the impact of internal
crematoria and laboratory
sales to practices
acquired in 2015 and
2016.
----------------- ----------- --------------------------- -------------------------------
Like-for-like 4.8% Revenue generated The like for like
sales from like for increase reflected
performance like operations strong performances
compared to prior in all divisions except
year. Revenue Animed Direct. It
for 2016 is included was helped by the
in the like for growth in referrals
like calculation work and Healthy Pet
with effect from Club membership, the
the month in development of the
which it was Crematoria business
acquired in the and higher volumes
previous year; in the Laboratory
for example for Division. Significant
a practice acquired competitive pressures
in September continued at some
2014, revenue locations, reducing
is included from their revenue.
September 2015
in the like for
like calculation.
6.8% This measure The lower like for
is calculated like sales % increase
using a measure in 2016 compared with
of Group revenue 2015 was due to the
after deducting sales growth being
revenue from at more customary
current year levels in the first
acquisitions half of the 2016 financial
and greenfield year (3%) compared
developments with 2015 (10%).
(GBP28.1m) and
after adjusting
for prior year
acquisitions
such that revenue
is included for
a comparable
number of months
with 2015 (GBP15.3m).
----------------- ----------- --------------------------- -------------------------------
Healthy 19.0% Revenue received The growth of Healthy
Pet Club from Healthy Pet Club membership
revenue Pet Club members from 213,000 to 253,000
as a percentage led to the increase
of total revenue for the year.
for the year.
13.0%
----------------- ----------- --------------------------- -------------------------------
Gross 84.2% Gross margin The increase in the
margin after deducting gross margin is principally
after the cost of drugs due to improvements
materials and other goods in the Veterinary
percentage sold or used Practice Division
by the business which was particularly
from revenue, helped by the introduction
expressed as of the MiPet own brand
a percentage range of treatments.
of total revenue.
82.0% Gross margin
was GBP106.3,
after deducting
GBP66.6m of clinical
staff costs and
GBP10.8m of laboratory
and cremation
costs. Gross
margin after
materials but
before clinical
staff costs was
GBP183.7m.
----------------- ----------- --------------------------- -------------------------------
Adjusted GBP32.8m Earnings before The improvement in
EBITDA GBP23.0m income tax, net adjusted EBITDA is
finance expense, explained by organic
depreciation, underlying growth
amortisation (GBP4.9m) together
and costs relating with the full year
to business combinations. impact of prior year
acquisitions (GBP2.5m)
and acquisitions in
the current year (GBP4.5m),
partly offset by GBP2.1m
increase in central
costs incurred to
build a foundation
for further development
of the Group.
----------------- ----------- --------------------------- -------------------------------
Adjusted 32.4p Earnings, adjusted The increase primarily
EPS 24.7p for amortisation, reflects the improvement
costs relating in the adjusted EBITDA.
to business combinations
and non-recurring
tax credits net
of the notional
tax impact of
the above, divided
by the weighted
average number
of issued shares.
----------------- ----------- --------------------------- -------------------------------
Cash generated GBP33.6m Cash inflow before The increase primarily
from operations GBP22.2m payments of taxation reflects the improvement
and interest, in EBITDA of the business.
acquisitions,
purchase of property,
plant, equipment
and intangible
assets, payments
of dividends,
debt issue costs,
increase/repayment
of bank loans
and proceeds
from issue of
shares.
----------------- ----------- --------------------------- -------------------------------
Return 15.0% Annualised adjusted The reduction in Return
on investment EBITDA relating on Investment ("ROI")
on acquisitions to acquisitions is reflective of the
made during during the year higher average EBITDA
the year compared to the multiples being paid
consideration for acquisitions.
paid.
18.7%
----------------- ----------- --------------------------- -------------------------------
Principal risks and uncertainties
The Group's businesses are subject to a wide variety of risks.
The most significant risks are explained below together with
details of actions that have been taken to mitigate these
risks.
Our risk management framework
The Board has overall responsibility for ensuring risk is
appropriately managed across the Group. The day to day
identification and management of risk is delegated to the Group's
Executive Committee. The Group is currently establishing an
Internal Audit function.
Risk Description Mitigating factors
--------------- ------------------------- -------------------------------------
Economic A poor economic The improvement in the UK
environment environment poses economy in the last few years
a risk to the has helped the business to
Group through improve revenue and profitability
reduced consumer but the Group seeks to become
spending on veterinary, more resilient to future
laboratory, crematoria downturns in economic conditions.
and on-line services. The Group's exposure to the
potential impacts of 'Brexit'
appears to be limited and,
whilst the referendum vote
to leave the EU creates some
uncertainty for the pace
of growth in the UK economy
over the next couple of years,
the Board believes that the
characteristics of our business
make it relatively resilient.
The expansion of the Group's
business to provide a broader
based service including referrals,
out-of-hours, equine and
large animal services spreads
the risk of a downturn in
any one business.
The Veterinary Practice Division
has continued to grow its
Healthy Pet Club loyalty
schemes during the year as
one way of mitigating this
risk. The scheme has the
significant benefits of stimulating
customer loyalty, ensuring
clinical compliance in preventive
medicine, protecting revenue
from drug sales, and bringing
customers into the surgery.
The further development of
an own brand product range
will help to reduce the risk
of customers buying drugs
on-line, whilst the growth
of Animed Direct protects
the Group further as customers
switching to buying on-line
may still be buying from
CVS.
--------------- ------------------------- -------------------------------------
Competition The Group is The geographic spread of
exposed to risk the Group's businesses and
through the actions the fragmented nature of
of competitors. the market help mitigate
this risk. Furthermore, the
expansion of the Group's
Healthy Pet Club loyalty
schemes, the expansion into
other business areas and
the growth of Animed Direct,
our on-line dispensary, provide
further mitigation against
the risk of competition.
--------------- ------------------------- -------------------------------------
Adverse In common with The increasing proportion
weather many businesses of income through the Healthy
the Group's revenue Pet Club and on-line through
is adversely Animed Direct reduces the
affected during risk of lost income through
sustained periods poor weather. As the Group
of severe winter widens its geographical presence
weather. the exposure to this risk
will be further mitigated.
--------------- ------------------------- -------------------------------------
Key personnel The Group has The Group is committed to
limited risk the development of its employees
in relation to and will continue to recruit
the ability to specialist and qualified
attract and retain professionals to promote
appropriately its services. Our graduate
qualified veterinary recruitment scheme is recognised
surgeons. across the industry and our
Aspirational Leadership Programme
helps to develop and retain
senior staff. The involvement
of senior personnel is encouraged
through the operation of
the Group's LTIP scheme.
An annual SAYE scheme, available
to all staff, aids the retention
of other staff.
--------------- ------------------------- -------------------------------------
Clinical If clinical standards The Group has established
standards expected by customers, a formal organisational structure
industry forums such that clinical policies
and regulatory and procedures are developed
authorities are by veterinary experts. Day-to-day
not maintained monitoring and staff training
the Group is ensures compliance. The Group
at risk of losing has further mitigated risk
revenue. by ensuring that suitable
insurance policies are taken
out at both an individual
and corporate level.
--------------- ------------------------- -------------------------------------
Adverse Adverse publicity The Group has policies and
publicity could result procedures in place to ensure
in a reduction that high standards of customer
in customer numbers service and clinical excellence
and in revenue. are maintained. The behaviours
promoting excellent customer
care and clinical standards
are embedded within our core
values. The individual branding
of our practices reduces
the risk of publicity at
one practice impacting on
another.
--------------- ------------------------- -------------------------------------
Changes Changes in veterinary No significant proposed changes
in veterinary regulations could are known. Any changes are
regulations impact on the likely to impact on our competitors
work we are allowed in the same way they impact
to perform and on the Group.
the way we work.
--------------- ------------------------- -------------------------------------
Changes Most changes The only changes in taxation
in taxation in taxation cannot that have been proposed and
be predicted impact on the Group is a
and the impact reduction in the corporation
of any change tax rate from 20% to 19%
can be variable. from 1 April 2017 and to
18% in 2020. This will benefit
the Group.
Changes in taxation are likely
to impact on our competitors
in the same way they impact
on the Group.
--------------- ------------------------- -------------------------------------
Reliance The majority A two year supply agreement
on one of medicines was signed in April 2015
supplier are purchased to secure the provision of
of medicines through one wholesaler. medicines. Three wholesalers
can supply most medicines;
hence supply is available
if the existing CVS wholesaler
were to withdraw. CVS also
has direct relationships
with many manufacturers which
would enable direct supply
should any difficulties occur.
--------------- ------------------------- -------------------------------------
Nick Perrin
Finance Director
23 September 2016
Consolidated income statement for the year ended 30 June
2016
2016 2015
Note GBPm GBPm
---------------------------------- ----- ------------------------- -----------------------
Revenue 2 218.1 167.3
Cost of sales (111.8) (88.2)
---------------------------------- ----- ------------------------- -----------------------
Gross profit 106.3 79.1
---------------------------------- ----- ------------------------- -----------------------
Administrative expenses (94.5) (69.3)
---------------------------------- ----- ------------------------- -----------------------
Operating profit 11.8 9.8
Net finance expense (2.7) (1.3)
---------------------------------- ----- ------------------------- -----------------------
Profit before income tax 2 9.1 8.5
Income tax expense 3 (2.1) (1.7)
---------------------------------- ----- ------------------------- -----------------------
Profit for the year attributable
to owners of the Parent 7.0 6.8
---------------------------------- ----- ------------------------- -----------------------
Earnings per ordinary share for profit attributable
to owners of the Company (expressed in pence per
share) ("EPS")
Basic 4 11.6p 11.6p
Diluted 4 11.3p 11.3p
---------------------------------- ----- ------------------------- -----------------------
Reconciliation of adjusted financial measures
The Directors believe that adjusted profit provides additional
useful information for shareholders on performance. This is used
for internal performance analysis. This measure is not defined by
IFRS and is not intended to be a substitute for, or superior to,
IFRS measurements of profit. The following table is provided to
show the comparative earnings before interest, tax, depreciation
and amortisation ("EBITDA") after adjusting for costs relating to
business combinations.
Non-GAAP measure: Adjusted 2016 2015
EBITDA Note GBPm GBPm
--------------------------------- ----- ------ ------
Profit before income tax 2 9.1 8.5
Adjustments for:
Finance expense 2.7 1.3
Depreciation 5.2 3.5
Amortisation and impairment
of intangible assets 13.7 8.5
Costs relating to business
combinations 2.1 1.2
Adjusted EBITDA 2 32.8 23.0
--------------------------------- ----- ------ ------
Statement of consolidated comprehensive income for the year
ended 30 June 2016
2016 2015
GBPm GBPm
------------------------------------- ------ ------------------
Profit for the year 7.0 6.8
-------------------------------------- ------ ------------------
Other comprehensive income - items
that will or may be reclassified
to profit/(loss) in future periods
Cash flow hedges:
Fair value (losses)/gains - (0.1)
Other comprehensive income for the
year, net of tax - (0.1)
-------------------------------------- ------ ------------------
Total comprehensive income for the
year attributable to owners of the
parent 7.0 6.7
-------------------------------------- ------ ------------------
Consolidated balance sheet as at 30 June 2016
Group Group
2016 2015
Note GBPm GBPm
--------------------------------- ---- ------------------------ -------------------
Non-current assets
Intangible assets 131.5 79.2
Property, plant and equipment 32.8 20.0
Investments 0.1 0.1
Deferred income tax assets 1.8 1.8
166.2 101.1
--------------------------------- ---- ------------------------ -------------------
Current assets
Inventories 9.7 5.8
Trade and other receivables 23.8 17.1
Cash and cash equivalents 6.7 3.0
--------------------------------- ---- ------------------------ -------------------
40.2 25.9
--------------------------------- ---- ------------------------ -------------------
Total assets 2 206.4 127.0
Current liabilities
Trade and other payables (43.0) (30.4)
Current income tax liabilities (2.3) (1.7)
Borrowings 7 (30.4) (14.1)
(75.7) (46.2)
Non-current liabilities
Borrowings 7 (69.4) (35.1)
Deferred income tax liabilities (14.6) (6.5)
Derivative financial instruments (0.1) (0.1)
--------------------------------- ---- ------------------------ -------------------
(84.1) (41.7)
--------------------------------- ---- ------------------------ -------------------
Total liabilities 2 (159.8) (87.9)
--------------------------------- ---- ------------------------ -------------------
Net assets 46.6 39.1
--------------------------------- ---- ------------------------ -------------------
Shareholders' equity
Share capital 0.1 0.1
Share premium 9.7 9.5
Capital redemption reserve 0.6 0.6
Revaluation reserve 0.1 0.1
Merger reserve (61.4) (61.4)
Retained earnings 97.5 90.2
Total equity 46.6 39.1
--------------------------------- ---- ------------------------ -------------------
The financial information comprising the consolidated income
statement, the statement of consolidated comprehensive income, the
consolidated balance sheet, the consolidated statement of changes
in shareholders' equity, the consolidated cash flow statement and
the related notes, were authorised for issue by the Board of
Directors on 23 September 2016 and were signed on its behalf
by:
Nick Perrin Simon Innes
Director Director
Company registered number: 06312831
Consolidated statement of changes in equity for the year ended
30 June 2016
Capital
Share Share redemption Revaluation Merger Retained Total
capital premium reserve reserve reserve earnings Equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- -------- --------- ----------- ------------ -------------------- ---------- -------------------
At 1 July 2014 0.1 9.2 0.6 0.1 (61.4) 82.6 31.2
--------------- -------- --------- ----------- ------------ -------------------- ---------- -------------------
Profit for the
year - - - - - 6.8 6.8
--------------- -------- --------- ----------- ------------ -------------------- ---------- -------------------
Other
comprehensive
income
Cash flow
hedges:
Fair
value
losses - - - - - (0.1) (0.1)
Total other
comprehensive
income - - - - - (0.1) (0.1)
--------------- -------- --------- ----------- ------------ -------------------- ---------- -------------------
Total
comprehensive
income - - - - - 6.7 6.7
--------------- -------- --------- ----------- ------------ -------------------- ---------- -------------------
Transactions
with owners
Issue of
ordinary
shares - 0.3 - - - - 0.3
Credit to
reserves
for
share-based
payments - - - - - 1.2 1.2
Deferred tax
relating
to
share-based
payments - - - - - 1.2 1.2
Dividends to
equity
holders of
the Company - - - - - (1.5) (1.5)
Transactions
with owners - 0.3 - - - 0.9 1.2
At 30 June
2015 0.1 9.5 0.6 0.1 (61.4) 90.2 39.1
--------------- -------- --------- ----------- ------------ -------------------- ---------- -------------------
Capital
Share Share redemption Revaluation Merger Retained Total
capital premium reserve reserve reserve earnings Equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- -------- --------- ----------- ------------ -------------------- ---------- -------------------
At 1 July 2015 0.1 9.5 0.6 0.1 (61.4) 90.2 39.1
--------------- -------- --------- ----------- ------------ -------------------- ---------- -------------------
Profit for the
year - - - - - 7.0 7.0
--------------- -------- --------- ----------- ------------ -------------------- ---------- -------------------
Other
comprehensive
income
Cash flow
hedges:
Fair - - - - - - -
value
losses
Total other - - - - - - -
comprehensive
income
--------------- -------- --------- ----------- ------------ -------------------- ---------- -------------------
Total
comprehensive
income - - - - - 7.0 7.0
--------------- -------- --------- ----------- ------------ -------------------- ---------- -------------------
Transactions
with owners
Issue of
ordinary
shares - 0.2 - - - - 0.2
Credit to
reserves
for
share-based
payments - - - - - 1.3 1.3
Deferred tax
relating
to
share-based
payments - - - - - 0.8 0.8
Dividends to
equity
holders of
the Company - - - - - (1.8) (1.8)
Transactions
with owners - 0.2 - - - 0.3 0.5
At 30 June
2016 0.1 9.7 0.6 0.1 (61.4) 97.5 46.6
--------------- -------- --------- ----------- ------------ -------------------- ---------- -------------------
Consolidated cash flow statement for the year ended 30 June
2016
Group Group
2016 2015
Note GBPm GBPm
-------------------------------------- ----- --------------- ------------
Cash flows from operating activities
-------------------------------------- ----- --------------- ------------
Cash generated from operations 8 33.6 22.2
Taxation paid (3.3) (2.3)
Interest paid (2.4) (1.3)
Net cash generated from operating
activities 27.9 18.6
-------------------------------------- ----- --------------- ------------
Cash flows from investing activities
Acquisitions (net of cash acquired) 5 (53.5) (21.1)
Purchase of property, plant and
equipment (11.3) (6.1)
Purchase of intangible assets (0.2) (0.4)
Net cash used in investing activities (65.0) (27.6)
-------------------------------------- ----- --------------- ------------
Cash flows from financing activities
Dividends paid (1.8) (1.5)
Proceeds from issue of ordinary
shares 0.2 0.3
Debt issuance costs (1.3) (0.5)
Increase/(Repayment) of borrowings 43.7 11.5
Net cash used in financing activities 40.8 9.8
-------------------------------------- ----- --------------- ------------
Net increase in cash and cash
equivalents 3.7 0.8
Cash and cash equivalents at
beginning of year 3.0 2.2
Cash and cash equivalents at
end of year 6.7 3.0
-------------------------------------- ----- --------------- ------------
Notes to the consolidated financial statements for the year
ended 30 June 2016
1. Summary of significant accounting policies
Statement under s498 - publication of non-statutory accounts
The financial information set out in this preliminary
announcement does not constitute statutory financial statements for
the years ended 30 June 2016 or 2015, for the purpose of the
Companies Act 2006, but is derived from those financial statements.
Statutory financial statements for 2016, on which the Group's
auditors have given an unqualified report which does not contain
statements under Section 498(2) or (3) of the Companies Act 2006,
will be filed with the Registrar of Companies subsequent to the
Group's next annual general meeting. Statutory financial statements
for 2015 have been filed with the Registrar of Companies. The
Group's auditors have reported on those accounts; their reports
were unqualified and did not contain statements under Section
498(2) or (3) of the Companies Act 2006.
Basis of preparation
The consolidated financial statements, from which this
preliminary announcement is derived, have been prepared on a going
concern basis and under the historical cost convention, except for
certain financial instruments that have been measured at fair
value. The Group has operated within the levels of its current debt
facility and complied with both the financial and non-financial
covenants contained in the facility agreement therein throughout
the year under review and to the date of the approval of the
financial statements. The Group is forecasting that it will
continue to operate within the levels of its current facility and
comply with the financial and non-financial covenants contained in
the facility agreement. On this basis the Directors consider it
appropriate to prepare the consolidated financial statements on the
going concern basis.
Whilst the financial information included in this preliminary
announcement has been prepared in accordance with the International
Financial Reporting Standards (IFRSs) as adopted for use in the
European Union and as issued by the International Accounting
Standards Board, this announcement does not itself contain
sufficient information to comply with IFRS. Other than as stated
below, the accounting policies applied in preparing this financial
information are consistent with the Group's financial statements
for the year ended 30 June 2016.
Use of non-GAAP measures
Adjusted EBITDA and Adjusted Profit Before Tax ("Adjusted
PBT")
The Directors believe that adjusted EBITDA, adjusted PBT and
adjusted EPS provide additional useful information for shareholders
on underlying trends and performance. These measures are used for
internal performance analysis. These measures are not defined by
IFRS and therefore may not be directly comparable with other
companies' adjusted measures. It is not intended to be a substitute
for, or superior to, IFRS measurements of profit or earnings per
share.
Adjusted EBITDA is calculated by reference to profit before
income tax, adjusted for interest (net finance expense),
depreciation, amortisation, costs relating to business
combinations.
Adjusted profit before income tax is calculated as profit on
ordinary activities before amortisation, taxation, costs relating
to business combinations and exceptional items.
Adjusted earnings per share is calculated as adjusted profit
before income tax less applicable taxation divided by the weighted
average number of Ordinary shares in issue in the period.
Like-for-like sales
Like-for-like sales comprise the revenue generated from all
operations compared to the prior year. Revenue is included in the
like for like calculation with effect from the month in which it
was acquired in the previous year; for example for a practice
acquired in September 2014, revenue is included from September 2015
in the like for like revenue calculation.
Segmental reporting
The operating segments are based on the Group's management and
internal reporting structure and monitored by the Group's chief
operating decision maker (CODM). Inter-segment pricing is
determined on an arm's length basis.
Segment results, assets and liabilities include items directly
attributable to a segment as well as those that can be allocated on
a reasonable basis. Unallocated items comprise mainly
interest-bearing borrowings and associated costs, taxation related
assets/liabilities, costs relating to business combinations and
head office salary and premises costs.
The business operates predominantly in the UK. It performs a
small amount of laboratory work for European based clients and
Animed Direct Limited distributes a small quantity of goods to
European countries. In accordance with IFRS 8 "Operating segments"
no segmental results are presented for trade with European clients
as these are not reported separately for management reporting
purposes and are not considered material for separate
disclosure.
Operating segments
The Group is split into four operating segments (Veterinary
Practice Division, Laboratory Division, Crematoria Division and
Animed Direct) and a centralised support function for business
segment analysis. In identifying these operating segments,
management generally follows the group's services lines
representing its main products and services.
Each of these operating segments is managed separately as each
segment requires different specialisms, marketing approaches and
resources. Intra-group sales eliminations are included within the
Head Office segment. Head Office includes costs relating to the
employees, property and other overhead costs associated with the
centralised support function together with finance costs arising on
the Group's borrowings.
Year ended 30 June Veterinary Animed Head
2016 Practices Laboratories Crematoria Direct Office Group
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ----------- ------------- ----------- -------- -------- --------
Revenue 196.7 14.8 5.0 9.8 (8.2) 218.1
Profit/(loss) before
income tax 21.3 2.5 1.4 0.3 (16.4) 9.1
Adjusted EBITDA 35.6 3.1 1.7 0.3 (7.9) 32.8
Total assets 184.5 9.8 6.7 3.8 1.6 206.4
Total liabilities (52.9) (2.1) (1.4) (3.1) (100.3) (159.8)
Reconciliation of
adjusted EBITDA
Profit/(loss) before
income tax 21.3 2.5 1.4 0.3 (16.4) 9.1
Net finance expense - - - - 2.7 2.7
Depreciation 4.1 0.6 0.3 - 0.2 5.2
Amortisation 9.4 - - - 4.3 13.7
Costs relating to
business combinations 0.8 - - - 1.3 2.1
------------------------ ----------- ------------- ----------- -------- -------- --------
Adjusted EBITDA 35.6 3.1 1.7 0.3 (7.9) 32.8
------------------------ ----------- ------------- ----------- -------- -------- --------
Year ended 30 June Veterinary Animed Head
2015 Practices Laboratories Crematoria Direct Office Group
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ----------- ------------- ----------- -------- -------- -------
Revenue 147.5 13.1 2.6 10.3 (6.2) 167.3
Profit/(loss) before
income tax 15.4 1.7 0.7 0.5 (9.8) 8.5
Adjusted EBITDA 25.3 2.2 0.8 0.5 (5.8) 23.0
Total assets 109.2 7.9 3.6 3.5 2.8 127.0
Total liabilities (30.2) (1.9) (0.8) (3.0) (52.0) (87.9)
Reconciliation of
adjusted EBITDA
Profit/(loss) before
income tax 15.4 1.7 0.7 0.5 (9.8) 8.5
Net finance expense - - - - 1.3 1.3
Depreciation 2.6 0.5 0.1 - 0.3 3.5
Amortisation 6.9 - - - 1.6 8.5
Costs relating to
business combinations 0.4 - - - 0.8 1.2
------------------------ ----------- ------------- ----------- -------- -------- -------
Adjusted EBITDA 25.3 2.2 0.8 0.5 (5.8) 23.0
------------------------ ----------- ------------- ----------- -------- -------- -------
2. Income tax expense
a) Analysis of income tax expense recognised in the income statement
2016 2015
GBPm GBPm
Current tax expense
UK corporation tax 3.5 2.6
Adjustments in respect of previous (0.1) -
years
--------------------------------------- ------ ------
Total current tax charge 3.4 2.6
--------------------------------------- ------ ------
Deferred tax expense
Origination and reversal of temporary
differences (1.3) (0.5)
Adjustments in respect of previous
years 0.2 (0.2)
Effect of tax rate change on opening
deferred tax balance (0.2) (0.2)
--------------------------------------- ------ ------
Total deferred tax credit (1.3) (0.9)
Total income tax expense 2.1 1.7
--------------------------------------- ------ ------
Factors affecting the current tax charge
UK corporation tax is calculated at 20.0% (2015: 20.8%) of the
estimated assessable profit for the year.
(b) Reconciliation of effective income tax charge
The tax on the Group's profit before tax differs from the
theoretical amount that would arise using the weighted average tax
rate applicable to profits of the consolidated entities as
follows:
2016 2015
GBPm GBPm
Profit before tax 9.1 8.5
Effective tax charge at 20.0% (2015:
20.8%) 1.8 1.8
Effects of:
Expenses not deductible for tax
purposes 0.4 0.3
Effect of tax rate change on opening
deferred tax balance (0.2) (0.2)
Adjustments to deferred tax charge
in respect of previous years 0.2 (0.2)
Adjustments to current tax charge (0.1) -
in respect of previous years
Total income tax expense 2.1 1.7
----------------------------------------------- ------ ------
The main rate of corporation tax will reduce from 20% to 19%
from 1 April 2017. This change had been substantively enacted at
the balance sheet date and, therefore, is reflected in these
financial statements.
3. Earnings per Ordinary share
(a) Basic
Basic earnings per Ordinary share are calculated by dividing the
profit after taxation by the weighted average number of shares in
issue during the year.
2016 2015
------------------------------------------------------ ---------- ----------
Earnings attributable to Ordinary shareholders (GBPm) 7.0 6.8
------------------------------------------------------ ---------- ----------
Weighted average number of Ordinary shares in issue 59,736,436 58,814,787
------------------------------------------------------ ---------- ----------
Basic earnings per share (pence per share) 11.6 11.6
------------------------------------------------------ ---------- ----------
(b) Diluted
Diluted earnings per share is calculated by adjusting the
weighted average number of Ordinary shares outstanding to assume
conversion of all dilutive potential Ordinary shares. The Company
has potentially dilutive Ordinary shares being the contingently
issuable shares under the Group's long term incentive plan schemes
and SAYE schemes. For share options, a calculation is undertaken to
determine the number of shares that could have been acquired at
fair value (determined as the average annual market share price of
the Company's shares) based on the monetary value of the
subscription rights attached to outstanding share options. The
number of shares calculated as above is compared with the number of
shares that would have been issued assuming the exercise of the
share options.
2016 2015
------------------------------------------------------- ---------- ----------
Earnings attributable to Ordinary shareholders (GBPm) 7.0 6.8
------------------------------------------------------- ---------- ----------
Weighted average number of Ordinary shares in issue 59,736,436 58,814,787
Adjustment for contingently issuable shares - Long
term incentive plans 681,294 1,078,285
Adjustment for contingently issuable shares - SAYE
schemes 726,215 624,663
------------------------------------------------------- ---------- ----------
Weighted average number of Ordinary shares for diluted
earnings per share 61,143,945 60,517,735
------------------------------------------------------- ---------- ----------
Diluted earnings per share (pence per share) 11.3 11.3
------------------------------------------------------- ---------- ----------
4. Earnings per Ordinary share (continued)
Non-GAAP measure: Adjusted earnings per share
Adjusted earnings per Ordinary share is calculated as adjusted
profit before income tax less applicable taxation divided by the
weighted average of ordinary shares in issue in the period.
2016 2015
----------------------------------------- --------------------- ---------------------
GBPm GBPm
----------------------------------------- --------------------- ---------------------
Earnings attributable to Ordinary
shareholders 7.0 6.8
Add back taxation 2.1 1.7
----------------------------------------- --------------------- ---------------------
Profit before taxation 9.1 8.5
Adjustments for:
Amortisation 13.7 8.5
Costs relating to business combinations
(note 5) 2.1 1.2
----------------------------------------- --------------------- ---------------------
Adjusted profit before income tax 24.9 18.2
Tax on adjusted profits (5.4) (3.7)
Adjusted profit after income tax and
earnings attributable to owners of
the parent 19.5 14.5
----------------------------------------- --------------------- ---------------------
Weighted average number of Ordinary
shares in issue 59,736,436 58,814,787
Weighted average number of Ordinary
shares for diluted earnings per share 61,143,945 60,517,735
----------------------------------------- --------------------- ---------------------
Pence Pence
Adjusted earnings per share 32.4p 24.7p
----------------------------------------- --------------------- ---------------------
Diluted adjusted earnings per share 31.7p 24.0p
----------------------------------------- --------------------- ---------------------
5. Business combinations
Details of business combinations in the year ended 30 June 2016
are set out below, in addition to an analysis of post-acquisition
performance of the respective business combinations, where
practicable.
Given the nature of the veterinary surgeries acquired (mainly
partnerships or sole traders) and the records maintained by such
practices it is not practicable to disclose the revenue or
profit/loss of the combined entity for the year as though the
acquisition date for all business combinations effected during the
year had been the beginning of that year. It is not practicable to
disclose the impact of the business combinations on the
consolidated cash flow statement as full ledgers were not
maintained for each business combination in relation to all related
assets and liabilities post acquisition.
The table below summarises the assets acquired in the year ended
30 June 2016:
Book value
of acquired
assets Adjustments Fair value
GBPm GBPm GBPm
------------------------------ ------------- ------------ -----------
Property plant and equipment 6.8 - 6.8
Patient data records and
customer lists 6.7 49.9 56.6
Goodwill - 9.2 9.2
Inventory 2.4 - 2.4
Deferred tax liability (0.3) (9.9) (10.2)
Trade and other receivables 10.3 - 10.3
Trade and other payables (11.5) - (11.5)
Loans (7.8) - (7.8)
------------------------------ ------------- ------------ -----------
Net assets acquired 6.6 49.2 55.8
Total initial consideration
paid (net of cash acquired) 53.5
Initial consideration
payable 1.3
Deferred consideration
payable 1.0
------------------------------ ------------- ------------ -----------
Total consideration payable 55.8
------------------------------ ------------- ------------ -----------
Post-acquisition revenue and post-acquisition EBITDA were
GBP28.1m and GBP3.3m respectively. The post-acquisition period is
from the date of acquisition to 30 June 2019. Post-acquisition
EBITDA represents the direct operating result of practices from the
date of acquisition to 30 June 2016 prior to the allocation of
central overheads, on the basis that it is not practicable to
allocate these.
The acquisition costs incurred in relation to the above business
combinations amounted to GBP1.3m for the year and are included
within administrative expenses in the consolidated income
statement.
Included within the table above are the acquisitions of
Alnorthumbria Veterinary Practice Limited, Highcroft Pet Care
Limited and Albavet Limited, which are each considered to be
material for the purposes of the financial statements. Separate
disclosure of these acquisitions is provided in the statutory
financial statements.
The fair values of the assets and liabilities are
provisional.
5. Business combinations (continued)
Business combinations in previous years
Details of business combinations in the comparative year are
presented in the consolidated financial statements for the year
ended 30 June 2015.
Business combinations subsequent to the year end
Subsequent to the year end, the Group acquired the share capital
of Nottingham Veterinary Care Limited, a three surgery small animal
practice in Nottingham, on 30 August 2016 for initial cash
consideration of GBP0.6m. Assets acquired comprised principally
intangible patient data records and plant and equipment with a
provisional fair value of GBP0.6m.
6. Dividends
2016 2015
GBPm GBPm
------------------------------------- ------ ------
Amounts recognised as distributions
in the year in respect of:
Ordinary shares 1.8 1.5
------------------------------------- ------ ------
The Directors have proposed a final dividend of 3.5p (2015:
3.0p) per share (total GBP2.1m), payable on 9 December 2016 to
shareholders on the register at the close of business on 25
November 2016. The dividend has not been included as a liability as
at 30 June 2016. During the year a dividend of 3.0p per share
amounting to GBP1.8m was paid.
7. Borrowings
Borrowings comprise bank loans and are denominated in sterling.
The repayment profile is as follows:
Group 2016 2015
GBPm GBPm
------------------------------ ------ ------
Within one year or on demand 30.4 14.1
Between one and two years 2.7 32.6
Between two and three years 66.7 2.5
99.8 49.2
------------------------------ ------ ------
The balances above are shown net of issue costs of GBP1.5m
(2015: GBP0.6m), which are being amortised over the term of the
bank loans. The carrying amount of borrowings is deemed to be a
reasonable approximation to fair value.
On 23 November 2015 the Group entered into a new bank facility
agreement which provides the Group with total facilities of
GBP115.0 million. These facilities are provided by a syndicate of
three banks: RBS, HSBC and AIB. They replace the existing banking
arrangement with RBS on more favourable terms, including a lower
interest rate, and comprise the following elements:
-- A fixed term loan of GBP67.5 million, repayable on 23rd
November 2021 via a single bullet repayment; and
-- A six year Revolving Credit Facility ("RCF") of GBP47.5
million that runs to 23rd November 2021.
In addition the Group has a GBP5.0 million overdraft facility
renewable annually.
The previous bank facility provided by RBS was entered into on
28th March 2015. The facility was comprised of a fixed term loan of
GBP32.0m and RCF of GBP48.0m. The refinancing has been accounted
for as a modification of debt reflecting the substance of the
transaction. The issue costs associated the RBS debt continues to
be amortised. The refinancing was not a substantial modification;
in accordance with IAS39 no gain or loss arose.
The two main financial covenants associated with these
facilities are based on Group Borrowings to EBITDA and Group EBITDA
to interest. The Group Borrowings to EBITDA ratio must not exceed
3.5 for the period up to 31st December 2017 from when it must not
exceed 3.0. The Group EBITDA to interest ratio must not be less
than 4.5. The facilities require cross guarantees from the most
significant of the CVS Group's trading subsidiaries but are not
secured on the assets of the Group. EBITDA is based on the last 12
months' performance adjusted for the full year impact of
acquisitions made during the period.
Undrawn committed borrowing facilities
At 30 June 2016 the Group has a committed overdraft facility of
GBP5.0m (2015: GBP5.0m) and a RCF of GBP47.5m (2015: GBP48.0m). The
overdraft facility was undrawn at 30 June 2016 and 30 June 2015.
GBP17.0m of the RCF was undrawn at 30 June 2016 (2015:
GBP33.0m).
8. Cash flow generated from operations
2016 2015
GBPm GBPm
----------------------------------------- ------ ------
Profit for the year 7.0 6.8
Taxation 2.1 1.7
Total finance costs 2.7 1.3
Amortisation of intangible assets 13.7 8.5
Depreciation of property, plant and
equipment 5.2 3.5
(Increase)/decrease in working capital:
Inventories (1.6) (0.6)
Trade and other receivables 5.2 (1.9)
Trade and other payables (2.0) 1.7
Share option expense 1.3 1.2
----------------------------------------- ------ ------
Total net cash flow generated from
operations 33.6 22.2
----------------------------------------- ------ ------
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR AKBDDFBKDACB
(END) Dow Jones Newswires
September 23, 2016 02:00 ET (06:00 GMT)