CVS Group (CVSG) full year 2021 results presentation September 2021

Welcome everyone to this presentation of our full year results for the year ended 30th of June 2021. I will open with an introduction to the full year results and provide an overall update on our business. Robin will then talk through the financial results in more detail, and Ben will provide an operational update linked to our strategy. I will then conclude with some comments on our outlook. We will then invite questions from analysts following our presentation.

That's set out on slide five. We have delivered a strong financial performance in the past financial year. We achieved total sales of 510.1 million, representing an increase of 19.2 percent over the prior year, and this reflects growth across all our divisions. Within this, like-for-like revenue growth was 17.4 percent, albeit this is partly flattered by a softer final quarter in the year to 30th of June 2020 due to the significant COVID-19 impact which we then experienced. Adjusted EBITDA increased to 97.5 million, representing a 37.3 percent increase over the prior year. Adjusted EBITDA margin also increased to 19.1 percent for the year, up from 16.6 percent in the previous year. Again, this will be impacted by the final quarter of COVID-19 disruption. We now employ more vets with an increase of 10.2 percent in the average number of vets employed in the financial year to June 2021 in comparison to the previous financial year. That said, we would like to employ even more vets to service the increased demand which we are seeing for our services, and in light of this we have advertised more vet vacancies leading to an increase in our vacancy rate. Ben will provide more color on this later. This strong performance is entirely due to the dedication and commitment of our outstanding team of colleagues, and I would like to take this opportunity to thank them all for their contribution over the past year.

Turning to slide six, this revenue growth has been delivered through our integrated veterinary services model. Our first opinion practices are at the core of our business, and we continue to focus on the provision of first-class care to our clients and their animals. The benefits of our integrated model are that the service offering in our first opinion practices is complemented by out-of-hours clinics, our specialist-led referral hospitals, our diagnostic laboratories, and our crematoria. The growth we have achieved in our first opinion practices and our continued focus on collegiate working across our group have helped us to drive an increase in referral cases, leading to an increase in referral revenue in the financial year. Because we are undertaking more diagnostic procedures in our first opinion and referral practices, our laboratories are also benefiting from an increase in diagnostic tests performed, an increase in analyzer revenue which includes sales of reagents to our practices, and hence an increase in our total laboratory revenue. Our crematory division is also benefiting from a new approach under which clients are given more time to choose the appropriate way to commemorate their pets post-euthanasia. This is leading to a better client service and has driven an increase in both individual cremations and revenue in the financial year.

Turning to slide seven, we continue to enjoy favorable market trends. The pet population in the UK has increased, with a recent survey by the Pet Food Manufacturers Association indicating there are now over 24 million cats and dogs in the UK, with 3.2 million UK households having bought a pet since the start of lockdown restrictions. The benefits to having a companion animal are widely recognized, and pets are increasingly seen as a key part of the family household, with consumers naturally then being willing to spend more on their care. Advances in veterinary care mean that more treatments are now available, some of which will be covered by insurance. We have also benefited from an increased demand for pet food being purchased online. This increase was originally triggered by COVID-19 lockdown restrictions. As consumers get used to the convenience of buying pet food online and having it delivered direct to their door, we are confident this trend will continue. These overall trends have resulted in an increased level of new client registrations and an overall increase in our active client base. We expect to see continued benefits from this in the medium term, particularly as puppies and kittens will typically require increased veterinary care as they reach their later maturity years of life.

Turning to slide eight, we remain very well positioned to benefit from these tailwinds. We have seen the benefit from our fully integrated model in the past year, and through continued collegiate working we are well placed to benefit from the increase in the pet population. Our model also gives a scale which is particularly important for purchasing synergies, and we have strong barriers to entry. We are a highly cash generated business with continued prudent capital allocation. We are recommending the payment of a final dividend of 6.5 pence per share, which reflects our confidence in the future success of this business. We will also continue to invest in our clinical equipment and practice facilities in support of organic growth, alongside selective acquisitions where we are confident of creative value being delivered.

Turning to slide nine, we have previously set out four strategic pillars which underpin our purpose to provide the best possible care to animals and our vision to be the veterinary company people most want to work for. These strategic pillars remain unchanged and underpin our focus. We are committed to providing high quality, joined up and integrated care to our clients and their animals, and as seen earlier this is key to our performance in the past year. By offering clients choices and recommendations, they are able to make informed decisions on the appropriate care for their animals. People remain at the heart of our strategy, and we are committed to making CVS a great place to work and have a career. We have had success in the past year in recruiting more vets, and Ben will outline later a number of measures we have recently taken to help further position us as an employer of choice in the sector. We recognize the importance of investing in our practice and clinical facilities as this drives our ability to improve clinical care. It is also key to attracting and retaining the best talent in the profession. Again, Ben will give more color on the investments we have made in the past year and our plans for the future. We also take our responsibilities seriously, and this includes well-being support to our colleagues as well as a broader range of initiatives to make CVS a sustainable and successful business in the longer term.

Moving to slide 10, we are a business which cares about our wider impact on the world around us. We believe strongly that we have a duty to do our very best for our colleagues, our clients and their animals, and the communities in which we work. By doing the right thing, this will ultimately lead to value creation for shareholders. Our approach to ESG is both commercial and the right thing to do, and we have described a virtuous circle under which the more we focus on these areas, the more good we do and the greater the benefit for all stakeholders. We have set out in our annual report additional detail of the initiatives we have in place already and the various KPIs which we will measure to track our progress. These are linked to the UN's Sustainability Development Goals, and we have selected the ones which are most relevant to our operations. I look forward to sharing further detail on our sustainability and ESG progress in future reports. I will now hand over to Robin to cover the financials. Thank you, Richard.

Thank you, Robin. On slide 19, when it comes to the operational implementation of our strategy, our integrated model is central to the delivery of all, not least our first strategic pillar to recommend and provide the best clinical care. At the heart of our model is a successful and growing cohort of primary care veterinary practices, and during the year we saw a 23 percent increase in the number of new client registrations which led to us seeing around 8 percent more patients than we did in the prior year. This successful group of primary care practices with a growing client base supported an extremely successful year for our referral hospital division which saw a 31 percent increase in caseload. We focused during the year on internalizing CVS referrals as well as growing third-party referrals through initiatives such as online CPD and direct marketing of the expertise available within our hospitals. Our Vet Oracle business, as well as providing specialist vet-to-vet image interpretation, also allows us to deepen relationships between the referral division and primary care practices both within CVS and outside. We also saw significant growth in our preventative health scheme, the Healthy Pet Club, growing by 8.4 percent to around 450,000 members as both clients and our colleagues have returned to waiting rooms and consulting rooms as the pandemic restrictions have eased. Our ability to share the benefits of the scheme and sign up clients has supported the growth in membership. Additionally, the ongoing humanization of pets places preventative healthcare as an ever more important part of our proposition. Our focus on providing the highest quality clinical care to our patients centers around outstanding diagnostic work, and this has a direct benefit to our laboratories division which saw a 32.7 percent revenue growth during the year as we submitted more samples to our referral laboratories and made more use of desktop analyzers in practice. Alongside this growth in internal work, our efforts to grow our provision of services to third-party practices similarly support revenue growth in both the referral laboratories and our desktop analyzer business. Revenue in the division was enhanced by human PCR COVID testing during the year to the tune of around 1 million pounds of revenue, but the impact on EBITDA for the year was not material given the associated costs of testing implementation. As the number of patients we care for has grown, the number of pets for whom we provide end-of-life care has also grown, and we have seen strong performance in the crematorium division with 11.1 percent revenue growth. This was enhanced by the launch of our Direct Pet Cremation project in Q4. This sees owners given more time to consider their options following the passing of their pet, including a consultation directly with the crematoria where the full range of options available can be explained. In this new model we see owners making a wider range of choices, including more owners opting for individual cremation. Direct pet cremation represents a good opportunity in the forthcoming financial year to drive further growth as we roll out the process across all our practices.

Slide 20 is focused on our second strategic pillar, that we are a great place to work and to have a career. Our colleague satisfaction is a critical measure of our progress against this, and I am pleased to say we saw further growth in our employee net promoter score during the year, rising to 2.9. The colleague experience is at the heart of all our decision making at CVS, but specific initiatives during the year have included advancing a proportion of year-end bonuses to our frontline colleagues, launching a thank holiday giving colleagues an additional day's leave in December, and continuing to grow our industry-leading wellbeing programmes. Since year-end we have also implemented a number of additional changes to ensure we stay ahead of the market with our employee proposition. These improvements have all been funded within the net 4 percent price rise we implemented in July and include accelerating our annual pay review to July from January to align with the financial year, focusing more on fixed income and less on bonuses for clinical colleagues, and enhancing holiday allowances for long service by adding an additional day's holiday for every year served up to a maximum of five years. These changes were in response to both market research and feedback from our colleagues and we are pleased to say have been very well received.

On slide 21, alongside our employee satisfaction, the number of clinicians we employ is equally a critical measure of how successfully we are growing. At the end of this financial year, I am delighted to say we employ more than 10 percent more vets and 8 percent more nurses than the 12 months previously. Additionally, the attrition of colleagues has remained stable despite our rapid growth since the marked improvements we saw by the beginning of financial year 2020. We continue to see significant opportunity to grow the business and as such advertise further vacancies to capitalize on the growing market, and as a result we have seen a slight rise in our vet vacancy rate during the year.

On slide 22, we highlight one of the key initiatives of this summer as we launched CVS Summer Camp and hosted 115 of our new graduates at Surrey University. Feedback has been excellent from our new colleagues who will now arrive into our practices better equipped with the key skills they need to succeed from the start.

On the following slide, we highlight our efforts on our third strategic pillar, providing great facilities and equipment for our colleagues. We completed 13 practice relocations and refurbishments during the year, and we continue to see significant opportunity for returns in refurbishment and relocation of our veterinary practices. Great facilities allow us to do the highest quality clinical work in an environment that attracts the best clinical talent whilst providing the very best client experience. Alongside our facilities we continue to invest in clinical equipment, which we did to the tune of around 4 million during the year. One example of a practice relocation is shared on the following slide, where we have relocated our Rose Mullion Veterinary Practice in Falmouth from a converted residential building which was cramped with limited parking to a state-of-the-art hospital with significantly more consulting room space, fantastic parking for clients and colleagues, and the installation of advanced imaging equipment.

On slide 25, we highlight a flagship project we are progressing in the coming year: the relocation of Bristol Veterinary Specialists into an industry-leading multidisciplinary referral hospital. This relocation will include the installation of a state-of-the-art radiotherapy unit which will be the first of its kind in England, offering cancer treatment previously unavailable to patients, and we hope to open the doors in the second half of 2022. Investments in relocations and refurbishments like these are a fantastic opportunity to continue organic growth within both our primary care and referral divisions, and we look forward to pursuing more of these opportunities in the coming year. I will now hand back to Richard for a few words on how we see the outlook for our business. Thanks, Ben.

On slide 27, I have set out some key financials for the first few months of the new financial year covering July and August. We have seen total sales growth over the equivalent period last year of 17.5 percent, and within this like-for-like growth was 14.4 percent. This reflects the deferred price increase for last year eventually applied on the 1st of January 2021, and a further price increase applied on the 1st of July which sees us return to increases being applied at the start of our financial year. Leverage remains flat and was 0.7 times at the end of August. Ben has explained that we brought forward our annual pay increase to the 1st of July so it coincides with the start of our financial year, and Ben also outlined some other changes we have made to further position us as an employer of choice in the sector. It is pleasing to see that our EBITDA margin remains strong notwithstanding these changes, and we have achieved an EBITDA margin of 19.5 percent in the two months. We continue to seek to employ more vets, and given the increase in roles we have advertised, our vet vacancy rate now averages 8.8 percent for the last 12 months. It is also pleasing to see a continued increase in our Healthy Pet Club with 455,000 members as at the end of August. Although our expectations for the full year are not just based on attaining annual growth at the high levels of the first two months, this very positive start to the new financial year is encouraging.

Finally, as summarized on slide 28, I remain confident that we have the foundations in place to drive future growth. We operate in an attractive sector and are benefiting from a growing market. Our business has proven resilient despite the challenges of COVID-19, and our teams have worked tirelessly and in a collegiate way over the past year. We have further strengthened our management team, and the benefits of our integrated model have been seen over the past year as all areas of the business are benefiting from our focus on clinical care, with our online retail business also benefiting from a shift to buying pet food online. We have the opportunity to augment organic growth through further investment in our practices, our clinical equipment, and in expansion through acquisitions or greenfield sites. So that concludes our presentation. I would like to thank you all for attending. Just to summarize, we have delivered a strong set of results for the financial year to June, and it is pleasing to see that this momentum has continued into the first two months of the new financial year. We have favorable market dynamics and through our integrated model we are well positioned to deliver future growth. So we are excited about the future for CVS. If you have any follow-up questions, please approach us directly and we will respond. But thank you for attending today.