Chairman’s statement 26 September 2011
Introduction and review of operations for the year
I am pleased to announce the results of CVS Group plc (“CVS”, “the Group”, or “the Company”) for the year ended 30 June 2011. The Group has continued to deliver significant improvements in many key financial metrics despite the challenges presented by a tougher operating climate.
The Group has grown revenue by 18.7% to £101.5m (2010: £85.5m) and Adjusted EBITDA by 11.1% to £14.5m (2010: £13.1m). Adjusted EBITDA as a percentage of sales has declined from 15.3% to 14.3%, primarily reflecting the tougher operating environment impacting like-for-like sales and the corresponding impact on Adjusted EBITDA owing to the Group’s relatively high operating margin. There was strong cash delivery with cash generated from operations of £17.6m (2010: £12.6m). Operating profit grew by 11.8% to £6.4m (2010: £5.7m) and Adjusted EPS grew by 17.6% to 14.0p (2010: 11.9p).
Continued uncertainty in the general economy has affected the business as increasingly hard pressed consumers look to make savings in areas of discretionary spending. Veterinary products and services have not been immune to this and as a result the Group is engaged in a number of activities to counter these trends including growth of the Group’s customer loyalty schemes and further development of the rapidly growing on-line dispensary and pet shop (Animed Direct).
The Group’s customer loyalty programmes comprise the Healthy Pet Club for adult dogs and cats; the Healthy Horse Club (launched in the first half of the financial year); the Healthy Puppy and Kitten Club (launched in the latter part of the financial year) and the Healthy Rabbit Club (launched post year end). These schemes have been established to bond clients to the practice; to improve loyalty; to increase compliance (particularly with respect to vaccinations, worming and flea treatment); and protect loss of drug sales revenue from surgeries to on-line retailers. In the business and financial review (pages 10 to 15) we demonstrate the significant increase in client membership.
I am pleased to report that the launch of Animed Direct during the year has been successful and further growth from our e-commerce operations is expected.
The Group acquired and integrated 12 surgeries in the year, enhancing CVS’s presence in the UK veterinary profession. I am pleased to report that these surgeries have performed in line with expectations post acquisition.
Since year end we have acquired a single site practice in Hertfordshire with an annualised turnover in the region of £1 million.
Cash flow and funding position
Cash flow generated from operations increased significantly by 39.7% to £17.6m. The ability of the Group to convert profit into cash is clearly demonstrated with Adjusted EBITDA at £14.5m being complemented by an improvement in agreed supplier payment terms.
Overall net debt decreased in the year to £34m from £42m, with a corresponding decrease in the gearing of the Group with EBITDA to net debt ratio reducing from 3.21 to 2.31. In the year under review, £5.2m of debt has been repaid. A further £4.0m is scheduled to be repaid during the year ending 30 June 2012 and this has been reflected in our cash flow forecasts.
The Group has complied with all bank covenants throughout the period, and is projected to continue to do so.
Internally generated cash will continue to be used to fund future acquisition activity.
Dividends
The Directors believe that the cash generative nature and resilience of the Group’s model is sufficiently proven to enable the Company to commence the payment of dividends to our shareholders, who have shown their consistent support for CVS.
The Board is therefore recommending a maiden dividend of 1.0p per share, a payment that is covered 6.2 times by basic earnings per share and 14.0 times by adjusted earnings per share. The Group will continue to review its dividend policy on an ongoing basis with particular regard to the Group’s profitability and cash generation.
If approved at the Annual General Meeting, the maiden dividend will be paid on 20 December 2011 to shareholders on the register on 16 December 2011. The ex-dividend date will be 14 December 2011.
Our people
The Group continues to be the largest employer in the UK veterinary profession with approximately 2,200 staff today, including around 500 vets. Our people are our best asset in enabling the Group to deliver its strategy and I would like to thank them all, including those new to CVS in the year, for their expertise and professionalism in providing the best possible veterinary care and service.
Further business development
We estimate that CVS has around 10% of the UK small animal veterinary market measured by wholesaler spend, which demonstrates the opportunity for further consolidation
Outlook
We continue to focus on developing the business organically by furthering ways to extract operational efficiency, improve business performance, grow through selective acquisitions and create new revenue streams together with the subsequent generation of cash and profit.
The Group has delivered marginally positive like-for-like sales growth since the year end.
The Board remains cautiously optimistic about the Group’s future and sees further growth opportunities supported by strong cash generation and a return to more favourable economic conditions.
Richard Connell
Chairman
26 September 2011