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We are CVS
CVS Group plc Annual Report for the year ended 30 June 2018
Group plc
Passionate about animal care
Group plc
Passionate about animal care
We are CVS
Laboratories
Group plc
Passionate about animal care
Group plc
Passionate about animal care
Group plc
Passionate about animal care
We are CVS
Practices
Group plc
Passionate about animal care
Group plc
Passionate about animal care
Group plc
Passionate about animal care
We are CVS
Animed Direct
We are CVS
Crematoria
We are proud to be the
UK’s most comprehensive
and integrated provider
of veterinary services
to animal owners.
We are passionate
about animal care.
Financial highlights
Revenue (£m)
£327.3m
+20.4%
Adjusted EBITDA¹ (£m)
£47.6m
+13.3%
Adjusted profit before tax² (£m)
Strategic report
£36.0m
+7.1%
18
17
16
15
327.3
271.8
218.1
167.3
18
17
16
15
47.6
42.1
32.8
23.0
18
17
16
15
36.0
33.5
24.9
18.2
Adjusted earnings per share³ (p)
Proposed dividend per share (p)
42.4p
-0.9%
18
17
16
15
32.4
24.7
Profit before tax (£m)
£14.1m
-3.2%
18
17
16
15
9.1
8.5
42.4
42.8
14.1
14.5
5.0p+11.1%
18
17
16
15
Operating profit (£m)
£17.7m
+2.8%
5.0
4.5
3.5
3.0
18
17
16
15
17.7
17.2
11.8
9.8
Basic earnings per share (p)
16.0p
-13.5%
18
17
16
15
16.0
18.5
11.6
11.6
1
2
3
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.
Adjusted profit before income tax is calculated as
profit on ordinary activities before amortisation,
taxation and costs relating to business combinations.
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.
01 Financial highlights
02 CVS at a glance
04 Chairman’s statement
06 Our markets
08 Our business model
10 Our strategy
12 Key performance indicators
14 Our business
18 Business review
22 Our culture and values
24 Principal risks and uncertainties
27 Finance review
Governance
32 Board of Directors
Corporate governance statement
34
37 Remuneration Committee report
43 Directors’ report
Financial statements
Independent auditor’s report
45
49 Consolidated income statement
50
51
52
53
54
55
76 Five-year history
IBC Contact details and advisors
Consolidated statement of comprehensive income
Consolidated and Company balance sheets
Consolidated statement of changes in equity
Company statement of changes in equity
Consolidated and Company cash flow statements
Notes to the consolidated financial statements
Find out more on-line
cvsukltd.co.uk
CVS Group plc
Annual Report 2018
01
Strategic reportGovernanceFinancial statements CVS at a glance
We are continuing to expand our European coverage
with further acquisitions in the Netherlands and first
acquisitions in the Republic of Ireland.
The Group has four main business areas:
Veterinary Practices
Laboratories
Crematoria
Animed Direct
87.3%
87+
revenue
share*
First-opinion and referral practices providing
specialist treatment for companion animals,
equine and farm animals.
5.3%
87+
revenue
share
Our laboratories provide diagnostic
services to CVS veterinary practices
and third parties.
Our business in action
We aim to meet all of our customers’ needs so that
we can ensure a consistent high quality of treatment.
Our practices are increasingly providing their own
night services rather than them being provided by a
third party and we are rapidly developing our referral
centres so that our own experts provide all our
veterinary service to our customers’ animals. Our
veterinary practices provide preventative healthcare
either as and when required or through our preventative
care scheme called Healthy Pet Club. We also have
a number of own brand MiPet medicines and products.
Our business in action
We pride ourselves in our outstanding customer
service, fast turnaround times and scientific excellence.
We employ a team of experts specialising in a variety
of veterinary disciplines, each bringing a unique and
highly respected set of skills to the table.
Our Laboratories Division offers an extensive range
of tests, with the ability to tailor specific profiles to
our customers’ needs. Our pathologists specialise
in all areas of the laboratory and their aim is to
offer a level of service and expertise beyond
your expectation.
1.9%
87+
revenue
share
Our crematoria provide pet cremation and
clinical waste services to our practices
and third-party practices and directly
to pet owners.
Our business in action
We aim to provide our clients with a dignified and
personal service. We offer a range of services to
help our clients in remembering and saying
goodbye to their pets.
5.5%
87+
revenue
share
Our on-line pharmacy and retail business sells
prescription and non-prescription medicines,
pet food and other animal related products.
Our business in action
We aim to ensure our customers receive great quality
products at the best prices available. We can do this
because we are the biggest seller of animal medicines
to pet owners in the UK.
We offer the same products available from veterinary
practices but at significantly lower prices. We deliver
prescription and non-prescription medicines, premium
pet foods and an ever increasing range of pet care
products directly to our customers’ door, saving
them time as well as money.
P14 Veterinary Practices review
P15 Laboratories review
P16 Crematoria review
P17 Animed review
*
Revenue share before intercompany sales between practice and other divisions.
02 CVS Group plc
Annual Report 2018
Strategic report5
+
2
+
6
+
P
5
+
2
+
6
+
P
5
+
2
+
6
+
P
5
+
2
+
6
+
P
Benefits of CVS
UK’s largest integrated
provider of veterinary
practices
Consistent growth
in a more competitive
environment
Complementary
businesses to
internalise margins
and maximise revenues
6,150
dedicated and trained staff
who are committed to
excellent clinical care
Our geographical coverage
Our acquisitions have further strengthened our geographical coverage in 2018.
×491
×7
×4
1 Scotland & North East
5 East Midlands
9 South East
60 veterinary practices
3 crematoria
42 veterinary practices
2 Northern Ireland
10 veterinary practices
3 North West
39 veterinary practices
2 crematoria
4 Yorkshire
22 veterinary practices
6 West Midlands
43 veterinary practices
7 East of England
47 veterinary practices
2 laboratories
8 South West & Wales
71 veterinary practices
1 crematorium
1 laboratory
130 veterinary practices
1 crematorium
1 laboratory
10 London
2 veterinary practices
11 The Netherlands
22 veterinary practices
12 The Republic of Ireland
3 veterinary practices
2
12
1
3
6
4
5
7
8
10
9
NETHERLANDS
11
GERMANY
BELGIUM
FRANCE
Strategic reportGovernanceFinancial statements
Chairman’s statement
Richard Connell
We are delivering a strong
Group performance.
Like-for-like sales grew by 4.9% (2017: 6.3%)
with growth in all areas, in particular Animed Direct
which continued to perform exceptionally.
Highlights
The Group continued to build its coverage in the Netherlands
and acquired its first practices in the Republic of Ireland
We acquired 52 surgeries during the year
Subsequent to the year end we acquired Slate Hall, one of the
largest and most respected poultry vets in England
Results
I am delighted to report a strong performance by
CVS with another record year for revenue and
operating profits across the Group. Strong
like-for-like growth of 4.9% was enhanced by
further acquisitions in our Veterinary Practices
Division. We continued to increase our investment
in equipment, premises, our services and our staff.
Revenue grew by 20.4% to £327.3m (2017: £271.8m).
Adjusted EBITDA increased by 13.3% to £47.6m
(2017: £42.1m). Adjusted EPS fell slightly to 42.4p
(2017: 42.8p) as a consequence of the placing in
February, as the timing of acquisitions has not yet
fully offset the increase in shares from the placing
in February.
04 CVS Group plc
Annual Report 2018
Strategic report Operating profit rose by 2.8% to £17.7m (2017: £17.2m),
cash generated from operations increased 30.4%
to £46.7m (2017: £37.2m) and profit before tax fell
by 3.2% to £14.1m (2017: £14.5m). Basic EPS fell
by 13.5% to 16.0p (2017: 18.5p) in part due to the
slight fall in profit before tax but primarily as a
consequence of the placing.
Business initiatives
In 2018 we acquired 52 surgeries, following on from
the 62 acquired in 2017. In total these businesses
are expected to generate revenue of over £40.0m
per annum. Subsequent to the year end a further
16 surgeries have been acquired.
Of particular note are the acquisitions of Troytown
GreyAbbey Equine Veterinary Services and
Gilabbey Veterinary Hospital, our first acquisitions
in the Republic of Ireland. Troytown GreyAbbey is
one of the largest and most renowned equine
practices in Ireland. Together with the other equine
acquisitions this will significantly develop our
equine business.
Subsequent to the year end we acquired Slate Hall,
one of the largest and most respected poultry vets
in England. This acquisition adds significant credibility
to our farm business and should assist in its
further expansion. We also acquired Vet Direct,
which provides veterinary supplies other than
medicines. This acquisition will allow us to further
consolidate our buying and reduce costs.
Our referrals business strategy progressed further
with the acquisition of Weighbridge Referrals and
Lumbry Park now being cash generative, less than
three years after opening.
Like-for-like sales grew by 4.9% (2017: 6.3%) with
growth in all areas, in particular Animed Direct,
which continued to perform exceptionally. Like-for-
like sales were adversely impacted by about 0.3%
due to the harsher than usual snow at the start of
March and this reduced sales by an estimated £1.0m.
Our Healthy Pet Club scheme continued its strong
growth with a membership increase of 56,000
(+18.3%) members over the year.
The Laboratories Division again grew very strongly
with revenue increasing by 10.2% to £17.9m
(2017: £16.3m). The Crematoria Division increased
revenue by 4.7% to £6.6m (2017: £6.3m) and Animed
Direct by almost 45% to £18.8m (2017: £13.0m).
In August 2017, we launched our own brand pet
insurance under the name of MiPet Cover. This is
the only pet insurance in the UK that is designed by
vets. It provides top of the range cover at a competitive
price. Reaction from customers and our own staff,
who were involved in its design, has been very
positive. Sales have been promising but it is
expected to be a couple of years before the
business is profitable.
The acquisition of
Troytown GreyAbbey
significantly enhances
our equine business and
establishes CVS in the
Republic of Ireland.
In February 2018 we raised £58.9m in net proceeds
through the placing of shares to fund future
acquisitions. Since then we have spent £55.0m on
acquisitions, but most of this was subsequent to the
year end and only a small benefit from these
acquisitions is reflected in the results for the year
ended 30 June 2018. As a consequence, the placing
has had a dilutive impact on earnings per share in
2018; however, we expect substantial benefit from
these and further acquisitions to flow into the
results in the year ending 30 June 2019.
On 21 September 2018 the Group increased
its facility with the existing banking syndicate to
£190.0m comprising a £95.0m loan and a revolving
credit facility of £95.0m. This increase will provide
further funds for acquisitions and general
business development.
Our people
The Group now employs over 6,150 staff (2017: 5,150),
including 1,570 vets (2017: 1,270). Our staff have
continued to develop the business at the same
time as meeting the challenge of integrating the
high volume of acquisitions. I would like to thank
them all, including those new to CVS, for their
efforts and 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.
In January we increased the salaries of some vets
and nurses by substantially more than inflation in
order to improve retention and recruitment. Since
then there has been a noticeable improvement in
vacancy rates, in particular for nurses. We continue
to develop our internal training programmes, both
clinical and managerial, and believe that this benefits
our customers, our staff and the business.
Richard Fairman joined the Board on 1 August 2018.
His wealth of experience in multi-site, consumer-
facing, acquisitive organisations will bring significant
benefit to the Group and we look forward to working
with him going forward. Richard will replace Nick
Perrin as Group Finance Director following the
announcement of these results. I would like to
thank Nick for his invaluable contribution to the
Company over the past five and a half years. Nick
has played an important part in driving the business
forward and we wish him well in the future.
Dividends
It is proposed to pay a dividend of 5.0p per share in
December 2018, a 11.1% increase on the 4.5p per
share paid in 2017. 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 7 December 2018 to
shareholders on the register on 23 November 2018.
The ex-dividend date will be 22 November 2018.
Outlook
The Group’s exposure to the potential impacts of
Brexit appears to be limited. The greatest impact
could be in the employment of European vets. We
have not seen any significant impact on employment
so far but, together with other major employers in
the industry and the Royal College of Veterinary
Surgeons, we are lobbying the UK Government
to mitigate against any such potential adverse
impacts. Clearly, Brexit issues create some
uncertainty for the pace of growth in the UK
economy over the next couple of years, but the
Board believes that the characteristics of our
business make it relatively resilient.
Like-for-like sales growth has remained robust since
the year end. The acquisition pipeline remains strong
and the recent acquisitions in the Republic of Ireland
and in our farm business provide further avenues
for development.
Initiatives such as the introduction of own brand
products, the expansion of dedicated out-of-hours
sites and the development of our referrals business
are expected to continue to deliver benefits in
2019. We expect our Healthy Pet Club to continue
to increase its membership and our MiPet Cover
business to grow steadily. We will continue to
launch a small number of greenfield sites and
expect those recently opened to move towards
profitability. Our laboratories will continue to
expand their services through the increased sales
of analysers and related consumables as well as
growing the farm and equine testing. Animed Direct
is expected to grow further.
The Board therefore believes that the outlook
for CVS remains very promising.
Richard Connell
Non-Executive Chairman
27 September 2018
CVS Group plc
Annual Report 2018
05
Strategic reportGovernanceFinancial statements Our markets
We are developing our market opportunities.
Continued growth
Maximising revenues
Market opportunities
• Continued consolidation by corporate operators
Our strategic response
• Continue to acquire to further strengthen
• Significant investment in veterinary
services market
• Advancement of corporate model in
the Netherlands
UK geographical coverage
• Large opportunity with only 15% market
share in small animal sector
• Further growth opportunities in farm
animal and equine sectors
• Further expansion in the Netherlands
and Republic of Ireland
Market opportunities
• Opportunities to extend service offering to
meet all of our customers’ needs, for example
further expansion of our own pet insurance
and night services
• Continued expansion of our referral centres
Our strategic response
• Continue to maintain strong cash flow and a
healthy balance sheet to support development
and growth
• Further investment in core business activities
Revenue (£m)
£327.3m
+20.4%
18
17
16
15
327.3
271.8
218.1
167.3
Our progress
1999
2002
2006
2007
2008
2010
• Company was established
• First laboratory:
• First dedicated equine practice:
• 100th surgery: Regan
• Second laboratory:
• Commenced on-line trading:
Finn Pathologists, Norfolk
Scott Dunn’s Equine Clinic, Berkshire
Veterinary Group, Manchester
Axiom Veterinary Laboratories, Devon
Animed Direct
• First crematorium: Rossendale
Pet Crematorium, Lancashire
• Third laboratory: Greendale
Veterinary Diagnostics, Surrey
• Major acquisition: Pet Doctors
• 200th surgery: Cedar Veterinary
Group, Hampshire
• First surgery: Barton Veterinary
Hospital, Canterbury
06 CVS Group plc
Annual Report 2018
Strategic report Our integrated services model
Market opportunities
• In the UK the small animal market is advanced
Our strategic response
• Continuing development of referral services
Industry update
• Consolidation of the UK veterinary market
in terms of corporate consolidation
• Significant opportunities exist to expand and
develop service offering in farm and equine in
the UK
• Integrated model is at an early stage of development
in the Netherlands and Republic of Ireland
• Introduction of more own brand products
• Growth and development of the Healthy
Pet Club scheme and MiPet Cover
• Development of greenfield locations and
relocations of existing practices
• Expansion of farm animal business, including
poultry through Slate Hall acquisition
continues apace
• Consolidation of the Netherlands market is
in its early stages
• CVS continues to be the largest integrated
provider of veterinary services
• CVS continues to develop its range of services,
including own brand products and insurance
• CVS continues to expand its European coverage
2012
2014
2015
2016
2017
2018
• Second crematorium:
• Third crematorium:
Valley Pet Crematorium, Devon
Silvermere Haven, Surrey
• Fourth crematorium:
Whitley Brook, Cheshire
• Greenfield referral centre:
Lumbry Park, Hampshire
• Major acquisition:
• Major acquisitions:
Severn Edge Veterinary Group
• Major acquisition: YourVets
• Major acquisitions:
• New referral centre: Manchester
• Fourth referral centre:
Dovecote, Castle Donington
• Launched MiPet own
brand products
Alnorthumbria, Highcroft
and Albavet
Veterinary Specialists
• Launched own brand pet insurance
• Fifth and sixth crematoria:
in August 2017
The Pet Crematorium,
Durham and Lanarkshire
B&W Equine Ltd, Troytown
GreyAbbey (Republic of Ireland)
and Slate Hall, poultry vets, shortly
after year end
CVS Group plc
Annual Report 2018
07
Strategic reportGovernanceFinancial statements Our business model
We are delivering our vision.
What sets us apart
Our vision is to continue to be the most comprehensive and integrated provider
of veterinary services to animal owners in the UK, together with expanding our
opportunities in the Netherlands and three in the Republic of Ireland.
We continue to deliver our vision through like-for-like growth and the
acquisition of veterinary practices, diagnostic laboratories, pet crematoria
and further expansion of Animed Direct, whilst using our expertise to
expand our own brand products range and launching our own pet
insurance. Our business model focuses on creating value through
the provision of integrated services and the best customer care.
Our business model is underpinned by our core values
Customer
focus
Commitment
to excellence
Success through
our people
Honesty
and integrity
P22 Our culture and values
08 CVS Group plc
Annual Report 2018
ographic
coverage
e
G
F
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a
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g
i
a
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Passionate
people
Custome r
focus
H
i
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h
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a
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n
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t
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e
a
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l
Passionate about animal care
d
Integrate
services
Strategic report
Passionate people
We employ dedicated and trained
professionals who are committed
to excellent clinical care.
6,150 staff
Geographic coverage
As at the date of this report we have
491 surgeries, four laboratories and seven
crematoria providing coverage of England,
Scotland, Wales, the Netherlands,
Northern Ireland and the Republic of Ireland.
During the year we also expanded our
geographical coverage outside the UK to
Europe with 22 sites in the Netherlands
and three in the Republic of Ireland.
491 surgeries
High quality clinical
care and facilities
All of our practices are registered with
the RCVS Practice Standards Scheme
and are committed to investing in and
using modern diagnostic techniques.
We invest in clinical training and
advanced qualifications.
57 veterinary diploma holders
Integrated services
We deliver first-opinion treatments,
complex referral procedures, laboratory
diagnostic testing, out-of-hours services,
cremations, on-line dispensary, own brand
medicines, Healthy Pet Club and insurance.
19 dedicated out-of-hours services
Customer focus
Our staff are dedicated to providing
a quality service with the highest levels
of customer and clinical care.
362,000 Healthy Pet Club members
Financial strength
We continue to deliver growth in revenues,
profits and operating cash generation.
£17.7m operating profit
Creating value for
Customers
We aim to meet all our customers’
needs so that we can ensure a
consistent high quality of treatment
through our veterinary practices,
and through providing the all-round
complete service through our
integrated services.
Creating value for
Shareholders
We have continued to deliver
substantial growth to our
shareholders in the past five years
with earnings per share increasing
by 92.8% from 8.3p to 16.0p.
Creating value for
Colleagues
Development of our staff and of our
clinical and non-clinical training
continues to be a priority. We
continue to develop our internal
training programmes, both clinical
and managerial, and believe this
benefits our customers, our staff
and the business.
Creating value for the
Community
Our nominated charity of the year
for 2018 is The Dogs Trust. We
encourage our practices to engage
with the community to support
both our nominated charity of the
year and local charities which helps
foster relationships between us
and the local communities.
CVS Group plc
Annual Report 2018
09
Strategic reportGovernanceFinancial statements Our strategy
We are progressing towards our goals.
1
2
3
Excellent customer service and care
Meeting all of our customers’ needs
Expanding our business
478
graduate vets
in four years
36
clinical pathologists
employed
491
surgeries
362,000
members of our
HPC scheme
52
surgeries acquired
in the year
16
surgeries acquired
post year end
How we performed
• 57 of our vets are diploma holders,
the highest recognised qualification.
• A further 103 vets have been
recruited in our graduate programme
during the year bringing the total to
478 over a four-year period. A further
78 have already signed up for the
2018/19 course.
• 168 nurses have enrolled on our
new Nursing Excellence Award
run by the Royal Veterinary College.
• 36 clinical pathologists are employed
in our Laboratories Division.
Our focus
• Customer service is one of our
core values. It underpins all of
our training and development.
• Clinical development remains
a core aspect of our training.
• We develop our managerial
and operational abilities through
programmes such as our
Aspirational Leadership and
LEAP Programmes.
• We also sponsor further
qualifications for our vets such
as RCVS Advanced Veterinary
Practitioner and Diplomas.
How we performed
• We own 491 surgeries across
Our focus
• Development of our own brand
How we performed
• 52 surgeries acquired during
the UK, the Netherlands (22) and
the Republic of Ireland (three), four
laboratories and seven crematoria.
• There are 362,000 members in our
HPC scheme.
• We invested £3.1m in developing
our surgeries to improve facilities.
• We operate seven specialist
referral centres, including the
Manchester Veterinary Specialists,
which opened in February 2017,
Weighbridge Referrals and
Gilabbey Veterinary Hospital in
the Republic of Ireland, which
we acquired during the year.
• We opened another five out-of-hours
centres during the year bringing the
total to 19.
pet insurance, MiPet Cover.
the year.
• Further expansion of our
• Two greenfield sites opened
referrals business.
during the year.
• 16 surgeries acquired
since the year end.
• Development of additional
complex testing capability at
our diagnostic laboratories.
• Investment in our crematoria
business to increase capacity.
• Expansion of our own out-of-hours
centres, thereby reducing reliance
on third-party providers.
• Further development and
expansion of our MiPet brand
of products.
• Further expansion of our farm
and equine businesses.
Our focus
• We aim to continue to grow our
business through acquisitions and
greenfield development sites.
• We will consider acquisitions of
small animal, farm animal and
equine surgeries. We will also
consider acquisitions of crematoria
and laboratories where they fit a
geographical or knowledge gap.
• We aim to continue our expansion
into the Netherlands and the
Republic of Ireland, in both small
and farm animal along with
equine surgeries.
4
14
Building on our strengths to provide
services to external practices
own brand products
available
290,000
tests performed by our
labs for third parties
How we performed
Our focus
• Our laboratories performed
• Development of external sales
424,000 tests in 2018, of which
of our laboratory analyser units.
290,000 were for third parties.
• Expansion of the service offering
• Our crematoria performed 135,000
of our buying groups. Our aim
cremations, of which 62,000 were
is not only to allow practices to
for third parties.
• 14 high quality own brand MiPet
products available through HPC
and MiVetClub.
• Healthy Pet Club available
to buying group members.
benefit from our buying power
but also through providing other
services such as health and safety
expertise, administering loyalty
club schemes and access to
MiPet products.
Links to key performance indicators
P12 Key performance indicators
A B C D E F G
Links to key performance indicators
P12 Key performance indicators
A B C D E F G
Links to key performance indicators
P12 Key performance indicators
A B C D E F G
Links to key performance indicators
P12 Key performance indicators
A B C D E F G
Links to risks
P24 Principal risks and uncertainties
1 2 3 4 5 6
87
Links to risks
P24 Principal risks and uncertainties
1 2 3 4 5 6 7 8
Links to risks
P24 Principal risks and uncertainties
1 2 3 4 5 6 7 8
Links to risks
P24 Principal risks and uncertainties
1 2 3 4 5 6 7 8
10 CVS Group plc
Annual Report 2018
Strategic report 1
3
4
Building on our strengths to provide
services to external practices
14
own brand products
available
290,000
tests performed by our
labs for third parties
How we performed
• Our laboratories performed
424,000 tests in 2018, of which
290,000 were for third parties.
• Our crematoria performed 135,000
cremations, of which 62,000 were
for third parties.
• 14 high quality own brand MiPet
products available through HPC
and MiVetClub.
• Healthy Pet Club available
to buying group members.
Our focus
• Development of external sales
of our laboratory analyser units.
• Expansion of the service offering
of our buying groups. Our aim
is not only to allow practices to
benefit from our buying power
but also through providing other
services such as health and safety
expertise, administering loyalty
club schemes and access to
MiPet products.
Key performance indicators
A Revenue
B Like-for-like sales performance
C Healthy Pet Club revenue
D Gross margin before clinical staff cost
E Adjusted EBITDA
F Adjusted EPS
G Cash generated from operations
Risks
1 Key staff
2 Economic environment
3 Competition
4 Adverse publicity
5 Information technology
6 Changes in regulations
7 Reliance on one supplier of medicines
8 Ability to source and integrate acquisitions
2
491
surgeries
Excellent customer service and care
Meeting all of our customers’ needs
Expanding our business
478
graduate vets
in four years
How we performed
clinical pathologists
36
employed
Our focus
362,000
members of our
HPC scheme
52
surgeries acquired
in the year
16
surgeries acquired
post year end
• 57 of our vets are diploma holders,
• Customer service is one of our
• We own 491 surgeries across
• Development of our own brand
• 52 surgeries acquired during
• We aim to continue to grow our
the highest recognised qualification.
core values. It underpins all of
the UK, the Netherlands (22) and
pet insurance, MiPet Cover.
the year.
How we performed
Our focus
How we performed
Our focus
• A further 103 vets have been
our training and development.
recruited in our graduate programme
• Clinical development remains
the Republic of Ireland (three), four
laboratories and seven crematoria.
during the year bringing the total to
a core aspect of our training.
• There are 362,000 members in our
478 over a four-year period. A further
78 have already signed up for the
2018/19 course.
• We develop our managerial
HPC scheme.
and operational abilities through
• We invested £3.1m in developing
our diagnostic laboratories.
programmes such as our
our surgeries to improve facilities.
• 168 nurses have enrolled on our
Aspirational Leadership and
new Nursing Excellence Award
LEAP Programmes.
run by the Royal Veterinary College.
• We operate seven specialist
referral centres, including the
• We also sponsor further
Manchester Veterinary Specialists,
• 36 clinical pathologists are employed
qualifications for our vets such
which opened in February 2017,
in our Laboratories Division.
as RCVS Advanced Veterinary
Weighbridge Referrals and
• Investment in our crematoria
business to increase capacity.
• Expansion of our own out-of-hours
centres, thereby reducing reliance
on third-party providers.
Practitioner and Diplomas.
Gilabbey Veterinary Hospital in
• Further development and
• Further expansion of our
• Two greenfield sites opened
referrals business.
during the year.
• Development of additional
• 16 surgeries acquired
complex testing capability at
since the year end.
business through acquisitions and
greenfield development sites.
• We will consider acquisitions of
small animal, farm animal and
equine surgeries. We will also
consider acquisitions of crematoria
and laboratories where they fit a
geographical or knowledge gap.
• We aim to continue our expansion
into the Netherlands and the
Republic of Ireland, in both small
and farm animal along with
equine surgeries.
the Republic of Ireland, which
we acquired during the year.
expansion of our MiPet brand
of products.
• We opened another five out-of-hours
• Further expansion of our farm
centres during the year bringing the
and equine businesses.
total to 19.
Links to key performance indicators
P12 Key performance indicators
A B C D E F G
Links to key performance indicators
P12 Key performance indicators
A B C D E F G
Links to key performance indicators
P12 Key performance indicators
A B C D E F G
Links to key performance indicators
P12 Key performance indicators
A B C D E F G
Links to risks
P24 Principal risks and uncertainties
1 2 3 4 5 6
87
Links to risks
1 2 3 4 5 6 7 8
Links to risks
P24 Principal risks and uncertainties
P24 Principal risks and uncertainties
1 2 3 4 5 6 7 8
Links to risks
P24 Principal risks and uncertainties
1 2 3 4 5 6 7 8
We are developing our businesses
We are expanding our UK
and European operations
The acquisition of further practices in the UK has continued
the geographic development of the Group across the country
and has further developed the farm animal and equine as
well as the small animal businesses. The acquisitions in
Northern Ireland bring our total number of sites there to
ten whilst the acquisitions in the Netherlands bring our
total there to 22. We also acquired our first three practices
in the Republic of Ireland. The acquisition of B&W Equine
in the UK, Dierenkliniek Emmeloord, our first equine
business in the Netherlands, and Troytown GreyAbbey in the
Republic of Ireland significantly enhances our equine business.
The pipeline of acquisitions remains strong and CVS
expects to continue to complete acquisitions in the UK,
Netherlands and the Republic of Ireland throughout this
year and beyond. Our diverse, integrated model means
that acquired businesses not only contribute towards our
continuing success, but also benefit from being part
of a larger integrated group better able
to serve all our customers’ needs.
22
surgeries in the
Netherlands
3
in the ROI
Strategic reportGovernanceFinancial statements Key performance indicators
We are monitoring progress against the Group strategy
by reference to the following financial KPIs.
A
Revenue (£m)
B
C
D
Like-for-like sales
performance (%)
Healthy Pet Club revenue
(% of practice revenue)
Gross margin before clinical
staff costs (%)
Adjusted EBITDA (£m)
Adjusted EPS (p)
£327.3m
18
17
16
15
327.3
271.8
218.1
167.3
4.9%
18
17
16
15
13.0%
79.6%
4.9
4.8
6.3
6.8
18
17
16
15
13.0
13.0
12.3
12.7
18
17
16
15
79.6
79.8
79.6
77.8
£47.6m
42.4p
47.6
42.1
32.8
23.0
42.4
42.8
32.4
24.7
E
18
17
16
15
F
18
17
16
15
G
18
17
16
15
Cash generated
from operations (£m)
£46.7m
46.7
37.2
33.6
22.2
Definition
Total revenue of the Group.
Changes in 2018
• Total revenue increased by £55.5m.
• Revenue before the impact of prior year and
current year acquisitions was £284.1m, a £14.7m
increase compared with 2017. 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 £46.2m.
• Intercompany sales eliminated on consolidation
increased by £1.8m, principally due to the impact of
internal crematoria and laboratory sales to practices
acquired in 2017 and 2018.
Definition
Revenue generated from like-for-like operations compared
to the prior year. Revenue for 2018 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 2016, revenue is included
from September 2017 in the like-for-like calculation.
Changes in 2018
• The like-for-like performance reflects strong
performances in all divisions with an exceptional
performance by Animed Direct.
• The like-for-like sales performance compared with
2017 was slightly impacted by about 0.3% due to
harsher than normal snow at the start of March which
reduced sales by approximately £1.0m.
Definition
Revenue received from Healthy Pet Club members as
a percentage of total practice revenue for the year.
Changes in 2018
• The growth of Healthy Pet Club membership from
Definition
Gross margin after deducting the cost of drugs,
laboratories’ fees and cremation fees, and other goods
sold or used by the business from revenue, expressed
as a percentage of total revenue.
306,000 to 362,000 led to an increase in revenue for
the year but the percentage of sales remained constant.
Gross margin was £151.6m, after deducting £109.0m
of clinical staff costs.
Changes in 2018
• The marginal decrease in the gross margin is principally
due to the short-term impact of greenfield development,
the impact of the farm animal work and the lower
margin in our Dutch practices.
Definition
Definition
Definition
Earnings before income tax, net finance expense,
Earnings, adjusted for amortisation, costs relating to
Cash inflow before payments of taxation and interest;
depreciation, amortisation and costs relating to
business combinations and non-recurring tax credits,
acquisitions; purchases of property, plant and equipment
business combinations.
Changes in 2018
net of the notional tax impact of the above, divided by
and intangible assets; payments of dividends; debt issue
the weighted average number of issued shares.
costs; increase/repayment of bank loans; and proceeds
• The improvement in adjusted EBITDA is explained
Changes in 2018
by like-for-like growth (£2.3m) together with the full
• The slight decrease reflects the slight decrease in
from issue of shares.
Changes in 2018
year impact of prior year acquisitions (£3.0m) and
profit before tax and the effects of the share issue
• The increase primarily reflects the improvement in
acquisitions in the current year (£1.1m), partly offset
of 5,581,395 new shares in February 2018 to raise
EBITDA of the business, together with the decrease
by a £0.9m increase in central costs incurred to build
£58.9m in net proceeds.
a foundation for further development and expansion
of the Group.
in other receivables partially offset by the increase in
stock reflecting the growth of the Group.
Links to strategy
P10 Strategy
1 2 3 4
Links to strategy
P10 Strategy
1 2 3 4
Links to strategy
P10 Strategy
1 2 3 4
Links to strategy
P10 Strategy
1 2 3 4
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P10 Strategy
1 2 3 4
Links to strategy
P10 Strategy
1 2 3 4
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P10 Strategy
1 2 3 4
12 CVS Group plc
Annual Report 2018
Strategic report Revenue (£m)
Like-for-like sales
performance (%)
Healthy Pet Club revenue
(% of practice revenue)
Gross margin before clinical
staff costs (%)
Adjusted EBITDA (£m)
Adjusted EPS (p)
£327.3m
4.9%
13.0%
79.6%
£47.6m
42.4p
Cash generated
from operations (£m)
£46.7m
4.9
4.8
6.3
6.8
13.0
13.0
12.3
12.7
79.6
79.8
79.6
77.8
18
17
16
15
47.6
42.1
32.8
23.0
18
17
16
15
42.4
42.8
18
17
16
15
46.7
37.2
33.6
22.2
32.4
24.7
Our strategic priorities
1 Excellent customer service
and care
2 Meeting all of our
customers’ needs
3 Expanding our business
4 Building on our strengths to provide
services to external practices
E
F
G
Definition
Definition
Definition
Revenue generated from like-for-like operations compared
Revenue received from Healthy Pet Club members as
Gross margin after deducting the cost of drugs,
to the prior year. Revenue for 2018 is included in the
a percentage of total practice revenue for the year.
laboratories’ fees and cremation fees, and other goods
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 2016, revenue is included
from September 2017 in the like-for-like calculation.
Changes in 2018
• The growth of Healthy Pet Club membership from
306,000 to 362,000 led to an increase in revenue for
sold or used by the business from revenue, expressed
as a percentage of total revenue.
Gross margin was £151.6m, after deducting £109.0m
the year but the percentage of sales remained constant.
of clinical staff costs.
Changes in 2018
• The marginal decrease in the gross margin is principally
due to the short-term impact of greenfield development,
the impact of the farm animal work and the lower
margin in our Dutch practices.
Definition
Earnings before income tax, net finance expense,
depreciation, amortisation and costs relating to
business combinations.
Changes in 2018
• The improvement in adjusted EBITDA is explained
by like-for-like growth (£2.3m) together with the full
year impact of prior year acquisitions (£3.0m) and
acquisitions in the current year (£1.1m), partly offset
by a £0.9m increase in central costs incurred to build
a foundation for further development and expansion
of the Group.
Definition
Earnings, adjusted for amortisation, costs relating 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.
Changes in 2018
• The slight decrease reflects the slight decrease in
profit before tax and the effects of the share issue
of 5,581,395 new shares in February 2018 to raise
£58.9m in net proceeds.
Definition
Cash inflow before payments of taxation and interest;
acquisitions; purchases of property, plant and equipment
and intangible assets; payments of dividends; debt issue
costs; increase/repayment of bank loans; and proceeds
from issue of shares.
Changes in 2018
• The increase primarily reflects the improvement in
EBITDA of the business, together with the decrease
in other receivables partially offset by the increase in
stock reflecting the growth of the Group.
C
18
17
16
15
D
18
17
16
15
B
18
17
16
15
A
18
17
16
15
327.3
271.8
218.1
167.3
Definition
Total revenue of the Group.
Changes in 2018
• Total revenue increased by £55.5m.
• Revenue before the impact of prior year and
current year acquisitions was £284.1m, a £14.7m
increase compared with 2017. Factors contributing
to the increase are noted in the like-for-like
sales performance.
Changes in 2018
• The like-for-like performance reflects strong
performances in all divisions with an exceptional
• Acquisitions in the year and the full year impact of the
performance by Animed Direct.
prior year’s acquisitions generated additional revenue
of £46.2m.
• The like-for-like sales performance compared with
2017 was slightly impacted by about 0.3% due to
• Intercompany sales eliminated on consolidation
harsher than normal snow at the start of March which
increased by £1.8m, principally due to the impact of
reduced sales by approximately £1.0m.
internal crematoria and laboratory sales to practices
acquired in 2017 and 2018.
Links to strategy
P10 Strategy
1 2 3 4
Links to strategy
P10 Strategy
1 2 3 4
Links to strategy
P10 Strategy
1 2 3 4
Links to strategy
P10 Strategy
1 2 3 4
Links to strategy
P10 Strategy
1 2 3 4
Links to strategy
P10 Strategy
1 2 3 4
Links to strategy
P10 Strategy
1 2 3 4
CVS Group plc
Annual Report 2018
13
Strategic reportGovernanceFinancial statements Our business
Veterinary Practices
Our Veterinary Practices Division is
the heart of our business. We added
a further 52 surgeries during the year
and 16 since the year end.
87.3%
87+
revenue
share
cvsukltd.co.uk
thehealthypetclub.co.uk
petmedicrecruitment.co.uk
mivetclub.co.uk
vetshare.co.uk
vetisco.com
mipetcover.com
14 CVS Group plc
Annual Report 2018
Our services
• 491 first-opinion and referral surgeries across the
UK, the Netherlands and the Republic of Ireland,
trading under locally established brand names
• HPC loyalty scheme
• Pet Medic Recruitment, recruiting locums
and permanent staff
• MiPet own brand products
• MiVetClub and VetShare buying groups,
using our buying strength to provide a
unique offering to third-party practices
• VETisco and Vet Direct (acquired after the year end),
providing surgical kits and instruments for our
own and third-party practices
• MiPet Cover own brand insurance
Revenue (£m)
£297.5m
+19.9%
18
17
16
15
14
198.1
147.5
126.4
297.5
247.9
50.1
44.7
35.6
EBITDA (£m)
£50.1m
+12.1%
18
17
16
15
14
25.3
21.9
HPC customers ('000)
362,000
+18.3%
18
17
16
15
14
362
306
253
213
162
Strategic report5
+
2
+
6
+
P
Laboratories
Our laboratories provide diagnostic
services to CVS veterinary practices
and third parties. Over 424,000 tests
were performed in 2018, of which
290,000 were for third parties.
Our services
• Four diagnostic laboratories covering the UK
• Biochemistry, haematology, histology, serology
and advanced allergy testing
• Large animal ISO 17025 accredited
• Equine testing
• In-house laboratory equipment and
consumable supplier
5.3%
87+
revenue
share
axiomvetlab.com
finnpathologists.co.uk
greendale.co.uk
Revenue (£m)
£17.9m
+10.2%
18
17
16
15
14
17.9
16.3
14.8
13.1
10.6
EBITDA (£m)
£3.9m+9.0%
18
17
16
15
14
1.1
3.9
3.6
3.1
2.2
Lab tests performed ('000)
424,000
+4.7%
18
17
16
15
14
424
405
380
368
354
CVS Group plc
Annual Report 2018
15
Strategic reportGovernanceFinancial statements5
+
2
+
6
+
P
Our business continued
Crematoria
Our crematoria provide pet cremation
services and clinical waste collection for
veterinary practices and pet owners. Over
135,000 cremations were performed in
2018 (2017: 142,000), of which 62,000
(2017: 72,000) were for third parties.
Our services
• Seven crematoria covering the UK
• Pet cemeteries and memorial gardens at
the Rossendale and Silvermere Haven sites
• Clinical waste collection services
• Small animal and equine cremations
1.9%
87+
revenue
share
rossendalepetcrem.co.uk
silvermerehaven.co.uk
valleypetcrematorium.co.uk
whitleybrook.com
pet-crematorium.co.uk
greenacrespetcrematorium.co.uk
16 CVS Group plc
Annual Report 2018
Revenue (£m)
£6.6m+4.7%
18
17
16
15
14
2.6
1.6
EBITDA (£m)
£2.3m+10.3%
18
17
16
15
14 0.4
0.8
6.6
6.3
5.0
2.3
2.1
1.7
Cremations ('000)
135,000
-4.9%
18
17
16
15
14
68
44
135
142
118
Strategic report5
+
2
+
6
+
P
Animed Direct
Animed Direct sells prescription
and non‑prescription drugs, pet food
and other animal related products
via its website.
Our services
• On-line retailer serving UK pet owning population
• Full prescription medicine delivery service
5.5%
87+
revenue
share
animeddirect.co.uk
Revenue (£m)
£18.8m
+44.9%
18
17
16
15
14
8.4
8.5
10.3
18.8
13.0
EBITDA (£m)
£1.2m+66.3%
18
17
16
15
14
0.3
0.3
0.5
1.2
0.7
Unique customers ('000)
204,000
+20.0%
18
17
16
15
14
204
170
125
139
136
CVS Group plc
Annual Report 2018
17
Strategic reportGovernanceFinancial statements5
+
2
+
6
+
P
Business review
Simon Innes
We are making excellent progress
on our strategic priorities.
CVS Group is managed across four divisions:
Veterinary Practices, Laboratories, Crematoria
and Animed Direct. The Veterinary Practices
Division is the core of our business but all areas
of the Group made excellent progress towards
our strategic priorities during 2018.
Highlights
Animed Direct performed excellently during the year,
growing revenue by 44.9%
The development of our referrals business remains a key strategic priority
Our equine and farm operations have grown significantly
Our new in-house laboratory business has performed exceptionally well
Revenue by division
£m
2018 87+
87+
2017
30 June
2018
£m
30 June
2017
£m
18 CVS Group plc
Annual Report 2018
Veterinary Practices
Laboratories
Crematoria
Animed Direct
Head Office
Total Group
297.5
17.9
6.6
18.8
(13.5)
327.3
247.9
16.3
6.3
13.0
(11.7)
271.8
Strategic report5
+
2
+
6
+
P
5
+
2
+
6
+
P
Veterinary Practices Division
Practices like for like*
2017 acquisitions
and greenfields
2018 acquisitions
and greenfields
Total revenue
Adjusted EBITDA
EBITDA margin %
2018
£m
240.9
2017
£m
234.0
37.5
13.9
19.1
297.5
50.1
16.9
—
247.9
44.7
18.0
*
This includes all businesses owned throughout the years
ended 30 June 2017 and 2018.
Revenue amounted to £297.5m (2017: £247.9m),
an increase of 20.0% on the prior year; like-for-like sales
grew by 3.0% for the year as a whole (2017: 5.2%).
Adjusted EBITDA increased by 12.1% from £44.7m
to £50.1m and profit before income tax increased
from £28.1m to £29.3m. These increases include
the impact of acquisitions in both 2017 and 2018.
In the year CVS acquired 52 surgeries operating as
32 businesses. These businesses contributed £18.9m
of revenue and £1.6m of EBITDA in the year. Practices
acquired during the year and after the year end are
set out in note 14. Greenfield businesses in 2018
include two new sites (in Bracknell and Norwich) and
the MiPet Cover insurance business, which together
generated £0.2m of revenue. These businesses
are expected to take two or three years to
become profitable.
Adjusted EBITDA as a percentage of sales fell from
18.0% to 16.9%. Most of this reduction is due to the
loss-making greenfield businesses (MiPet Cover
and three greenfield sites) and lower than normal
returns on acquisitions made in 2017 and 2018.
A number of acquisitions have encountered the
staffing challenges experienced in the wider business
leading to a lower than anticipated level of sales.
Conversely, some locations have taken on
additional staff in anticipation of increased
sales which have not materialised to the extent
anticipated. Action has been taken to address the
issues and the performance of the acquisitions is
expected to recover to more normal levels in 2019.
The slightly different nature of the business results
in EBITDA percentage returns in the Netherlands
being lower than in the UK (and this is taken into
account in the price paid for these businesses).
Within the like-for-like practices the EBITDA
percentage remained the same although it fell in
the buying groups due to the increased sales of our
own brand MiPet range which is at a lower margin
than other buying group sales.
The development of our referrals business, and the
expertise that this requires, has been and remains
a key strategic priority for CVS. Lumbry Park, which
opened in October 2015, developed strongly during
the year and is now profitable. Manchester Veterinary
Specialists, which opened in February 2017, is also
trading profitably. We acquired Weighbridge
Referrals during the year and anticipate we will
continue to gradually expand our referrals capacity.
Our MiPet own brand range includes a number of
prescription-only and non-prescription medicines.
During the year we added Petalexin, a prescription-
only antibiotic, and Easecto, a new generation oral
tick and flea treatment. Further product launches
are planned in the current year, including two further
prescription-only medicines and a nutraceutical.
Own brand equine products are also planned. The
own brand range is supported well 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. Significant progress was made
during the year in selling the MiPet range to our
buying group members and this is expected to
develop further.
We are building successful careers in farm practice
We are CVS Farm
CVS Farm has grown in the last 18 months with 100 vets
across 22 practices nationwide which range from traditional
mixed practices to large farm‑specific practices. Our aim
is to be able to provide a comprehensive, progressive
and caring service to every type of farm enterprise.
Polly Gray is a Farm Vet at Coast2Coast Vets in Cornwall
and works flexibly.
The opportunity to work flexibly is increasingly important
given levels of burn-out and a growing number of female
veterinary professionals who struggle to balance their
career with young children. I found CVS to be
accommodating – even welcoming – of my wish to work
flexibly two days a week and, with careful planning, I now
have time for both work and family. I still contribute
equally to the on-call rota and have a great relationship
with my full‑time colleagues. Even better, I have
enthusiasm and energy for my job once more.
Polly Gray
BSc, BVM&S, MRCVS
Farm Vet,
Coast2Coast Farm Vets
CVS Group plc
Annual Report 2018
19
Strategic reportGovernanceFinancial statements Business review continued
We are rapidly expanding
We are CVS Equine
CVS Equine is a rapidly expanding group of equine practices
focused on driving clinical and management excellence.
Julian Samuelson was one of the original members of Bell
Equine 27 years ago and has been the Managing Partner
for the last 17 years.
What influenced the decision to sell Bell Equine to CVS?
Selling the business to CVS was the perfect solution to the issues that
were troubling us most; access to capital for further investment in the
business, a succession plan, but most importantly, a secure and
sustainable future. In our discussions with CVS we gained increasing
confidence that we shared a vision for the development of a group of
equine practices and equine vets working together in a way that would
achieve outstanding care for our clients and a lifestyle for our team
that we simply could never achieve by remaining independent.
What worried you at the time?
Initial concerns over how things would change post acquisition were
unfounded – the culture and ethos at the heart of the business, the
things that matter most to us, are as strong as ever.
What is the vision for the future of CVS Equine?
We already have an astonishingly talented group of equine practices and
each new business is selected to ensure that it adds incrementally to the
group to ensure that the value of the whole is greater than the sum of the
parts. Our ambition is to grow the business to a size where the already
apparent economies of scale really start to multiply, providing better
service to our clients and a better working environment for the teams
behind the business. CVS Equine now has in excess of 130 equine vets.
Julian Samuelson
MA, VetMB, MBA, MRCVS
Equine Acquisitions and
Integration Director
20 CVS Group plc
Annual Report 2018
Veterinary Practices Division continued
The Healthy Pet Club loyalty scheme continued its
exceptional growth in the year. Over 56,000 pets were
added to the scheme increasing membership by 19.9%
and bringing the total membership to 362,000. 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
£38.0m (2017: £32.5m). At the year end, the monthly
run rate represented 13.0% (2017: 13.0%) of practice
revenue; however, in the like-for-like practices the
figure was 16.6% (2017: 16.9%), 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 19 emergency out-of-hours sites.
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 all of our out-of-hours centres
are 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 and subsequent to the
year end further developed our geographic spread and
continued the development of the different business
areas. We now have 22 surgeries in the Netherlands
covering small animal, equine and farm animals. Of
particular note were the acquisitions of Troytown
GreyAbbey Equine Veterinary Services and Gilabbey
Veterinary Hospital, our first acquisitions in the
Republic of Ireland. Troytown GreyAbbey is one of the
largest and most renowned equine practices in Ireland.
Together with the other equine acquisitions this will
significantly develop our equine business. Subsequent
to the year end we acquired Slate Hall, one of the
largest and most respected poultry vets in England.
This acquisition adds significant credibility to our
farm business and should assist in its further
expansion. We also acquired Vet Direct, which
provides veterinary supplies other than medicines.
This acquisition will allow us to further consolidate
our buying and reduce costs.
The development of our buying group was dramatically
enhanced by the acquisition of VetShare in 2016.
We have negotiated additional annual rebates for
members and sell our own brand products to them.
We expect the membership of veterinary buying
groups in the UK to fall as the number of practices
in corporate hands, and therefore not members of
buying groups, increases. Our own buying groups
face this challenge but by adding in new services
our objective is to develop the best buying group
in the market.
We have continued to invest significantly in our
surgeries. We opened new sites in Norwich and
Bracknell during the year as well as one in Smethwick
in January 2017. We continue to relocate sites that
have outgrown their existing locations and our major
relocations during the year of Springfield and
Okeford have performed well since their relocation.
Subsequent to the year
end we acquired Slate Hall,
one of the largest and most
respected poultry vets
in England.
In addition to refurbishments, we spent £7.6m on
new equipment in our practices. This equipment
continues to improve our diagnostic capability
and our ability to serve our customers in a
professional environment.
Strategic report Our MiPet Cover insurance business was launched in
August 2017. This is the only own brand pet insurance
in the UK which has been developed by a veterinary
business. Our own staff were closely involved in and
contributed to its development. The product is high
quality and excellent value and is now established
in our practices. We expect it to take two or three
more years until the business is profitable.
We continue to place significant emphasis on staff
training and career opportunities. Uptake in our
apprenticeship programme continues to increase
within the business. We currently have over 155
active learners, with a further 85 who have started
in September 2018. The majority of our apprentices
are student veterinary nurses completing their level 3
diploma. We were also involved in the trailblazer
group to transfer the veterinary nursing apprenticeship
framework into a new approved standard. This
ensures the future of veterinary nursing studies
through apprenticeship frameworks as the
government intends to phase out all frameworks
by 2020.
The graduate programme has also evolved in line
with the demands of the business and the needs
of our graduates. We now offer three full clinical
streams, small animal, equine and large animal. Equine
and large animal have five dedicated clinical days run
by CVS experts. The equine programme provides a
highly practical environment in which to learn and
practise new skills. Our large animal programme
focuses on five species, while the well established
small animal programme continues to provide
robust clinical skills. We have increased the
number of days from 13 to 20 over the two-year
programme as well as the number of graduates we
have taken on demonstrating our commitment to
their learning. We have taken on board feedback
from our graduates to incorporate professional
skills as well as to ensure we help build resilience,
consultation skills and communication.
With the support of our experts and feedback from
our graduates, we ensure that this ever evolving
programme provides a high level of practical
clinical training, as well as the right mix of
professional skills and mentoring, to support our
graduates as they embark on their career with CVS.
We also sponsor further qualifications for vets such as
RCVS Advanced Veterinary Practitioner Certificates
and Diplomas. Increasingly, this training is carried out
in house by our own experts and bringing more of this
in house will be an area of focus over the next year.
Laboratories Division
Revenue
Adjusted EBITDA
EBITDA margin %
2018
£m
17.9
3.9
21.9
2017
£m
16.3
3.6
22.1
The Laboratories Division generated revenue of
£17.9m, a 10.2% increase on the prior year figure
of £16.3m. Adjusted EBITDA grew by 9.0% from
£3.6m to £3.9m and profit before tax increased
from £2.9m to £3.3m.
The diagnostics testing business has grown steadily
during the year. The acquisition of Bell Equine in the
previous year created the opportunity to develop
equine testing and revenue has grown strongly,
although from a small base, with increases in both
internal and external sales. Farm diagnostics have
also shown good growth from a small base. Both
these areas are expected to grow in importance.
The sales of analysers and related consumables
grew strongly during the year. The business installs
its analysers in new and acquired CVS practices;
however, third-party sales have continued to
develop well. Because the analyser machines have
an economic life of several years, the sale of the
machines leads to consumable sales for several
further years.
The Laboratories Division gross margin percentage
fell marginally from 65.4% in 2017 to 65.0% primarily
because the faster growing analyser business has
a lower gross margin percentage. EBITDA as a
percentage of sales fell slightly from 22.1% to 21.9%.
Crematoria Division
Revenue
Adjusted EBITDA
EBITDA margin %
2018
£m
6.6
2.3
34.6
2017
£m
6.3
2.1
32.8
The Crematoria Division had a good year with sales
growing by 4.7%. The Crematoria Division benefits
from becoming the supplier to veterinary practices
that we have acquired in both the current and prior
year but loses business when other corporates
acquire practices that are our customers and switch
them to their usual supplier. The high net growth
level reflects the high standard of service and the
consequent ability to attract new customers.
The division has continued to see a market shift to
individual cremations, which generate higher revenue.
Adjusted EBITDA grew by 10.3% to £2.3m (2017:
£2.1m). EBITDA as a percentage of sales improved
from 32.8% to 34.6%, primarily due to a small
improvement in employment costs. Profit before
tax remained at £1.9m.
Animed Direct
Revenue
Adjusted EBITDA
EBITDA margin %
2018
£m
18.8
1.2
6.4
2017
£m
13.0
0.7
5.6
The business performed excellently during the year,
with revenue growing by 44.9% to £18.8m (2017:
£13.0m) and adjusted EBITDA rose 66.3% to £1.2m
(2017: £0.7m). The new website was launched late
in the year and this will allow the business more
flexibility in providing a range of offers to
customers and is expected to provide the
opportunity for further growth.
The gross margin percentage improved slightly
from 17.4% to 17.9%.
The business now has an active customer
database of over 204,000 (2017: over 170,000)
people, with the average value of each purchase
during the year up to £46.00 (2017: £40.00). Profit
before tax increased from £0.6m to £1.2m.
Head Office
Central administration costs include those of the
central finance, IT, human resource, purchasing,
legal and property functions. Total costs were £9.9m
(2017: £9.0m), representing 3.0% of revenue
(2017: 3.3%).
The significant growth and development of the
Group requires continued additional investment
to maintain an appropriate level of control and to
support further growth over the next few years. All
central functions have taken on additional staff to
assist with the integration of acquisitions, including
those in the Netherlands and the Republic of Ireland,
and the ongoing management of the enlarged
business. Ensuring that we maintain control of the
business is a priority and as part of that aim we
have replaced our outdated accounting system. We
continue to base support staff in the regions where
they can more easily provide the close support that
the operations teams require.
Animed Direct, our on-line dispensary and retailer,
focuses on prescription and non-prescription
medicines where the Group’s buying power allows
it to be extremely competitive.
Simon Innes
Chief Executive
27 September 2018
CVS Group plc
Annual Report 2018
21
Strategic reportGovernanceFinancial statements Our culture and values
We are placing culture
and values at the
heart of our business.
At CVS we employ guiding principles that underpin our approach
to how we work. These behaviours embed the CVS values in our
everyday working lives, and support delivery of our vision to continue
to be the most comprehensive and integrated provider of veterinary
services to animal owners in the UK.
Individual attitudes and behaviours are key to our success. These
values not only make us different, they also provide us with a sense
of direction for consistent behaviour. They act as a foundation for our
evolving culture as well as a guide describing what we can expect of
each other and what our employees, customers and the communities
in which we work can expect of us. Our values are at the heart of how
we work and they provide the inextricable link that ties all of these
things together.
Our gender diversity
14%
15%
Board
86+
7
86%
Executive
management
team
85+
13
85%
14%
Total
employees
86%14+
6,150
22 CVS Group plc
Annual Report 2018
Customer focus
Commitment to excellence
• We value all our customers and treat
them all with warmth and respect
• We get things right the first time
• We encourage employees to be innovative
• We communicate with our customers regularly
to improve the way we work
• We keep our commitments
• We understand and manage
customer expectations
• We are focused on our customers’ and their
animals’ needs
• We make all our customers feel welcome
• We appreciate and act upon feedback
• We accept feedback in a positive way
and act upon it
• We deliver a high quality service that
differentiates us from others
• We hold accreditations for our high standards
of quality
• We strive to find better ways of working, both
individually and in teams
• We demonstrate professionalism at all times
Our dedication to our customers
shows in everything we do.
We constantly strive to achieve
the highest possible standards.
Success through our people
Honesty and integrity
• New starters have a full induction
and we give staff annual appraisals
• We train everybody to do their job and provide
progressive learning and development opportunities
• We advertise all vacancies internally
• We provide employees with the correct tools/
resources to do their job
• We are accessible to all
• We are fair and transparent
• We act with integrity in all we do
• We ensure a safe workplace
• We are open to feedback
• We keep our commitments
• We value employee feedback via our consultation
• We trust each other to do a good job and give
groups and surveys
praise and encouragement
• We foster a collaborative and mutually supportive
working environment for our staff
• We value long-term relationships
with our customers and suppliers
• We assist all our employees in achieving
• We own up to our mistakes
their career aspirations
Male
Female
We attract, develop and retain the best people
for our profession.
We treat our employees and customers
with honesty and respect.
Strategic report15
+
P
14
+
P
86
+
P
We are focusing on developing
opportunities at CVS.
New graduate programme
Apprenticeships
Nursing Excellence Award
478 graduates in four years
155 active learners
Designed to assist newly qualified
vets make the challenging
transition from university
to day-to-day practice.
The graduate programme has also
evolved in line with the demands of
the business and the needs of our
graduates. We now offer three full
clinical streams, small animal,
equine and large animal.
Equine and farm animal have five
dedicated clinical days run by CVS
experts. The equine programme
provides a highly practical environment
in which to learn and practise new
skills. Our farm animal programme
focuses on five species, while the
well established small animal
programme continues to provide
robust clinical skills.
We have increased the number
of days from 13 to 20 over the
two-year programme as well as the
number of graduates we have taken
on demonstrating our commitment
to their learning. We have taken on
board feedback from our graduates
to incorporate professional skills as
well as to ensure we help build resilience,
consultation skills and communication.
Providing exciting development
opportunities and valuable skills
for our existing employees and
new recruits, whilst supporting
the growth of our business.
Uptake in our apprenticeship
programme continues to increase
within the business. We have over
155 active learners, with a further 85
who started in September 2018. The
majority of our apprentices are student
veterinary nurses completing their level
3 diploma. Interest in the variety of
other apprenticeships is gathering a
strong momentum across the business
as we explore additional possibilities.
This will provide exciting development
opportunities and valuable skills for our
existing employees and new recruits,
whilst supporting the growth of our
business. We were involved in the
trailblazer group to transfer the veterinary
nursing apprenticeship framework into
a new approved standard. This ensures
the future of veterinary nursing studies
through apprenticeship frameworks as
the government intends to phase out
all frameworks by 2020.
168 nurses have enrolled on
our new Nursing Excellence Award
CVS Nursing has recently
entered into a new partnership
with the Royal Veterinary
College, University of London,
to deliver accredited CPD
for nurses.
Our Director of Nursing, Belinda
Andrews-Jones, has worked with
the RVC to develop a new “Nursing
Excellence Course”. This will provide
access to the fantastic clinical nursing
modular CPD, run by the RVC, and will
provide an accredited certificate in
a particular subject area. These
modules are run entirely on-line over
six weeks and use a blended/deep
learning approach to deliver high
quality content, which encourages
learners to think critically about their
work, not to just engage in box-ticking
CPD hours.
At the end of the module, nurses will gain
up to 18 CPD hours and a certificate
from the University of London, Royal
Veterinary College, London.
We are offering opportunities
We are developing people
We want our colleagues to build a long-term, satisfying
career with us and, as the largest and most comprehensive
provider of veterinary services in the UK, the variety of
opportunities we can offer to veterinary professionals
ensures that we deliver on this goal.
CVS offers a pathway for every
area of special clinical interest
and professional advancement
is actively encouraged and
supported. The company
helped to fund my Advanced
Diploma in Clinical Veterinary
Nursing and RCVS Advanced
Nursing Diploma. I’m a better
nurse and clinical coach to my
students as a result.
Training and mentoring from
CVS have enabled me to follow
an exciting career path, first in
a clinical role and now in a
position which is completely
non-clinical. As a Regional
Director, I focus on developing
the practices in my region and
still enjoy the challenge
of learning something new
every day.
Helen Molyneux
RVN DipAVN, DipHECVN,
CertVNECC
Emma Gray
BSc (Hons), MA, VetMB,
MRCVS
Head Nurse,
Rees Veterinary Group
Regional Director,
CVS Group
Strategic reportGovernanceFinancial statements Principal risks and uncertainties
We are managing
and mitigating risks.
The Group’s businesses are
subject to a variety of risks.
Some of the most significant risks
are explained opposite together
with details of actions that have
been taken to mitigate these risks.
Risk
Description
Mitigating factors
1
Key staff
The Group is exposed to
risk in relation to the ability
to attract and retain key
staff, in particular
appropriately qualified
veterinary surgeons.
The market for veterinary
surgeons is highly
competitive.
Links to strategy
P10 Strategy
1 2 3 4
2
Economic
environment
A poor economic
environment poses a risk
to the Group through
reduced consumer
spending on veterinary,
laboratory, crematoria
and on-line services.
• The Group is committed to maintaining salaries for its staff that are
competitive in the marketplace. To this end, salary increases significantly
in excess of inflation were given to a number of categories of veterinary
surgeons and nurses during the year. Remuneration is benchmarked
against industry data.
• The retention 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.
• The training and development of the Group’s employees is a key focus. This
covers not only technical, e.g. veterinary skills, but also management skills.
Our graduate recruitment scheme is recognised across the industry and a
wide and increasing range of other courses helps to develop and retain
senior staff.
• Staff surveys and exit interviews are carried out, through which the Group
identifies common reasons for staff leaving the business and allows the
Group to address relevant matters.
• A highly qualified, central recruitment team is in place to assist in
recruitment of staff from the UK and from overseas.
• The Board believes that the characteristics of our business make it
relatively resilient to economic fluctuations.
• The Group seeks to become more resilient to future downturns in economic
conditions and to the actions of competitors through the diversification of
its services and by bonding customers to them.
• The range of businesses within the Group, and our geographic expansion,
reduces the risk of the impact of any economic downturn. The small animal,
farm animal and equine veterinary markets have slightly different characteristics.
Similarly, there will be differing economic cycles in different countries.
The growth of Animed Direct protects the Group further as customers
switching to buying on-line may still be buying from CVS.
• The impact of Brexit, and therefore of the Group’s exposure to the potential
impacts, remains uncertain. The Board believes that the main risk to the
Group of Brexit stems from any reduction in economic growth. Since the
veterinary industry appears to be relatively resilient to economic downturns
the Board believes that the impact of, and economic downturn as a result
of, Brexit is likely to be less than for many industries.
24 CVS Group plc
Annual Report 2018
Links to strategy
P10 Strategy
1 2 3 4
Strategic report Risk
Description
Mitigating factors
3
Competition
The actions of
competitors are aimed to
divert customers to their
businesses rather than
those of the Group.
• The actions of competitors are constantly monitored and actions are taken to mitigate them. The
expansion of the Group’s business to provide all of the veterinary services required by our customers
acts to bond them to the practice. These services include referrals, out-of-hours (provided internally),
MiPet Cover insurance and the Healthy Pet Club preventative medicine scheme. Our own brand product
range, only available in surgeries, helps to reduce the risk of customers buying drugs on-line.
• The Group aims to maintain its properties as a welcoming environment for customers and we train
our staff to provide an excellent customer experience.
Links to strategy
P10 Strategy
1 2 3 4
4
Adverse
publicity
Adverse publicity could
result in a reduction in
customer numbers and in
revenue or in the number
of people wishing to work
for the Group.
• The Group has policies and procedures in place to ensure that high standards of customer service
and clinical excellence are maintained. The behaviours promoting excellent customer care and clinical
standards are embedded within our core values (see page 22). The individual branding of our practices
reduces the risk of publicity at one practice impacting on another.
• Within the veterinary industry, the Group aims to be prominent in its representation on national bodies
and at industry events so as to continue to build its reputation and credibility within the industry.
Links to strategy
P10 Strategy
1 2 3 4
5
Information
technology
The Group is dependent
on various aspects of
IT technology for the
continued operation of its
business. These primarily
relate to the security of
data and the continuing
availability of systems.
• The Group has a number of policies in place that are aimed at ensuring the stability and security of
our networks and systems, whilst at the same time supporting the growth of the business.
• Access to networks, applications and data is limited to those who require it. Where possible, physical
access to equipment is restricted. Access to networks and applications is restricted by passwords
which are changed regularly. Permissions are set so that access within networks and applications
are limited as appropriate.
• Network security is regularly enhanced with external reviews being performed periodically to identify
areas of risk. Networks and equipment are automatically monitored to identify risks and issues and
failover systems are in place in key areas. A scheduled programme of equipment and software
replacement takes place to help ensure that the latest security features are available.
• Procedures are in place over the development of systems. These require full testing on test platforms
and, where relevant on a number of test sites, before the full implementation of any changes.
Our risk management framework
The Board has overall responsibility for ensuring
risk is appropriately managed across the Group.
The day-to-day identification, management and
mitigation of risk is delegated to the Group’s
executive management. This process is overseen
by the Group Internal Audit Manager.
Risk registers are prepared which evaluate the risks
most likely to impact the Group. Staff across the
business are involved in the process to ensure all
potential areas of risk are adequately identified and
recorded. Controls that are currently in place are
assessed in order to determine the extent to which
they mitigate risk and actions are determined where
it is considered appropriate to reduce risk further.
Identify
risk
The Board
Regularly
review and
evaluate
Assess
risk and
impact
Update
key risk
register
Create
mitigation
strategy
• Systems are regularly backed up to the cloud and the recovery of those systems is tested.
Our strategic priorities
• The main system used by operations is the practice management system in our surgeries. One well
1 Excellent customer service and care
established and well maintained practice management system is primarily used. Each practice system
is independent of others and most practices can operate for a short period of time without access to
the internet. This reduces the risk of any issues impacting on the business. This system is continually
developed to meet the needs of the business.
2 Meeting all of our customers’ needs
3 Expanding our business
4 Building on our strengths to provide services
to external practices
Links to strategy
P10 Strategy
1 2 3 4
CVS Group plc
Annual Report 2018
25
Strategic reportGovernanceFinancial statements Risk registers are prepared
which evaluate the risks
most likely to impact the
Group. Staff across the
business are involved in the
process to ensure all
potential areas of risk are
adequately identified
and recorded.
Principal risks and uncertainties continued
Risk
Description
Mitigating factors
6
Changes in
regulations
The Group is subject to a
wide range of legislation
and regulations.
Non-compliance with
regulations could lead
to limitations on certain
areas of the business
or fines and penalties.
• The Group is subject to general legislation in the same way as other businesses (e.g. on
corporate governance, health and safety and employment law). The Group has clearly defined
policies in all relevant areas which are communicated to staff and on which staff are trained as
appropriate. Suitably qualified experts are employed, checks on compliance are carried out and
policies and practices are updated as new legislation and regulations are introduced.
• Specific regulations apply to different parts of the business. Policies and procedures are
maintained in all areas as appropriate. In particular, the practices are subject to various clinical
regulations. An experienced Director of Clinical Governance is responsible for ensuring that
policies and procedures are in place and that appropriately high standards are maintained.
Every practice employs an individual responsible for clinical governance.
Links to strategy
P10 Strategy
1 2 3 4
7
Reliance on
one supplier
of medicines
Links to strategy
P10 Strategy
8
Ability to
source and
integrate
acquisitions
The majority of medicines
are purchased through
one wholesaler.
• A two-year supply agreement was signed in April 2017 to secure the provision of 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.
1 2 3 4
The growth of the Group
at the pace seen in recent
years has, in part, been
due to the acquisition of
businesses, in particular
veterinary practices. To
continue this pace of
growth will require further
acquisitions to be made
and successfully integrated.
• The Group is actively acquiring veterinary practices that provide services for small, equine and
farm animals. In the UK each of these parts of the veterinary industry are at different stages of
consolidation with a low level of consolidation in the equine and farm sectors.
• CVS made its first acquisition in the Netherlands in 2016 and recently made its first acquisitions
in the Republic of Ireland. Both of these markets, whilst smaller than the UK market, are substantially
less consolidated and together provide significant scope for further growth through acquisition.
The Group will consider entering other geographic markets where they are considered attractive.
• CVS has continued to increase the resources that it has both to make and to integrate
acquisitions and will increase them further if necessary to ensure that acquisitions can be
pursued and successfully integrated. During the year a number of roles have been developed so
that they are dedicated to the various stages of the acquisition and integration process, rather
than them being involved in other aspects of the business. The results of acquisitions are
reported and monitored separately at Board level.
Links to strategy
P10 Strategy
1 2 3 4
26 CVS Group plc
Annual Report 2018
Strategic report Finance review
Nick Perrin
We are continuing to grow our
revenue and operating profit.
The Board remains committed to expanding
the Group through further acquisitions in all
divisions, as well as through organic growth.
Financial highlights
CVS has continued to deliver growth in revenues and operating profit
Key financial highlights are shown below
Revenue (£m)
Adjusted EBITDA (£m)*
Adjusted profit before
tax (£m)*
Adjusted earnings
per share (p)*
Operating profit (£m)
Profit before tax (£m)
Basic earnings
per share (p)
2018
2017
327.3
47.6
271.8
42.1
CAGR
%
20.4
13.3
36.0
33.5
7.1
42.4
17.7
14.1
42.8
17.2
14.5
-0.9%
2.8%
-3.2%
16.0
18.5
-13.5%
*
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”) overleaf and on page 60 (adjusted profit before
tax and adjusted earnings per share).
CVS Group plc
Annual Report 2018
27
Strategic reportGovernanceFinancial statements Finance review continued
Financial highlights continued
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:
Operating profit as reported
Adjustments for:
Amortisation and depreciation
Costs of business acquisitions
Adjusted EBITDA
2018
£m
17.7
26.4
3.5
47.6
2017
£m
17.2
21.9
3.0
42.1
The £5.5m (13.2%) improvement in adjusted
EBITDA compared with the prior year arises
primarily from the underlying organic growth
within the Veterinary Practices Division (£1.3m),
the Laboratory Division (£0.3m), the Crematoria
Division (£0.2m), the Animed Direct Division
(£0.5m), acquisitions and greenfield development
during the year (£1.1m) and the full year effect
of previous year acquisitions and greenfield
development (£3.0m), offset by an increase
in central administration costs (£0.9m).
Adjusted EBITDA as a percentage of revenue
(adjusted EBITDA margin) decreased from 15.5%
in 2017 to 14.6%. This was principally driven by
lower short-term margins in the Veterinary
Practices Division greenfield developments and
some of the recent acquisitions. It is expected that
these acquisitions will achieve normal levels of
performance in 2019 and beyond.
28 CVS Group plc
Annual Report 2018
Profit before tax for the year decreased from
£14.5m to £14.1m (-3.2%). The decrease in
profit before tax is due to the £1.8m increase
in amortisation costs as a result of the full year
impact of prior year acquisitions. Basic EPS
decreased 13.5% to 16.0p (2017: 18.5p) due to
the higher number of shares in issue following
the share placing in February 2018.
Adjusted profit before tax showed a 7.1% increase
in the year from £33.5m to £36.0m. Adjusted EPS
(as defined in note 10 to the financial statements)
marginally decreased 0.9% to 42.4p (2017: 42.8p).
Adjusted profit before tax and adjusted EPS
exclude the impact of amortisation of intangible
assets and business combination costs.
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:
Revenue (£m)
Adjusted EBITDA (£m)
Adjusted profit before
tax (£m)
Adjusted EPS (p)
2018
2013
327.3
47.6
120.1
15.8
36.0
42.4
12.1
16.2
CAGR
%
22.2
24.7
24.3
21.2
Net debt decreased by
£31.0m to £69.0m.
Bank facilities
On 21 September 2018 the Group increased its
total bank facility through the exercise of the
accordion. Total bank facilities of £190.0m are
available 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, and comprise
the following elements:
• a fixed term loan of £95.0m, repayable on
23 November 2021 via a single bullet repayment; and
• a six-year revolving credit facility (“RCF”) of
£95.0m that runs to 23 November 2021.
In addition the Group has a £5.0m overdraft facility
renewable annually.
Cash flow
Cash flow from operating activities was £46.7m
(2017: £37.2m). The increase reflects the growth
in EBITDA.
Net debt decreased by £31.0m to £69.0m
(2017: £100.0m) largely as a consequence of the
successful placing of Ordinary shares during the
year which generated net proceeds of £58.9m.
The movement in net debt is explained as follows:
Cash generated from operations
Capital expenditure –
maintenance
Taxation paid
Interest paid
Free cash flow
Capital expenditure –
development
Acquisitions
Proceeds from Ordinary shares
Purchase of own shares
Dividends paid
Debt issuance costs
amortisation
Acquired finance leases
Decrease/(increase) in net debt
31.0
2018
£m
46.7
(7.6)
(6.2)
(3.1)
2017
£m
37.2
(5.9)
(5.4)
(2.1)
29.8
23.8
(3.1)
(52.6)
61.0
—
(2.9)
(0.4)
(0.8)
(7.9)
(48.4)
30.6
(2.1)
(2.1)
(0.8)
—
(6.9)
Cash available for discretionary expenditure (“free
cash flow”) increased from £23.8m to £29.8m due
to increased capital expenditure on maintenance.
The analysis of capital expenditure in the table
above 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 expenditure included £0.4m
on the new surgery site at Norwich, £0.5m on
relocations of the Springfield and Okeford practices,
£0.3m on the refurbishment work at Chestergates
and £0.7m on expansion of the Head Office site
at Diss.
£52.3m was paid (including £2.0m repayment of
acquired bank debt) for the 52 surgeries acquired
during 2017. £1.1m of consideration was payable
at 30 June 2018 in respect of completion net asset
adjustments. In addition to £52.3m paid for
businesses acquired in the year, £0.3m was paid
in respect of completion net asset adjustments for
business acquired in the 30 June 2017 financial year.
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 £3.1m was
higher than last year (£2.1m) reflecting the higher
average net debt during the financial year.
Proceeds from Ordinary shares arose due to the
placing of 5,581,395 shares in February 2018 and
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.
The movement in debt issue costs was £0.4m,
which represents the amortisation of costs during
the year.
Strategic report
Net debt and borrowing covenants
The Group’s net debt comprises the following:
Borrowings repayable:
Within one year
After more than one year
Total borrowings
Cash in hand and at bank
Net debt
2018
£m
2017
£m
0.5
83.5
84.0
(15.0)
3.3
103.5
106.8
(6.8)
69.0
100.0
The total borrowings principally consist of:
• £67.5m term loan (gross of unamortised issue
costs). The term loan is repayable in one bullet
payment in 2021; and
• £17.0m drawn down under the RCF (gross of
unamortised issue costs). The RCF is available
until 2021.
£68.0m of the RCF remained unutilised at 30 June
2018. 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 2018 it was 15.35.
The covenant levels allow a maximum Group
borrowing to EBITDA ratio of 3.0, although it is not
the Group’s intention to operate at this level. The
gearing ratio reduced during the year from 2.26
at 30 June 2017 to 1.44 at 30 June 2018. This
reduction in the ratio reflects the benefit of the
share placing in February 2018 and a combination
of organic EBITDA growth and the realisation of the
full benefits of recent acquisitions. The Group aims
to continue to expand the business, and has a
strong acquisition pipeline and sufficient
capacity to fund it. 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.
Interest rate risk is also managed centrally and
derivative instruments are used to mitigate this
risk. On 1 March 2017, the Group entered into a
three-year interest rate fixed rate swap arrangement
to hedge fluctuations in interest rates on £45.0m
of its RCF facility. The swap reduced to £40.0m
on 1 March 2018, and reduces to £35.0m on
1 March 2019.
Going concern
At the balance sheet date the Group had cash
balances of £15.0m and an unutilised overdraft
facility of £5.0m. Total facilities of £190.0m are
available to support the Group’s organic and
acquisitive growth initiatives over the coming years,
comprising a term loan of £95.0m and a RCF of
£95.0m. The Directors consider that the £5.0m
overdraft and the £190.0m facility enable them to
meet all current liabilities when they fall due. Since
the year end, the Group has continued to trade
profitably and to generate cash.
After consideration of market conditions, the
Group’s financial position (including the level of
headroom available within the bank facilities),
its profile of cash generation and the timing
and amount of bank borrowings repayable, the
Directors have formed a judgement at the time of
approving the financial statements that both the
Company and the Group have adequate resources
available to continue operating in the foreseeable
future. For this reason, the going concern basis
continues to be adopted in preparing the
financial statements.
Strategic report
Governance
Financial statements
We are Gilabbey Veterinary Hospital
We are CVS Small Animal
Gilabbey is a dedicated small animal referral practice in Cork,
Ireland, and is our second acquisition in the Republic of
Ireland. The practice employs around 38 colleagues, which
include seven regularly visiting specialists and consultants.
The previous owners, Shane Guerin MVB MACVSc Cert SAO DVCSc
Diplomate ECVS MRCVS, Pat O’Doherty MVB MRCVS and Tom Conway
MVB MRCVS, will be staying with the practice. The Veterinary Council of
Ireland accredits it to the highest practice standards and it is a centre of
excellence for both referrals and first‑opinion patients.
Shane Guerin, who will continue as the Clinical Director, said: “The
ever expanding range of new equipment and resources required to
continue to provide a top-class small animal first-opinion and specialist
referral service is a very big challenge. This new partnership will now
secure and support our exciting development plans long into the future.
“This new partnership has immediately enabled us to invest in a new CT
machine, which will be installed over the coming months in Gilabbey
along with other state-of-the-art veterinary equipment, which will
significantly enhance the quality and range of services we offer in
Gilabbey. We look forward to introducing a dedicated 24‑hour
emergency care service in the very near future.” Simon Innes, Chief
Executive at CVS, added: “We are pleased to announce our second
acquisition in the Republic of Ireland this summer. This practice is
already well known to TV viewers in Ireland and around the world as the
home of RTE’s The Pet Surgeons and we are looking forward to a long,
successful, happy and productive partnership with Gilabbey.”
38
colleagues
7
specialists and
consultants
Finance review continued
Taxation
The Group’s effective tax rate was 24.1% (2017: 20.8%).
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:
Profit before tax
Expected tax at standard
rate of tax
Expenses not deductible for tax
Adjustments to prior year
tax charge
Benefit of tax rate change
Actual charge/effective rate
of tax
£m
14.1
2.7
0.6
%
19.0
4.2
0.7
(0.6)
4.9
(4.0)
3.4
24.1
Share price performance
At the year end the market capitalisation was
£795.5m (1,131p per share), compared to £804.5m
(1,259p per share) at the previous year end. The
graph below shows the total shareholder return
performance compared to the FTSE AIM All-Share
index. The values indicated in the graph show the
share price movement based on a hypothetical
£100 holding in Ordinary shares from 1 July 2012
to 30 June 2018.
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.
The Strategic Report on pages 1 to 30
was authorised by the Board of Directors
on 27 September 2018 and was signed on
its behalf by:
Nick Perrin
Finance Director
27 September 2018
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 significant disruption
in trading by purchasing from alternative suppliers.
All of the Group’s revenues and the majority of its
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 £0.4m to £3.4m
(2017: £3.0m) whilst profit before taxation has
decreased £0.4m from £14.5m to £14.1m.
£
The benefit of the tax rate change reflects the
impact of the future reduction in corporation tax
rates on the deferred tax liabilities in respect of
intangible assets.
900.0
800.0
700.0
600.0
500.0
400.0
300.0
200.0
100.0
0.0
FTSE AIM All-Share
CVS
2 July
2013
2 July
2014
2 July
2015
2 July
2016
2 July
2017
2 July
2018
30 CVS Group plc
Annual Report 2018
Strategic report Governance
32 Board of Directors
34
Corporate governance statement
37 Remuneration Committee report
43 Directors’ report
Financial statements
45
Independent auditor’s report
49 Consolidated income statement
50
51
52
53
54
55
76 Five-year history
IBC Contact details and advisors
Consolidated statement of comprehensive income
Consolidated and Company balance sheets
Consolidated statement of changes in equity
Company statement of changes in equity
Consolidated and Company cash flow statements
Notes to the consolidated financial statements
CVS Group plc
Annual Report 2018
31
Board of Directors
We are a strong
leadership team.
1
2
3
4
5
6
7
Governance 2. Deborah Kemp (57)
Non-Executive Director
Appointment to the Board
Deborah Kemp was appointed to the Board in January 2018.
Career and experience
Deborah Kemp has a background of demonstrable
commercial success, operating in a variety of roles in the
consumer and hospitality sectors. Since 2015, she has been a
director of Vennco Limited, a consultancy which specialises
in the consumer‑facing retail and hospitality sectors, and
assists multi‑site business through growth, change and
transformation. In September 2017, Deborah became interim
CEO of private equity‑backed Synseal Group, a UK‑leading
manufacturer and supplier of high quality products to the
fenestration industry.
5. Nick Perrin (58)
Finance Director
Appointment to the Board
Nick Perrin was appointed as Finance Director in January 2013.
Career and experience
Nick Perrin has extensive experience in multi‑site retail and
service businesses. During 2012 Nick was interim chief financial
officer at Praesepe plc, a leading UK bingo and gaming centre
operator, and from 2008 to 2010 was finance and IT director
at Genting UK plc, which operated the largest number of casinos
in the UK. He previously spent nine years at The Co-operative
Group, initially as group financial controller and then as
finance director of the specialist retail division.
Nick will be stepping down from the Board as Finance Director
with effect from 28 September 2018.
3. Richard Connell (63)
Non-Executive Chairman
Appointment to the Board
Richard Connell was appointed to the Board in
September 2007.
Career and experience
Richard Connell is a Chartered Accountant and worked in
investment management with 3i Group, Invesco and HSBC.
In addition to his role with CVS, he is chairman of a number of
other companies and was previously chairman of Dignity plc,
Mercury Pharma and Ideal Stelrad Group.
Committee membership
Richard is Chairman of the Audit Committee and the
Nominations Committee.
6. Richard Fairman (51)
Director
Appointment to the Board
Richard Fairman was appointed as Director in August 2018.
Richard will be taking over as Finance Director with effect
from 1 October 2018.
Career and experience
Richard spent six and a half years at the RAC Group,
including as CFO since 2016. Prior to this, Richard qualified
as a Chartered Accountant at Ernst & Young, later working at
PricewaterhouseCoopers, following which Richard held roles
including finance director of Virgin Money, CFO of Central
Trust and finance director of Virgin Money Giving.
1. Mike McCollum (51)
Non-Executive Director
Appointment to the Board
Mike McCollum was appointed to the Board in April 2013.
Career and experience
Mike McCollum is chief executive officer of Dignity plc, a
FTSE 250-listed provider of funeral services. Like CVS, this is
a multi-site, acquisitive service business. As finance director
he was a prime mover in the 2002 leveraged buyout, the
whole-business securitisation in 2003 and the IPO in 2004.
He became chief executive in 2009. Mike is a solicitor and
holds an MBA from the University of Warwick.
Committee membership
He is Chairman of the Remuneration Committee.
4. Simon Innes (58)
Chief Executive
Appointment to the Board
Simon Innes was appointed as Chief Executive in January 2004.
Career and experience
Prior to this role Simon Innes was chief executive of Vision
Express from 2000 to 2004, over which time he built the
business up to £220m turnover and 205 practices, and reversed
a loss‑making position to create one of the most profitable
corporate optical operators in the UK. Prior to Vision Express,
Simon was on the board of Hamleys PLC as operations director
and gained ten years’ management experience at Marks &
Spencer. He also served seven years in the British Army,
achieving the rank of Captain in the Royal Engineers.
7. Richard Gilligan (38)
Company Secretary
Appointment to the Board
Richard Gilligan was appointed as Company Secretary
in September 2017.
Career and experience
Before joining CVS, Richard Gilligan was assistant company
secretary at Greene King plc for five years and trained as a
solicitor with a firm of solicitors in London providing commercial
services to GPs and dentists. Richard studied at the University
of York and the College of Law and completed the ICSA
Chartered Secretary Qualification Scheme in 2013.
CVS Group plc
Annual Report 2018
33
Strategic reportGovernanceFinancial statements Corporate governance statement
Richard Gilligan
We are committed to good
corporate governance.
The Directors are committed to
maintaining high standards of
corporate governance.
The Board
Audit
Committee
Remuneration
Committee
Nominations
Committee
Internal audit
Executive
Committee
Audit Committee
Remuneration Committee
Nominations Committee
Key responsibilities
• Review and monitor
financial reporting
Key responsibilities
• Review Executive
Key responsibilities
• Monitor and review the
Director performance
Board composition
• Internal control and
risk management
• Monitor and review
Executive remuneration
• Whistleblowing
procedures
• Monitor internal
and external audit
arrangements
• Makes recommendations
regarding LTIP awards
• Co‑ordination of annual
evaluation of the Board
and Committees
• Make recommendations
on all Board appointments
and succession planning
Governance Principles of corporate governance
The Directors are committed to maintaining high
standards of corporate governance. The Directors
have elected to adopt the UK Corporate Governance
Code (“the Code”) published in July 2018. The
purpose of this report is to provide our shareholders
and stakeholders with information on how the
Company is managed, the roles of the Directors
and the Committees and to set out the Company’s
compliance with the Code. The report also sets out
the Group’s internal management controls while risk
management details are available on pages 24 to 26.
Compliance statements
During the year to 30 June 2018, the Company has
complied with the principles set out in the Code
save as reported in detail in this section. Where the
Company feels that it has not complied completely
with the principles or the provisions, a full explanation
is provided.
Board of Directors
At the 30 June 2018 the Board of Directors
consisted of five members, including a Non‑Executive
Chairman and two Non-Executive Directors. During
the year, on the recommendation of the Nominations
Committee to address the balance of Executive
and independent Non‑Executive Directors,
the Company was pleased to announce the
appointment of Deborah Kemp as an additional
independent Non‑Executive Director following an
extensive recruitment process. As a result of D Kemp’s
appointment on 2 January 2018, the Board has
expanded the knowledge and experience of the
Directors and established a balance of Executive
and independent Non‑Executive Directors
(excluding the Chairman). The Board now presents
a wide range of experience including customer‑
facing multi‑site companies, mergers and acquisitions,
financial, operational and organisational, and no one
individual or small group of individuals dominates
the Board’s decision-making process.
Following the year end, with the appointment of
Richard Fairman and during his hand over from
N Perrin, the Board comprises six members,
three of whom are Executive Directors. The Board
believes that the benefits of the handover between
R Fairman and N Perrin and the temporary nature
outweigh the imbalance.
The business of the Company and its subsidiaries
is the combined responsibility of the Board, which
is responsible for controlling and leading the Group.
The Board’s responsibilities include:
• setting the strategy of the Group and making
major strategic decisions;
• approving other significant operational matters;
• agreeing annual budgets and monitoring results;
• monitoring funding requirements and forecasting;
• reviewing the risk profile of the Group and
ensuring adequate internal controls are in place;
• approving acquisitions of more than £1m and all
major capital expenditure; and
• proposing dividends to shareholders.
All Directors are able to take independent professional
advice on the furtherance of their duties if necessary.
They also have access to the advice and services
of the Company Secretary and, where it is considered
appropriate and necessary, training is made available
to Directors. All Directors receive updates on the
duties and responsibilities of being a director of a
listed company. This covers legal, accounting and
tax matters, as required. The Company maintains
appropriate insurance cover in respect of any legal
action against its Directors. The level of cover is
currently £50.0m for any one claim.
The Chairman R Connell as well as M McCollum
and D Kemp were considered to be independent at
the time of their appointment and have continued
to be independent throughout the year, in the case
of D Kemp for the period from her appointment on
2 January 2018. The Board identifies M McCollum
as the Senior Independent Non‑Executive Director
and he is available to shareholders to discuss any
matters relating to the Chairman. Although
R Connell has served as Chairman for more than
ten years, he continues to act in an independent
manner and to challenge the Executive Directors.
The Non‑Executive Directors continue to review
the Chairman’s performance of his roles and
responsibilities and believe that the skills, knowledge
and experience that R Connell brings to the role
mean he is suitable to continue as Chairman of
the Board. The ongoing review of the Chairman’s
performance and independence will continue
throughout the current financial year. Mindful of
their other commitments, they have each formally
confirmed to the Board that they have sufficient
time to devote to their responsibilities as Directors
of the Group. Further details of the Directors and
their roles on the Board are set out on pages 32
and 33. The Board is committed to promoting
diversity on the Board and throughout the Company
and all appointments are based on merit.
The Board has appointed three Committees: the
Audit Committee, the Remuneration Committee
and the Nominations Committee. All operate
within defined terms of reference. Details of the
Committees are set out below.
Those attending and the frequency of Board and
Committee meetings held in the financial year were
as follows:
Audit
Committee
Remuneration
Committee
Nominations
Committee
Board
Number of
11
meetings
10
R Connell
11
S Innes
N Perrin
11
M McCollum 11
D Kemp1
6
2
2
2*
2*
2
1
3
3
3*
3*
3
1
2
2
2*
2*
2
1
*
In attendance by invitation of the respective Committee.
1 D Kemp was appointed to the Board on 2 January 2018.
In addition to attendance at the Board and Committee
meetings, the Board Directors make themselves
available for ad hoc Board calls to discuss, amongst
other things, fundraising and proposed acquisitions.
The Chairman and the Non‑Executive Directors are
invited to attend the annual conference and are
available to talk to colleagues from across the
Group as well as visiting practices, crematoria and
laboratories independently throughout the year.
This additional exposure to the Group provides the
Non‑Executive Directors with invaluable experience
enabling them to add value to their role on the
Board and drive the strategy of the Company.
The Audit Committee
The Committee consists of three Non‑Executive
Directors, R Connell, M McCollum and D Kemp.
R Connell is a Chartered Accountant and M McCollum
has worked previously as the CFO for a FTSE
250 business. Although the Chairman of the Board
is a member and Chair of the Audit Committee, his
significant recent financial experience and, as a
smaller company, the Company is only required to
have two members on the Audit Committee.
The Board considers that members of the Audit
Committee have significant financial expertise.
The Audit Committee’s duties primarily concern
financial reporting, internal control and risk
management systems, whistleblowing procedures
and internal audit and external audit arrangements
(including auditor independence).
The Committee is responsible for ensuring that
the financial performance of the Group is properly
monitored and reported on, for meeting with the
external auditor and for reviewing its reports
relating to financial statements and internal control
matters. The Chief Executive and the Finance Director
are invited to attend such meetings, but the Committee
also meets with the auditor without the Chief Executive
and the Finance Director being present at least
once annually. Other members of management are
invited to present such reports as are required for
the Committee to discharge its duties.
The agenda of each meeting is linked to the reporting
requirements of the Group and the Group’s financial
calendar. Each Audit Committee member has the
right to require reports on matters relevant to its
terms of reference in addition to the regular items.
In the year ended 30 June 2018 and up to the date of
this report the actions taken by the Audit Committee
to discharge its duties included:
• reviewing the 2018 Annual Report and financial
statements and the Interim Report issued in
February 2018. As part of these reviews the
Committee received a report from the external
auditor on its audit of the annual financial statements;
CVS Group plc
Annual Report 2018
35
Strategic reportGovernanceFinancial statements Corporate governance statement continued
The Audit Committee continued
• advising the Board that the Annual Report is fair,
balanced and understandable;
• reviewing the effectiveness of the Group’s internal
controls and reports received from the Group’s
internal audit function in respect of risk management;
• reviewing the external auditor’s audit planning
document, with particular reference to the audit
approach, planned materiality, significant risks as
detailed in the Independent Auditor’s Report on
pages 45 to 48 and the audit approach to these risks;
• reviewing the external auditor’s audit findings
memorandum, noting conclusions in respect of
identified audit risks, materiality of adjusted and
unadjusted misstatements, control observations
and suggested improvements in the disclosure
provided in the Annual Report;
• considering papers prepared by the Finance Director
to support the going concern basis of preparation;
• agreeing the fees to be paid to the external auditor
for its audit of the 2018 financial statements; and
• reviewing the performance and independence of
the external auditor.
The external auditor was appointed for the year
ended 30 June 2017 and its performance is
assessed through discussion with and feedback
from members of the senior finance team involved
in the audit process. The appointment is reviewed
and subject to a shareholder vote at the AGM on an
annual basis. The Company has adopted a policy
of not using the external auditor for non-audit work.
Details of the fees paid to Deloitte during the
financial year are set out on page 64.
The Audit Committee has a programme for
reviewing its effectiveness.
Fair, balanced and understandable
The members of the Audit Committee have
reviewed the financial statements and the content
of the draft Annual Report to ensure that it is fair,
balanced and understandable and, accordingly, the
Audit Committee resolved to recommend that the
Board makes the statement set out on page 44.
36 CVS Group plc
Annual Report 2018
The Remuneration Committee
The Chairman of the Remuneration Committee
is M McCollum and its other members are
R Connell and D Kemp. It reviews the performance
of Executive Directors, sets the scale and structure
of their remuneration and reviews the basis of
their service agreements with due regard to the
interests of the shareholders, utilising the
services of external consultants as appropriate.
The Remuneration Committee also makes
recommendations to the Directors concerning any
long‑term incentive plans, including the award of
share options to Directors and senior employees.
It also reviews the ongoing appropriateness and
relevance of the Company’s remuneration.
The Chief Executive and the Finance Director are
invited to attend meetings as appropriate but are
not permitted to participate in discussions relating
to their own remuneration.
The Remuneration Committee Report can be found
on pages 37 to 42.
The Nominations Committee
The Chairman of the Nominations Committee is
D Kemp and its other members are R Connell and
M McCollum. Prior to D Kemp’s appointment, the
Chairman of the Nominations Committee was
R Connell. It meets at least once annually. The
Nominations Committee is responsible for reviewing
the structure, size and composition, including skills,
knowledge and experience, of the CVS Board. It is
also responsible for the co‑ordination of the annual
evaluation of the performance of the Board and of
its Committees.
It is responsible for making recommendations to
the CVS Board on all CVS Board appointments and
on the succession plans for both Executive Directors
and Non-Executive Directors.
During the year the Nominations Committee has
been involved with the appointment of D Kemp
and the appointment of R Fairman.
Relations with shareholders
Copies of the Annual Report and financial statements
are issued to all shareholders and copies are available
on the Group’s website (www.cvsukltd.co.uk). The
Group also uses its website to provide information
to shareholders and other interested parties. The
Company Secretary also deals with correspondence
as and when it arises throughout the year.
At the Annual General Meeting (“AGM”) the shareholders
are entitled to raise questions and queries, and the
Chairman, the Chief Executive and other Directors
are available before and after the meeting for
further discussions with shareholders.
The Chief Executive and the Finance Director have
regular meetings with institutional investors, private
client brokers, individual shareholders, fund managers
and analysts to discuss information made public
by the Group.
The Chairman and the Non‑Executive Directors
are always available to shareholders on all matters
relating to governance and strategy. They may be
contacted through the Company Secretary at
company.secretary@cvsvets.com.
Internal control
The Board is ultimately responsible for the Group’s
system of internal control and for reviewing its
effectiveness on an ongoing basis.
The system is designed to manage rather than
eliminate the risk of failure to achieve the Group’s
strategic objectives, and can only provide
reasonable and not absolute assurance against
material misstatement or loss.
The key risk management processes and internal
control procedures include the following:
• the close involvement of the Executive Directors
in all aspects of the day‑to‑day operations, including
regular meetings with senior staff from across
the Group and a review of the monthly operational
reports compiled by senior management;
• clearly defined responsibilities and limits of authority.
The Board has responsibility for strategy and has
adopted a schedule of matters which are required
to be brought to it for decision;
• a comprehensive system of financial reporting,
forecasting and budgeting. Detailed budgets are
prepared annually for all parts of the business.
Reviews occur through the management structure
culminating in a Group budget which is considered
and approved by the Board. Group management
accounts are prepared monthly and submitted to
the Board for review. Variances from the budget
and the prior year are closely monitored and
explanations are provided for significant variances.
Independent of the budget process, the Board
regularly reviews revised profit, cash flow and
bank covenant compliance forecasts which are
updated to reflect actual performance trends;
• a continuous process for identifying, evaluating and
managing significant risks across the Group together
with a comprehensive annual review of risks which
covers both financial and non‑financial areas;
• an independent internal audit function that reports
to the Chairman of the Audit Committee; and
• a central team that checks clinical, health and
safety compliance in all parts of the Group.
The Board is committed to maintaining high
standards of business conduct and ethics, and has
an ongoing process for identifying, evaluating and
managing any significant risks in this regard.
The internal control procedures are delegated to
the Executive Directors and senior management
and are reviewed in light of the ongoing assessment
of the Group’s significant risks.
Internal audit
Following the introduction of the function during
the previous financial year, the internal audit team
has implemented and refined the audit process
focusing on financial and related procedure risks
primarily across the Veterinary Practices Division.
Performance of the internal audit function will
continue to be reviewed during the current financial
year to ensure it remains fit for purpose and to
expand the remit of the function.
By order of the Board
Richard Gilligan
Company Secretary
27 September 2018
Governance Remuneration Committee report
Mike McCollum
We are ensuring the Group
achieves its potential.
This report is for the period to 30 June 2018.
It sets out the remuneration policy and the
remuneration details for the Executive and
Non‑Executive Directors of the Company.
As an AIM‑quoted company, the information provided is
disclosed to fulfil the requirements of AIM Rule 19
CVS Group plc is not required to comply with Schedule 8 of
the Large and Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008
The information is unaudited
Dear shareholder,
I am pleased to introduce the Directors’
Remuneration Report for the 2018 financial year.
In light of the continuing development of the Group
in the prior year, the Company decided to increase
the scope and content of its Remuneration Report.
The increased scope incorporated the inclusion of
this letter from the Chairman of the Remuneration
Committee and a table summarising the Executive
remuneration policy.
CVS Group plc
Annual Report 2018
37
Strategic reportGovernanceFinancial statements Remuneration Committee report continued
Remuneration policy
The remuneration policy in respect of Executive
Directors is designed to ensure that the Group
achieves its potential and increases shareholder
value. In respect of basic salary, the objective is to
ensure that the Group attracts and retains high
calibre Executives with the skills, experience and
motivation necessary to direct and manage the
affairs of the Group. Annual bonuses and LTIPs are
seen as an important part of each Director’s total
remuneration and are designed to drive and reward
exceptional performance and the introduction of
new LTIP rules has further aligned personal
performance with the interests of the shareholders.
The policy also provides for post‑retirement benefits
through contributions to Executive Directors’
personal pension schemes, together with other
benefits such as a company car and life and
medical insurance.
Performance and decisions on
remuneration taken in 2017/18
Adjusted EPS for the year ended 30 June 2018 was
42.4p. This compares to adjusted EPS of 24.7p for
the year ended 30 June 2015, a compound annual
growth rate (“CAGR”) of 19.7%. The target CAGR for
full vesting of LTIPs issued in 2015 was 12% above
inflation. This target has been substantially exceeded
and, therefore, 100% of the options granted
have vested.
In December 2017 the Company granted awards
under its LTIP to the CEO and the Finance Director
with a value of 100% of salary. As in previous years,
these awards are subject to an adjusted EPS real
growth performance condition measured over
three years. Detail on the performance condition is
set out later in this report.
Salaries are reviewed annually and benchmarked
against similar listed companies with changes
effective in January. With this in mind, the
Remuneration Committee decided to increase the
salary of the CEO by 3.0% to £412,000 and to increase
the salary of the Finance Director by 3.0% to £267,800.
The annual bonus scheme in which the Executive
Directors participate is based on the achievement
of adjusted EBITDA performance. For 2017/18, the
bonus maximum for the CEO and for the Finance
Director was 100% of base pay. Due to more
challenging conditions during the year, the targets
were not met and no bonus will be payable to
either the CEO or the Finance Director.
Development of remuneration policy
The Remuneration Committee reviews the policy in
light of market conditions, performance and
developments in good corporate governance whilst
taking account of the Company’s status as a larger
AIM company.
During the year, the Remuneration Committee
reviewed the policy and decided to develop the
policy in a number of areas. These changes are
reflected in the new LTIP plan and are detailed
below and in the summary policy table.
The new LTIP rules developed to comply with the
Investment Association Principles of Remuneration
were approved by the shareholders at the November
2017 AGM. Full information on the plan was set out
in the Notice of AGM.
A summary of the changes to the policy is set
out below:
The basic structure of the annual bonus will remain
unchanged. The maximum for the CEO and Finance
Director will remain at 100% of salary. Malus and
clawback will be introduced from 2018/19.
The Remuneration Committee made the 2017 and
will make future LTIP awards under the new plan
at 125% of salary for the CEO and 100% of salary
for the Finance Director and subject to an adjusted
EPS real growth condition. The Remuneration
Committee will have flexibility to determine
performance conditions each year but in the near
term intends to maintain adjusted EPS growth
with the target level determined shortly before
point of award.
Alongside the introduction of the new LTIP, the
Company has introduced a shareholding guideline
requiring its Executive Directors to hold shares
equivalent to at least 100% of their salary. The
Executive Directors are required to retain a
proportion of their vested LTIP awards until the
guideline is met and this must be achieved within
five years of appointment. Currently S Innes and
N Perrin meet the guidelines; R Fairman, who was
appointed on 1 August 2018, does not currently
meet the shareholding guidelines and will be
required to achieve a holding equivalent to 100%
of his salary within five years of his appointment.
I hope that you find the report helpful and informative
and I look forward to receiving further feedback
from our investors on the information presented.
Mike McCollum
Remuneration Committee Chairman
27 September 2018
38 CVS Group plc
Annual Report 2018
Governance Executive Directors’ remuneration policy
This part of the Directors’ Remuneration Report sets out the remuneration policy of the Company with regard to its Directors.
Purpose and link to strategy
Operation
Potential remuneration
Performance metrics
Base salary
Base pay is designed to reflect Executive Directors’
experience, capabilities and role within the business.
To be set at a level which is sufficiently competitive
to recruit and retain individuals of the appropriate
calibre to deliver the Company’s strategy.
Salaries are reviewed annually and benchmarked
against similar listed companies with any changes
effective from 1 January. The review takes into account:
The CEO’s base salary was reviewed on 1 January
2018 (the prior review being in January 2017) and
was increased by 3.0% to £412,000.
Not applicable.
• Company performance and rapid increase
in scale and complexity;
• the role, experience and performance
of the individual Director; and
• average workforce salary adjustments
within the Company.
The Finance Director’s base salary was reviewed
on 1 January 2018 (the prior review being in
January 2017) and was increased by 3.0%
to £267,800.
R Fairman’s base salary is £250,000.
Benefits
To complement basic salary by providing
market competitive benefits to attract and
retain Executive Directors.
Reviewed from time to time to ensure that
benefits, when taken together with other elements
of remuneration, remain market competitive.
Benefits for the Executive Directors currently
include the provision of a company car and
medical and life insurance.
The cost of providing these benefits vary year on
year depending on the schemes’ premiums. The
Remuneration Committee monitors the overall
cost of the benefits package.
Not applicable.
Pension
To provide retirement benefits which, when taken
together with other elements of the remuneration
package, will enable the Company to attract and
retain appropriately qualified Executive Directors.
The Chief Executive participates in a defined
contribution pension arrangement and also
receives a payment in lieu of a full pension.
The Chief Executive is entitled to a Company
pension contribution of 10%. This is taken
as a payment in lieu of a pension.
Not applicable.
The Finance Director receives a payment in lieu of
a pension.
The Finance Director is entitled to a Company
pension contribution of 12%. This is taken
as a payment in lieu of a pension.
R Fairman is entitled to a Company pension
contribution of 12%.
For both the Chief Executive and the Finance
Director, where a payment is taken in lieu of
a pension it is reduced by the amount of the
Company’s liability to pay National Insurance
on the contribution.
CVS Group plc
Annual Report 2018
39
Strategic reportGovernanceFinancial statements Remuneration Committee report continued
Executive Directors’ remuneration policy continued
Purpose and link to strategy
Annual bonus
To drive and reward exceptional performance.
Long Term Incentive Plan (“LTIP”)
To drive and reward exceptional performance.
To align the interests of Executive Directors
and shareholders.
Operation
Potential remuneration
Performance metrics
From 2018/19, for the Executive Directors, the
maximum capped bonus potential is 100% of salary.
For the years ended 30 June 2018 and ending
30 June 2019, the targets are based on adjusted
EBITDA. The target is adjusted to take account
of acquisitions made in the course of the year.
From 2018, the Remuneration Committee would in
normal circumstances expect to make annual LTIP
awards to the CEO and the Finance Director at
125% and 100% of salary, respectively.
The maximum annual award permissible under
the 2018 plan in exceptional circumstances is
200% of salary.
Currently an adjusted EPS CAGR real growth
target is applied to awards.
The adjusted EPS reflects adjustments for
amortisation of intangibles, costs of business
combinations, income tax, exceptional items and
fair value adjustments in respect of derivative
financial instruments.
In addition and irrespective of the adjusted EPS
target, no award will vest unless, in the opinion
of the Remuneration Committee, the underlying
performance of the Group has been satisfactory
over the measurement period.
The Executive Directors participate in a discretionary,
annual, performance related bonus scheme.
Targets are set at the beginning of each year
based on the recommendations of the
Remuneration Committee.
Bonuses are paid in cash based on audited
financial results. Commencing financial year
2018/19, annual bonus payments will be subject
to a clawback provision.
The Executive Directors are entitled to be
considered for the grant of awards under the LTIP.
The awards take the form of nominal cost options
over a specified number of Ordinary shares.
Awards are not transferable or assignable. Awards
are released to participants after a performance
period of three years, subject to certain
performance and service conditions being met.
40% of awards vest at threshold performance.
The LTIP rewards the future performance of the
Executive Directors and certain other employees
by linking the size of the award to the achievement
of Group performance targets.
Participation is at the discretion of the
Remuneration Committee. Awards will typically be
made annually based on a percentage of annual
salary. Performance conditions are set by the
Remuneration Committee at the time of the
award. The 2017 plan rules, amongst other things,
include clawback provisions and a limitation to
ensure that new shares issued, when aggregated
with all other employee share awards, must not
exceed 10% of issued share capital over any
ten-year period.
40 CVS Group plc
Annual Report 2018
Governance Save As You Earn (“SAYE”)
The Group operates an incentive scheme for all
staff, including the Executive Directors, being the
CVS SAYE plan. A SAYE scheme is operated for
each year. Under the 2018 and 2017 schemes
the awards were made at a 10% discount to the
closing mid‑market price on the day preceding
the date of invitation. Discounts of up to 20% are
permitted and previously schemes have been issued
at this level of discount. All schemes vest over a
three-year period. There are no performance
conditions attached to any of the SAYE schemes.
Policy on Non-Executive Directors’
remuneration
The Chairman and the other Non‑Executive Directors’
remuneration comprises only fees. They are reviewed
annually with changes effective from 1 January
each year. The Chairman’s and the Non-Executive
Directors’ fees are approved by the Board on the
recommendation of the CEO. The Non-Executive
Directors are not involved in any decisions about
their own remuneration. The Chairman and the
other independent Non‑Executive Directors are
entitled to be reimbursed for reasonable expenses.
Details of the fees paid for 2018/19 are set out in
the Annual Report on Remuneration. The Directors’
fees were increased by 3.0% with effect from
January 2018.
The current fees are as follows:
Director
R Connell
M McCollum
D Kemp
£112,936
£46,000
£46,000
Executive Directors’ service agreements
S Innes entered into his service agreement on
4 October 2007, N Perrin entered into his on
1 January 2013 and R Fairman entered into his
service agreement on 19 July 2018. All agreements
can be terminated by either the Executive Director
or the Company giving twelve months’ notice. As
well as an annual salary, the service contracts also
detail the provision of other benefits including
performance related bonuses, medical and life
insurance, a car allowance and contributions to
personal pension plans.
Non-Executive Directors’ letters
of appointment
R Connell was appointed on 4 October 2007. His
most recent service agreement is dated 8 April 2018
and is for a one-year term ending on 7 April 2019.
M McCollum was appointed on 2 April 2013. His
most recent service agreement is for a three‑year
term ending on 2 April 2019. D Kemp was
appointed on 2 January 2018 for a three‑year term
ending on 1 January 2021. Their appointments can
be terminated by the Company or themselves by
giving six months’ notice.
Annual Report on Remuneration
Introduction
This Annual Report on Remuneration sets out
information about the remuneration of the
Directors of the Company for the period ended
30 June 2018.
Membership and role of the
Remuneration Committee
The Remuneration Committee is appointed by the
Board, and comprises M McCollum as Chairman,
R Connell and D Kemp. The role of the Remuneration
Committee is to determine and recommend to
the Board the remuneration policy for the
Executive Directors. This includes base salary,
annual and long‑term incentive awards and
pension arrangements.
Advisors
During the year, the Company engaged h2glenfern,
a remuneration advisory practice, to provide advice
on the new LTIP and the overall development on
Executive remuneration.
Remuneration of the Executive Directors
Directors’ emoluments
Basic salary,
allowance
and fees
£’000
Benefits
in kind
£’000
Pension
£’000
Performance
related bonus
£’000
406
380
264
243
113
109
46
44
23
38
36
19
18
—
—
—
—
—
43
39
28
25
—
—
—
—
—
—
380
—
195
—
—
—
—
—
Total
£’000
487
835
311
481
113
109
46
44
23
Executive Directors
S Innes
N Perrin
Non-Executive Chairman
R Connell
Non-Executive Director
M McCollum
D Kemp*
* Appointed 2 January 2018.
2018
2017
2018
2017
2018
2017
2018
2017
2018
Benefits in kind include the provision of a company car and medical and life insurance for each
Executive Director.
No Director waived emoluments in respect of the years ended 30 June 2018 or 30 June 2017.
The remuneration of the Executive Directors of CVS Group plc is borne by the subsidiary company,
CVS (UK) Limited, without recharge to CVS Group plc.
Annual bonus
S Innes
N Perrin
2018
2018
Bonus
(% of salary)
100
100
Range
(adjusted EBITDA)
£47.9m to £50.9m
£47.9m to £50.9m
Actual
£m
47.6
47.6
Payout
£m
—
—
Due to the commercially sensitive nature of the proposed bonus targets, the Committee has decided
that the targets will not be disclosed for the current financial year. The Committee intends to publish
annual bonus targets in the Annual Report for the year to June 2019.
CVS Group plc
Annual Report 2018
41
Strategic reportGovernanceFinancial statements
LTIP10
20 December 2016
3 years
LTIP11
17 January 2018
3 years
Remuneration Committee report continued
Annual Report on Remuneration continued
Share scheme interests as at 30 June 2018
Details of plans at the reporting date that have not yet vested are set out below.
Directors’ interests in shares
The interests of the Directors when combined with their spouses holdings as at 30 June 2018 in the
shares of the Company were:
Award
LTIP9
24 September 2015
3 years
Grant date
Vesting period
Adjusted EPS real growth performance conditions
The performance targets for LTIP9 and LTIP10
are the same and are based on achieving
adjusted EPS growth in excess of inflation
as follows:
• Less than 8.0% CAGR – no award
• 8.0% to 12.0% CAGR – awarded on a straight line
basis between 40% and 100% of total award
• More than 12.0% CAGR – full award
The performance targets for LTIP11 are based
on achieving adjusted EPS growth in excess of
inflation as follows:
• Less than 8.0% CAGR – no award
• 8.0% to 12.0% CAGR – awarded on a straight
line basis between 25% and 100% of total award
S Innes
• More than 12.0% CAGR – full award
N Perrin
R Connell
M McCollum
D Kemp
S Innes
N Perrin
Ordinary shares
of 0.2p each
Number
110,000
38,678
6,559
255,266
60,000
Apart from the interests in shares and share options disclosed above, the Directors had no other interest
in shares of Group companies.
At 30 June 2018, the market price of the Ordinary shares was 1,138p.
No share options lapsed during the year. The following options have been exercised during the year:
Scheme
LTIP8
SAYE7
LTIP8
SAYE7
Number of
shares
Exercise
date
Exercise
price
Share price
at exercise date
88,169
24 September 2017
6,081
16 March 2018
53,570
24 September 2017
3,040
23 March 2018
0.2p
296p
0.2p
296p
875p
1,057p
875p
960p
Gains arising on the exercise of options for S Innes and N Perrin amounted to £908,140
and £551,771, respectively.
On behalf of the Remuneration Committee
Mike McCollum
Remuneration Committee Chairman
27 September 2018
Options over Ordinary shares awarded to Executive Directors under the LTIP and SAYE schemes in place
at 27 September 2018 are as follows:
Scheme
S Innes
LTIP9*
LTIP10
LTIP11
N Perrin
LTIP9*
LTIP10
LTIP11
SAYE9
Date of grant
Market price
of shares on
date of grant
Earliest exercise
date and date
of vesting
Exercise price
Number of
shares
24 September 2015
20 December 2016
17 January 2018
699p
1,067p
1,031p
30 June 2018
30 June 2019
30 June 2020
24 September 2015
20 December 2016
17 January 2018
25 November 2016
699p
1,067p
1,031p
30 June 2018
30 June 2019
30 June 2020
875p 1 January 2020
0.2p
0.2p
0.2p
0.2p
0.2p
0.2p
790p
57,000
40,000
40,000
29,500
25,000
20,800
318
* These awards have now vested.
42 CVS Group plc
Annual Report 2018
Governance
Directors’ report
The Directors present their Annual Report together
with the audited consolidated financial statements
for the year ended 30 June 2018.
Directors
The following Directors held office during the year
and up to the date of signing the financial statements:
• R Connell
• S Innes
• M McCollum
• D Kemp (appointed 2 January 2018)
• N Perrin
• R Fairman (appointed 1 August 2018)
Biographical details of the Directors are provided
on page 33.
Re-election of Directors
The Articles of Association of the Company require
all Directors to be re-elected at intervals of not more
than three years. The Board has decided that it is
appropriate for all Directors to be reappointed each
year, so in accordance with that decision all Directors
will stand for re-election at the Annual General Meeting.
Directors’ remuneration and interests
The Remuneration Committee Report is set out
on pages 37 to 42. It includes details of Directors’
remuneration, interests in the shares of the
Company, share options and pension arrangements.
Principal activities and results
The principal activities of the Group are to operate
animal veterinary practices, complementary
veterinary diagnostic businesses, pet crematoria
and an on-line pharmacy and retail business.
The principal activity of CVS Group plc is that of
a holding company.
The Group made a profit after taxation of £10.7m
(2017: £11.5m).
Business review
The information that fulfils the requirements of
the business review, including details of the 2018
results, key performance indicators, principal risks
and uncertainties and the outlook for future years,
is set out in the Chairman’s Statement (pages 4
and 5), the Business Review (pages 18 to 21) and
the Finance Review (pages 27 to 30) (including key
performance indicators (pages 12 and 13) and
principal risks and uncertainties (pages 24 to 26)).
Dividends
The Directors recommend the payment of a
dividend of 5.0p per share (2017: 4.5p) amounting
to £3.5m (2017: £2.9m). Subject to approval at the
Annual General Meeting, the dividend will be paid on
7 December 2018 to shareholders on the register
at the close of business on 23 November 2018.
The aggregate dividends recognised as distributions
in the year ended 30 June 2018 amounted to £2.9m
(2017: £2.1m). No interim dividends (2017: £nil)
have been paid during the year.
Environment
The Group recognises the significance of
environmental responsibility and undertakes
clinical compliance reviews to ensure environmental
standards are conformed with in addition to providing
training to its employees to ensure compliance.
Although the Group’s activities do not have a major
impact on the environment, every effort is made to
reduce any effect.
Health and safety
The Group is fully aware of its obligations to maintain
high health and safety standards at all times, and
the safety of our customers and employees is of
paramount importance. The Group’s operations are
managed at all times in such a way as to ensure, as
far as is reasonably practicable, the health, safety
and welfare of all of our employees and all other
people who may be attending our premises.
Corporate governance
The Board’s Corporate Governance Statement is set out on pages 34 to 36.
Financial instruments
Details of the Group’s financial risk management objectives and policies are included in note 3 to the
financial statements.
Share capital and substantial shareholdings
Details of the share capital of the Company as at 30 June 2018 are set out in note 23 to the financial statements.
At 31 August 2018, the Company has been notified of the following substantial shareholdings comprising
3% or more of the issued Ordinary share capital of the Company:
Standard Life Investments
BlackRock
Octopus Investments
Columbia Threadneedle Investments
Invesco Perpetual
Canaccord Genuity Wealth Management (ND)
NN Investment Partners
Number
of shares
% of
total issued
7,658,497
6,922,646
5,395,520
2,961,420
2,795,395
2,257,727
2,245,806
10.88
9.84
7.67
4.21
3.97
3.21
3.19
CVS Group plc
Annual Report 2018
43
Strategic reportGovernanceFinancial statements Directors’ report continued
Employees
Consultation with employees takes place through a
number of regional meetings throughout the year
and an annual staff survey. The aim is to ensure
that their views are taken into account when
decisions are made that are likely to affect their
interests and that all employees are aware of the
general progress of their business units and of the
Group as a whole. To enhance communication
within the Group, a committee is in place which is
constituted of regional members from all areas of
the business with the aim of improving
consultation and communication levels.
Applications for employment by disabled people
are always fully considered, bearing in mind the
respective aptitudes and abilities of the applicant
concerned. In the event of members of staff
becoming disabled, every effort is made to ensure
that their employment with the Group continues
and that appropriate training is arranged. It is the
policy of the Group that the training, career
development and promotion of a disabled person
should be, as far as possible, identical to that of a
person who does not have a disability.
The Group operates a Long Term Incentive Plan for
Executive Directors and senior managers. Details
are included in note 8. The Group also has a Save
As You Earn scheme, now in its ninth year, under
which employees are granted an option to purchase
Ordinary shares in the Company in three years’ time,
dependent upon their entering into a contract to
make monthly contributions to a savings account
over the relevant period. These savings are used to
fund the option exercise value. The exercise price in
respect of options issued in the year was at a 10%
discount to the shares’ market value at the date of
invitation. The scheme is open to all Group employees,
including the Executive Directors. Details of the
scheme are included in the Remuneration
Committee Report on pages 37 to 42.
Directors’ third-party
indemnity provision
A qualifying third‑party indemnity provision as
defined in Section 234 of the Companies Act 2006
was in force during the year and also at the balance
sheet date for the benefit of each of the Directors
in respect of liabilities incurred as a result of their
office, to the extent permitted by law. In respect
of those liabilities for which Directors may not be
indemnified, the Company maintained a directors’
and officers’ liability insurance policy throughout
the financial year.
Directors’ responsibilities statement
The Directors are responsible for preparing the
Annual Report and the financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare
financial statements for each financial year. Under
that law the Directors are required to prepare the
Group financial statements in accordance with
International Financial Reporting Standards (“IFRS”)
as adopted by the European Union. Under company
law the Directors must not approve the financial
statements unless they are satisfied that they give
a true and fair view of the state of affairs of the
Group and the Company and of the profit or loss
of the Company and the Group for that period.
In preparing these financial statements, the
Directors are required to:
• select suitable accounting policies and then apply
them consistently;
• make judgements and accounting estimates that
are reasonable and prudent;
• state whether applicable IFRS as adopted by the
European Union have been followed, subject to
any material departures disclosed and explained
in the financial statements; and
• prepare the financial statements on the going
concern basis unless it is inappropriate to presume
that the Company will continue in business.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the Company’s transactions and disclose
with reasonable accuracy at any time the financial
position of the Company and the Group and enable
them to ensure that the financial statements
comply with the Companies Act 2006. They are
also responsible for safeguarding the assets of the
Company and the Group and hence for taking
reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors are responsible for the maintenance
and integrity of the corporate and financial
information included on the Company’s website.
Legislation in the United Kingdom governing the
preparation and dissemination of financial
statements may differ from legislation in
other jurisdictions.
Disclosure of information to auditor
Each of the persons who is a Director at the date
of approval of this Annual Report confirms that:
• so far as the Director is aware, there is no relevant
audit information of which the Company’s auditor
is unaware; and
• the Director has taken all the steps that he/she
ought to have taken as a Director in order to
make himself/herself aware of any relevant audit
information and to establish that the Company’s
auditor is aware of that information.
This confirmation is given and should be
interpreted in accordance with the provisions
of Section 418 of the Companies Act 2006.
By order of the Board
Richard Gilligan
Company Secretary
27 September 2018
44 CVS Group plc
Annual Report 2018
Governance Independent auditor’s report
to the members of CVS Group plc
Report on the audit of the financial statements
Opinion
In our opinion:
• the financial statements of CVS Group plc (the “parent company”) and its subsidiaries (the “group”) give
a true and fair view of the state of the Group’s and of the parent company’s affairs as at 30 June 2018
and of the Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with International Financial
Reporting Standards (“IFRSs”) as adopted by the European Union and IFRSs as issued by the International
Accounting Standards Board (‘IASB”);
• the parent company financial statements have been properly prepared in accordance with IFRSs as
adopted by the European Union and as applied in accordance with the provisions of the Companies
Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies
Act 2006.
We have audited the financial statements which comprise:
• the consolidated income statement;
• the consolidated statement of comprehensive income;
• the consolidated and parent company balance sheets;
• the consolidated and parent company statements of changes in equity;
• the consolidated and parent company cash flow statements; and
• the related notes 1 to 31.
The financial reporting framework that has been applied in their preparation is applicable law and IFRSs
as adopted by the European Union and, as regards the parent company financial statements, as applied
in accordance with the provisions of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and
applicable law. Our responsibilities under those standards are further described in the auditor’s
responsibilities for the audit of the financial statements section of our report.
We are independent of the Group and the parent company in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the UK, including the Financial Reporting
Council’s (the “FRC’s”) Ethical Standard as applied to listed entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.
Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
Materiality
Scoping
Significant changes
in our approach
• Revenue recognition – customer loyalty schemes
• Acquisition fair value accounting
Within this report, any new key audit matters are identified with D and any
key audit matters which are the same as the prior year identified with A.
The materiality that we used for the Group financial statements was
£1.05m which was determined on a blended measure using a combination
of profit and asset benchmarks.
The scope of our audit was driven by our risk assessment and
understanding of the business. This consisted of twenty-seven
components subjected to full scope audits and fourteen components
subjected to analytical procedures at Group level.
We identified valuation of goodwill as a key audit matter in the previous
year. We no longer consider this to be a key audit matter in the current
year because the level of headroom on a grouped CGU basis continues
to be significant.
There have been no other significant changes in our approach in the
current year.
Conclusions relating to going concern
We are required by ISAs (UK) to report in respect of the following
matters where:
We have nothing to report in
respect of these matters.
• the Directors’ use of the going concern basis of accounting in
preparation of the financial statements is not appropriate; or
• the Directors have not disclosed in the financial statements any
identified material uncertainties that may cast significant doubt
about the Group’s or the parent company’s ability to continue to
adopt the going concern basis of accounting for a period of at least
twelve months from the date when the financial statements are
authorised for issue.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our
audit of the financial statements of the current period and include the most significant assessed risks of
material misstatement (whether or not due to fraud) that we identified. These matters included those
which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these matters.
CVS Group plc
Annual Report 2018
45
Strategic reportGovernanceFinancial statements Independent auditor’s report continued
to the members of CVS Group plc
Report on the audit of the financial statements continued
Key audit matters continued
Revenue recognition – customer loyalty schemes
A
Acquisition fair value accounting
A
Key audit
matter
description
The Group has a customer loyalty scheme – Healthy Pet Club (“HPC”) – in which
customers sign up for a monthly or annual direct debit arrangement in exchange
for a range of preventative products and treatments at a discount to the standalone
selling price. The Group recognised £38.0m of HPC revenue during the year and has
362,000 active members as at the year end. The accrued revenue in respect of HPC
as at the year end is £7.6m.
Key audit
matter
description
The revenue recognition for this scheme is judgemental since IAS 18 requires
revenue to be recorded according to the timing of the costs that are incurred in
providing the treatments, which are weighted towards the beginning of the
subscription period. Revenue must also be adjusted for anticipated animal deaths
(where outstanding fees will be waived) and irrecoverable debts. There is therefore
a risk that revenue is not recorded in accordance with IAS 18 Revenue.
The accounting policy for HPC revenue is disclosed in note 2 to the financial statements.
We assessed the appropriateness of revenue recognition policy for customer loyalty
schemes, especially whether the profile of revenue recognition reflects timing of
service provision and whether inclusion of key estimates such as estimated animal
deaths as a reduction in revenue is in line with the requirements of IAS 18.
We checked the arithmetic accuracy of management’s model in estimating customer
loyalty schemes revenue, including the application of the key assumptions.
We critically assessed the appropriateness of the key assumptions underlying
management’s model in line with the requirements of IAS 18 Revenue, by comparing
them to historical fact patterns. We reviewed Board minutes and post year-end
trading information to identify any contradictory evidence.
Based on the audit procedures performed, we concluded that revenue recognition
in respect of the customer loyalty schemes is materially in line with the Group’s
accounting policy and IAS 18. Key assumptions used by management fall within the
reasonable range.
How the scope
of our audit
responded to
the key audit
matter
Key
observations
46 CVS Group plc
Annual Report 2018
The Group acquired 32 veterinary businesses during the year for a total
consideration of £51m.
The fair value consists of separately identifiable customer list intangible assets
of £33m, net liabilities acquired of £3m, and goodwill of £21m.
The identification and valuation of the separately identifiable intangible assets
excluding goodwill requires significant judgement and estimation, including the
customer attrition rate and long-term growth rate for customer list intangible asset.
Details of the acquisitions are provided in the business combinations note 14.
Note 2 to the financial statements sets out the Group’s accounting policy for business
combinations and note 14 to the financial statements outlines details of the acquisitions
and the key assumptions in determining fair value of the acquired intangible assets.
Note 2 to the financial statements provides details of the critical accounting
estimates and judgements.
We audited the consideration paid for all of the acquisitions in the year by reviewing
business purchase agreements.
With the involvement of our internal valuation specialists we reviewed and
challenged management on its intangible asset identification by assessing whether
intangible assets identified by management are in line with the requirements of
IFRS 3 Business Combinations and IAS 38 Intangible assets.
With the involvement of our internal valuation specialists we audited the opening
balance sheet of the acquired entities to evaluate whether the fair value of intangible
assets excluding goodwill acquired is appropriate.
How the
scope of
our audit
responded to
the key audit
matter
Key
observations
Based on the audit procedures performed, we concur that management has
appropriately applied the principles of IFRS 3, including identification and fair
valuation of acquisition intangibles. Key assumptions used by management fall
within the reasonable range.
Financial statements Report on the audit of the financial statements continued
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable
that the economic decisions of a reasonably knowledgeable person would be changed or influenced.
We use materiality both in planning the scope of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole
as follows:
Materiality
Basis for
determining
materiality
Rationale for the
benchmark applied
Group financial statements
Parent company financial statements
£1.05m (2017: £1.05m)
£1.04m (2017: £1.04m)
We considered both asset and
profit bases in the determination
of materiality.
Materiality equates to below 1% of
net assets, 7.5% of pre-tax profit
and 2.7% of adjusted pre-tax profit.
In addition to a profit-based metric,
we incorporated a net asset
measure in determining materiality
to reflect the significant levels of
investments made by the Group in
recent years.
Parent company materiality was
determined on the basis of 1% of
net assets and capped at 99% of
Group materiality.
As a holding company, net assets
was considered the most relevant
benchmark for investors.
We agreed with the Audit Committee that we would report to the Committee all audit differences
in excess of £52,500 (2017: £52,000), as well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure
matters that we identified when assessing the overall presentation of the financial statements.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including
Group-wide controls, and assessing the risks of material misstatement at the Group level.
Based on that assessment, we focused our Group audit scope primarily on the audit work in the UK.
Twenty-seven components were subject to a full scope audit by the Group audit team. Fourteen components
were subject to a review at the Group level based on our assessment of the materiality of the Group’s operations
at those components. All components where our Group audit was focused were audited by the Group
audit team.
The twenty-seven components subject either to a full audit or specified audit procedures account for 96%
of the Group’s revenue, 99% of the Group’s profit before tax and 97% of the Group’s net assets. The component
materiality ranges between £0.4m to £1.0m.
At the parent entity level we also tested the consolidation process and carried out analytical procedures
to confirm our conclusion that there were no significant risks of material misstatement of the aggregated
financial information of the remaining components not subject to audit or audit of specified account balances.
4%
1%
3%
Revenue
96+
96%
Profit before tax
P 99+
99%
P 97+
Net assets
97%
Full audit scope
Review at Group level
CVS Group plc
Annual Report 2018
47
Strategic reportGovernanceFinancial statements4
+
1
+
3
+
P
Independent auditor’s report continued
to the members of CVS Group plc
Report on the audit of the financial statements continued
Other information
The Directors are responsible for the other information. The other
information comprises the information included in the Annual Report
other than the financial statements and our Auditor’s Report thereon.
We have nothing to report
in respect of these matters.
Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated in our
report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with
the financial statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we have
performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact.
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for
such internal control as the Directors determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the
parent company’s ability to continue as a going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the Directors either intend to liquidate
the Group or the parent company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an Auditor’s Report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of
these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s
website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our Auditor’s Report.
48 CVS Group plc
Annual Report 2018
Report on other legal and regulatory requirements
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the Strategic Report and the Directors’ Report for the financial year for which
the financial statements are prepared is consistent with the financial statements; and
• the Strategic Report and the Directors’ Report have been prepared in accordance with applicable
legal requirements.
In the light of the knowledge and understanding of the Group and or the parent company and their environment
obtained in the course of the audit, we have not identified any material misstatements in the Strategic Report
or the Directors’ Report.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
We have nothing to report in
respect of these matters.
• we have not received all the information and explanations we require
for our audit; or
• adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received
from branches not visited by us; or
• the parent company financial statements are not in agreement with
the accounting records and returns.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in
our opinion certain disclosures of Directors’ remuneration have not
been made.
We have nothing to report in
respect of this matter.
Use of our report
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16
of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s
members those matters we are required to state to them in an Auditor’s Report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than
the Company and the Company’s members as a body, for our audit work, for this report, or for the
opinions we have formed.
Lee Welham FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Cambridge, United Kingdom
27 September 2018
Financial statements Consolidated income statement
for the year ended 30 June 2018
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit
Finance expense
Profit before income tax
Income tax expense
Profit for the year attributable to owners of the parent
Earnings per Ordinary share (expressed in pence per share) (“EPS”)
Basic
Diluted
Note
4
6
6
5
4
9
2018
£m
327.3
(175.7)
151.6
(133.9)
17.7
(3.6)
14.1
(3.4)
10.7
10
10
16.0p
15.9p
2017
£m
271.8
(147.3)
124.5
(107.3)
17.2
(2.7)
14.5
(3.0)
11.5
18.5p
18.2p
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 EBITDA
Profit before income tax
Adjustments for:
Finance expense
Depreciation
Amortisation and impairment of intangible assets
Costs relating to business combinations
Adjusted EBITDA
Note
5
13
12
4
2018
£m
14.1
3.6
8.0
18.4
3.5
47.6
2017
£m
14.5
2.7
5.9
16.0
3.0
42.1
CVS Group plc
Annual Report 2018
49
Strategic reportGovernanceFinancial statements
Consolidated statement of comprehensive income
for the year ended 30 June 2018
Profit for the year
Other comprehensive income – items that will or may be reclassified to loss in future periods
Cash flow hedges:
Fair value gains
Other comprehensive income for the year, net of tax
Total comprehensive income for the year attributable to owners of the parent
Note
16
2018
£m
10.7
0.1
0.1
10.8
2017
£m
11.5
0.2
0.2
11.7
50 CVS Group plc
Annual Report 2018
Financial statements
Consolidated and Company balance sheets
as at 30 June 2018
Company registered number: 06312831
Non-current assets
Intangible assets
Property, plant and equipment
Investments
Deferred income tax assets
Derivative financial instruments
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Current income tax liabilities
Borrowings
Non-current liabilities
Borrowings
Deferred income tax liabilities
Total liabilities
Net assets
Shareholders’ equity
Share capital
Share premium
Capital redemption reserve
Revaluation reserve
Merger reserve
Retained earnings
Total equity
Note
12
13
15
22
16
18
19
26
4
20
21
21
22
4
23
25
24
Company
2018
£m
Company
2017
£m
Group
2018
£m
203.5
47.9
0.1
0.6
0.2
252.3
13.5
38.2
15.0
66.7
Group
2017
£m
167.2
43.0
0.1
2.1
0.1
212.5
12.5
30.9
6.8
50.2
—
—
68.4
—
—
68.4
—
89.1
—
89.1
319.0
262.7
157.5
(53.9)
(3.6)
(0.5)
(58.0)
(83.5)
(19.8)
(103.3)
(161.3)
157.7
0.1
99.1
0.6
0.1
(61.4)
119.2
157.7
(48.2)
(2.9)
(3.3)
(54.4)
(103.5)
(16.8)
(120.3)
(174.7)
88.0
0.1
38.1
0.6
0.1
(61.4)
110.5
88.0
—
—
—
—
—
—
—
—
157.5
0.1
101.2
0.6
—
—
55.6
157.5
—
—
67.1
—
—
67.1
—
31.2
—
31.2
98.3
—
—
—
—
—
—
—
—
98.3
0.1
40.2
0.6
—
—
57.4
98.3
The Company reported a loss for the financial year ended 30 June 2018 of £0.2m (2017: £0.2m).
The notes on pages 55 to 75 are an integral part of these consolidated financial statements.
The financial statements on pages 49 to 75 were authorised for issue by the Board of Directors on 27 September 2018 and were signed on its behalf by:
Nick Perrin
Director
Simon Innes
Director
CVS Group plc
Annual Report 2018
51
Strategic reportGovernanceFinancial statements Consolidated statement of changes in equity
for the year ended 30 June 2018
At 1 July 2016
Profit for the year
Other comprehensive income
Cash flow hedges:
Fair value gains
Total other comprehensive income
Total comprehensive income
Transactions with owners
Issue of Ordinary shares
Purchase of own shares
Credit to reserves for share-based payments (note 11)
Deferred tax relating to share-based payments
Dividends to equity holders of the Company (note 23)
Transactions with owners
At 30 June 2017
At 1 July 2017
Profit for the year
Other comprehensive income
Cash flow hedges:
Fair value gains
Total other comprehensive income
Total comprehensive income
Transactions with owners
Issue of Ordinary shares (note 23)
Credit to reserves for share-based payments (note 11)
Deferred tax relating to share-based payments
Dividends to equity holders of the Company (note 23)
Transactions with owners
At 30 June 2018
52 CVS Group plc
Annual Report 2018
—
—
—
—
—
—
—
—
—
0.1
Share
capital
£m
0.1
—
—
—
—
—
—
—
—
—
0.1
Share
capital
£m
0.1
—
Share
premium
£m
9.7
—
Capital
redemption
reserve
£m
0.6
—
Revaluation
reserve
£m
0.1
—
Merger
reserve
£m
(61.4)
—
—
—
—
—
—
—
—
—
—
Retained
earnings
£m
97.5
11.5
0.2
0.2
11.7
—
—
1.5
1.9
(2.1)
1.3
Merger
reserve
£m
(61.4)
—
—
—
—
—
—
—
—
—
Retained
earnings
£m
110.5
10.7
0.1
0.1
10.8
—
1.3
(0.5)
(2.9)
(2.1)
Total
equity
£m
46.6
11.5
0.2
0.2
11.7
30.5
(2.1)
1.5
1.9
(2.1)
29.7
88.0
Total
equity
£m
88.0
10.7
0.1
0.1
10.8
61.0
1.3
(0.5)
(2.9)
58.9
0.6
0.1
(61.4)
110.5
Share
premium
£m
38.1
—
Capital
redemption
reserve
£m
0.6
—
Revaluation
reserve
£m
0.1
—
—
—
—
30.5
(2.1)
—
—
—
28.4
38.1
—
—
—
61.0
—
—
—
61.0
99.1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.6
0.1
(61.4)
119.2
157.7
Financial statements
Company statement of changes in equity
for the year ended 30 June 2018
At 1 July 2016
Total comprehensive income and loss for the year
Transactions with owners
Issue of Ordinary shares
Credit to reserves for share-based payments (note 11)
Dividends to equity holders of the Company (note 23)
Transactions with owners
At 30 June 2017
At 1 July 2017
Total comprehensive income and loss for the year
Transactions with owners
Issue of Ordinary shares (note 23)
Credit to reserves for share-based payments (note 11)
Dividends to equity holders of the Company (note 23)
Transactions with owners
At 30 June 2018
Share
capital
£m
Share
premium
£m
Capital
redemption
reserve
£m
Retained
earnings
£m
0.1
—
—
—
—
—
0.1
Share
capital
£m
0.1
—
—
—
—
—
9.7
—
30.5
—
—
30.5
40.2
0.6
—
—
—
—
—
0.6
Share
premium
£m
Capital
redemption
reserve
£m
40.2
—
61.0
—
—
61.0
0.6
—
—
—
—
—
58.2
(0.2)
—
1.5
(2.1)
(0.6)
57.4
Retained
earnings
£m
57.4
(0.2)
—
1.3
(2.9)
(1.6)
Total
equity
£m
68.6
(0.2)
30.5
1.5
(2.1)
29.9
98.3
Total
equity
£m
98.3
(0.2)
61.0
1.3
(2.9)
59.4
0.1
101.2
0.6
55.6
157.5
CVS Group plc
Annual Report 2018
53
Strategic reportGovernanceFinancial statements Consolidated and Company cash flow statements
for the year ended 30 June 2018
Cash flows from operating activities
Cash generated from operations
Taxation paid
Interest paid
Net cash generated from/(used in) operating activities
Cash flows from investing activities
Acquisitions (net of cash acquired)
Purchase of property, plant and equipment
Purchase of intangible assets
Net cash used in investing activities
Cash flows from financing activities
Dividends paid
Proceeds from issue of Ordinary shares
Debt issuance costs
Purchase of own shares
Increase in borrowings
Repayment of borrowings
Net cash generated from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Group
2018
£m
46.7
(6.2)
(3.1)
37.4
(50.3)
(10.2)
(0.5)
(61.0)
(2.9)
61.0
(0.3)
—
—
(26.0)
31.8
8.2
6.8
15.0
Group
2017
£m
37.2
(5.4)
(2.1)
29.7
(46.9)
(13.3)
(0.5)
(60.7)
(2.1)
30.6
—
(2.1)
6.5
(1.8)
31.1
0.1
6.7
6.8
Company
2018
£m
Company
2017
£m
(58.0)
—
—
(58.0)
—
—
—
—
(2.9)
60.9
—
—
—
—
58.0
—
—
—
(26.4)
—
—
(26.4)
—
—
—
—
(2.1)
30.6
—
(2.1)
—
—
26.4
—
—
—
Note
27
14
13
12
23
26
26
26
26
54 CVS Group plc
Annual Report 2018
Financial statements Notes to the consolidated financial statements
for the year ended 30 June 2018
1. General information
The principal activity of the Group is to operate veterinary practices, complementary veterinary diagnostic
businesses, pet crematoria and an on-line pharmacy and retail business. The principal activity of the Company
is that of a holding company.
CVS Group plc is a public limited company incorporated and domiciled in England and Wales and its shares
are quoted on AIM of the London Stock Exchange.
Name of subsidiary
Principal business
Silvermere Haven Limited
Valley Pet Crematorium Limited
VETisco Limited
Weighbridge Referral Service Limited
Whitley Brook Crematorium for Pets Limited
Animal cremation and provision of burial grounds
Animal cremation
Veterinary instrumentation supply
Veterinary referral services
Animal cremation
Companies in the consolidated financial statements
The trading subsidiary undertakings included within the consolidation are as follows:
Name of subsidiary
Principal business
Alnorthumbria Veterinary Practice Limited
Albavet Limited
Animed Direct Limited
Axiom Veterinary Laboratories Limited
B&W Equine Group Limited
Cromlynvets Limited
CVS (Ireland) Veterinary Services Limited
CVS (Ireland) Veterinary Services No.2 Limited
CVS (Netherlands) B.V.
CVS (UK) Limited
Kliniek voor Gezelschapsdieren Dieren B.V.
Dierenartsenpraktijk NOP B.V.
Dierenartsenpraktijk Zuid-West Friesland B.V.
Dierenkliniek Amersfoort B.V.
Dierenkliniek Hengelo B.V.
Dierenkliniek Zwolle B.V.
Dierenziekenhuis Drachten B.V.
Diergeneeskundig Centrum Noord Nederland B.V.
Greenacres Pet Crematorium Limited
Greendale Veterinary Diagnostics Limited
Highcroft Pet Care Limited
Mi Vet Club Limited
Okeford Veterinary Centre Limited
The Pet Crematorium Limited
Pet Doctors Limited
Pet Medic Recruitment Limited
Pet Vaccination Clinic Limited
Precision Histology International Limited
Rossendale Pet Crematorium Limited
Ruddington and East Leake Veterinary Centre Limited Veterinary services
Veterinary services
Severn Edge Holdings Limited
Veterinary services
Severn Edge Farm Limited
Veterinary services
Severn Edge Equine Limited
Veterinary services
Severn Edge Veterinary Group Limited
Veterinary services
Veterinary services and buying club
On-line dispensary
Veterinary diagnostic services
Veterinary services
Veterinary services
Holding company
Veterinary services
Veterinary services
Veterinary and diagnostic services
Veterinary services
Veterinary services
Veterinary services
Veterinary services
Veterinary services
Veterinary services
Veterinary services
Veterinary services
Animal cremation
Veterinary diagnostic services
Veterinary services
Veterinary goods and services buying club
Veterinary services
Animal cremation
Veterinary services
Recruitment services
Veterinary services
Veterinary diagnostic services
Animal cremation and provision of burial grounds
The dormant subsidiary undertakings included within the consolidation are as follows:
Aire Veterinary Centre Ltd
All Creatures Veterinary Centre Limited
All Creatures Veterinary Health Centre Limited
Ambivet Ltd
Ashburn Veterinary Centre Limited
Beaconvet Limited
Bell Equine Veterinary Clinic Ltd
BTM Kent Limited
BVCM Limited
Dovecote Veterinary Hospital Limited
Keown O’Neill Limited
YourVets (Holdings) Limited
MSVets Limited
Newlands Veterinary Group Limited
Pet Vaccination UK Limited
Rosemullion Veterinary Practice Limited
Superstar Pets Limited
Thompsons Vets Limited
Three Valleys Veterinary Ltd
Veterinary Enterprises and Trading Limited
Victoria Veterinary Clinic Limited
Wessex Equine Limited
Western Counties Equine Hospital Limited
Holding company
Apart from CVS (UK) Limited, all of the above subsidiaries are indirectly held by CVS Group plc. All companies
are registered in England and Wales, with the exception of BVCM Limited, which is registered in Scotland,
Cromlynvets Limited, All Creatures Veterinary Health Centre Limited and Keown O’Neill Limited, which are
registered in Northern Ireland, CVS (Ireland) Veterinary Services Limited and CVS (Ireland) Veterinary
Services No.2 Limited, which are registered in Republic of Ireland, and CVS (Netherlands) B.V., Kliniek voor
Gezelschapsdieren Dieren B.V., Dierenartsenpraktijk NOP B.V., Dierenartsenpraktijk Zuid-West Friesland
B.V., Dierenkliniek Amersfoort B.V., Dierenkliniek Hengelo B.V., Dierenkliniek Zwolle B.V., Dierenziekenhuis
Drachten B.V. and Diergeneeskundig Centrum Noord Nederland B.V., which are registered in the Netherlands.
100% of the Ordinary share capital is owned for all equity shareholdings and all are wholly owned.
The registered office for all United Kingdom registered subsidiary undertakings is CVS House, Owen Road,
Diss, Norfolk IP22 4ER, with the exception of the following companies:
Axiom Veterinary Laboratories Limited
BVCM Limited
Cromlynvets Limited
All Creatures Veterinary Health Centre
Limited
Keown O’Neill Limited
Precision Histology International Limited The School House, One Eyed Lane, Weybread, Diss, Norfolk IP21 5TT
The Manor House, Brunel Road, Newton Abbot, Devon, TQ12 4PB
19–21 High Street, Strichen, Fraserburgh AB43 6SQ
50 Old Coach Road, Hillsborough, County Down BT26 6PB
14 Anderson Avenue, Limavady, County Londonderry BT49 0TF
11 Church Street, Ballygawley, Co. Tyrone BT70 2HA
The registered office for all Netherlands registered subsidiary undertakings is Postbus 176, 8300 AD Emmeloord.
The registered office for all Republic of Ireland registered subsidiary undertakings is KPMG, Dockgate,
Dock Road, Galway, H91 V6RR.
CVS Group plc
Annual Report 2018
55
Strategic reportGovernanceFinancial statements 2. Summary of significant accounting policies
Basis of preparation
The consolidated and Company financial statements of CVS Group plc have been prepared in accordance
with EU-adopted International Financial Reporting Standards (“IFRS”) and International Financial Reporting
Interpretations Committee (“IFRIC”) interpretations and in line with those provisions of the Companies Act
2006 applicable to companies reporting under IFRS. The consolidated financial statements 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.
After making enquiries, the Directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable future. For this reason, they continue
to adopt the going concern basis in preparing these financial statements. Further details are provided
in the Corporate Governance Statement on pages 34 to 36. The accounting policies set out below have,
unless otherwise stated, been applied consistently to all years presented in these financial statements.
The accounting policies which follow relate to the Group and are applied by the Company as appropriate.
Critical accounting estimates and judgements
The preparation of financial statements in conformity with IFRS requires management to make
judgements, estimates and assumptions that affect the application of policies and reported amounts
of assets and liabilities, income and expenses. The estimates and associated assumptions are based
on historical experience and various other factors that are believed to be reasonable under the circumstances,
the results of which form a basis for making the judgements about carrying values of assets and liabilities
that are not readily apparent from other sources. Due to the inherent uncertainty involved in making
assumptions and estimates, actual outcomes will differ from those assumptions and estimates.
The following estimates and judgements have the most significant effect on the amounts recognised
in the financial statements.
a) Intangibles acquired in business combinations
Determining the value of intangibles (patient data records and customer lists) acquired in business
combinations requires a critical judgement based on estimated future cash flows expected to arise from
the intangible assets at a suitable discount rate in order to calculate their present value. EBITDA is used
as an approximation to cash flow. The EBITDA contained within the acquisition business case is used
for year one cash flows and beyond this a growth rate is applied based upon a prudent assessment
of market-specific growth assumptions and an appropriate attrition rate for acquired patients. In addition,
an estimate of the useful life of the intangible asset has to be made, over which period the cash flows are
expected to be generated. Details of intangibles acquired through business are provided in note 14 to the
financial statements.
b) Impairment of intangible assets
Determining whether intangible assets are impaired requires a critical judgement as to whether the carrying
value of assets can be supported by the future cash flows expected to arise from the patient data records
and customer lists discounted at a suitable rate in order to calculate their present value. In calculating net
present value of the future cash flows, certain assumptions are required to be made including management’s
expectations of growth and discount rates. No impairment charge has been recognised in the year
(2017: £nil). Further details are provided in note 12 to the financial statements.
c) Impairment of goodwill
Determining whether goodwill is impaired requires the calculation of the value in use of the cash-generating
units to which goodwill has been allocated. The value-in-use calculation requires a critical judgement
of the future cash flows expected to arise from the cash-generating unit at a suitable discount rate in
order to calculate the present value. Details of the impairment review are provided in note 12 to the
financial statements.
d) Share-based payments
Judgement is required in determining the fair value of shares at the award date. The fair value is calculated
using valuation techniques which take into account the award’s term, the risk-free interest rate and the
expected volatility of the market price of the Company’s shares. Judgement and estimation are also required
to assess the number of options expected to vest. Details of share-based payments and the assumptions
applied are provided in note 11 to the financial statements.
e) Going concern
The Directors have prepared projections of the Group’s anticipated future results based upon the budget
for the period to June 2019 and forecasts thereafter. The Directors have concluded that the assumption
that the Group is a going concern is valid.
f) Determination of discount rates used in business combinations and impairment reviews
The discount rates used in business combinations and impairment reviews are based on the current
cost of capital of the business adjusted for management’s perception of risk. While management believes
the discount rates used are the most appropriate rates, a change in these assumptions could result in an
impairment charge. Details of the discount rates used are provided in note 12 to the financial statements.
Changes in accounting policy and disclosure
Standards, amendments and interpretations adopted by the Group
The Group has not adopted any new and revised standards, amendments and interpretations which have
been assessed as having financial or disclosure impact on the numbers presented.
Standards and interpretations to existing standards (all of which have yet to be adopted by the EU)
which are not yet effective and are under review as to their impact on the Group
The following standards and interpretations to existing standards have been published that are mandatory
for the Group’s accounting periods beginning on or after 1 July 2018 or later periods but which the Group
has not early adopted:
• IFRS 9 Financial Instruments (effective 1 January 2018)
• IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018)
• IFRS 16 Leases (effective 1 January 2019)
• IFRIC 22 Foreign Currency Transactions and Advance Consideration (effective 1 January 2018)
• IFRIC 23 Uncertainty over Income Tax Treatments (effective 1 January 2019)
• Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2)
(effective 1 January 2018)
• Annual Improvements to IFRS Standards 2015-2017 Cycle (effective 1 January 2019)
• Amendments to References to the Conceptual Framework in IFRS Standards (effective 1 January 2020)
56 CVS Group plc
Annual Report 2018
Financial statementsNotes to the consolidated financial statements continuedfor the year ended 30 June 2018 2. Summary of significant accounting policies continued
Changes in accounting policy and disclosure continued
Standards and interpretations to existing standards (all of which have yet to be adopted by the EU)
which are not yet effective and are under review as to their impact on the Group continued
The Directors do not expect that the adoption of IFRS 9 and IFRS 15 above will have a material impact on
the financial statements of the Group in future periods. IFRS 16 will be effective for the Group for the year
ending June 2020 onwards and will significantly affect the presentation of the Group financial statements.
All leases with the exception of short-term leases will be recognised within the balance sheet with a
corresponding liability being the present value of the lease payments. IFRS 16 is also expected to have
a material impact on key components of the consolidated income statement as operating lease rental
charges will be replaced by depreciation and finance costs. At the reporting date, the Group has operating
lease commitments of £54.9m (as disclosed in note 29) on an undiscounted basis. The Group has not yet
decided which transition approach to apply.
Basis of consolidation
The consolidated financial statements include the financial information of the Company and its subsidiary
undertakings as at and for the year ended 30 June 2018.
Subsidiaries are all entities over which the Group has control. The results of companies and businesses
acquired are included in the consolidated income statement from the date control passes. They are
deconsolidated from the date that control ceases. On acquisition of a company or business, all assets
and liabilities that exist at the date of acquisition are recorded at their fair values, reflecting their condition
at that date. All changes to those assets and liabilities, and the resulting gains and losses, which arise
after the Group has gained control of the company or business, and that arise after the measurement
period, are credited or charged to the post-acquisition income statement.
Intra-group transactions and profits are eliminated fully on consolidation. Accounting policies of subsidiaries
have been aligned to ensure consistency with the policies adopted by the Group.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting to the chief operating
decision maker (“CODM”). The CODM has been determined to be the Board of Directors, as it is primarily
responsible for the allocation of resources to segments and the assessment of the performance of segments.
The Group has four operating segments: Veterinary Practices, Laboratories, Crematoria and Animed
Direct. Further details of the Group’s operating segments are provided in note 4 to the financial statements.
Property, plant and equipment
Property, plant and equipment are stated at cost (being the purchase cost, together with any incidental
costs of acquisition) less accumulated depreciation and any accumulated impairment losses. The assets’
residual values and useful lives are reviewed annually, and adjusted as appropriate. Depreciation is provided
so as to write off the cost of property, plant and equipment, less their estimated residual values, over the
expected useful economic lives of the assets in equal annual instalments at the following principal rates:
Freehold buildings
2% straight line
Leasehold improvements
Straight line over the life of the lease
Fixtures, fittings and equipment
20%–33% straight line
Motor vehicles
25% straight line
Freehold land is not depreciated on the basis that it has an unlimited life.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow to
the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged
to the income statement during the financial year in which they are incurred.
Intangible assets
Goodwill
With the exception of the acquisition of CVS (UK) Limited, which was accounted for using the principles
of merger accounting, all business combinations are accounted for by applying the acquisition method.
Goodwill arising on acquisitions that have occurred since 1 July 2004 is stated after separate recognition
of intangible assets and represents the difference between the fair value of the purchase consideration
and the fair value of the Group’s share of the identifiable net assets of an acquired entity. In respect of
acquisitions prior to 1 July 2004 goodwill is included on the basis of its deemed cost, which represents
the amount recorded under previous Generally Accepted Accounting Practice. Goodwill is carried at cost
less accumulated impairment losses, and is subject to annual impairment testing.
Computer software
Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring
into use the specific software. These costs are amortised over their estimated useful lives of three years
and charged to administrative expenses. Costs associated with maintaining computer software programs
are recognised as an administrative expense as incurred.
Patient data records, customer lists and trade names
Acquired patient data records, customer lists and trade names are recognised as intangible assets at
the fair value of the consideration paid to acquire them and are carried at historical cost less provisions
for amortisation and impairment. The fair value attributable to these items acquired through a business
combination is determined by discounting the expected future cash flows to be generated from that asset
at the risk-adjusted post-tax weighted average cost of capital for the Group. The residual values are assumed
to be £nil. Patient data records, customer lists and trade names are reviewed for impairment if conditions
exist that indicate a review is required. Amortisation is provided so as to write off the cost over the expected
economic lives of the asset in equal instalments at the following principal rates:
Patient data records and customer lists
10% per annum
Trade names
10% per annum
Amortisation is charged to administrative expenses.
Impairment of non-current assets
Assets that have an indefinite useful life are not subject to amortisation but are tested annually
for impairment. Assets that are subject to amortisation or depreciation are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognised in the income statement for the amount by which the asset’s carrying
amount exceeds its recoverable amount.
As permitted by IAS 36 Impairment of Assets for the purposes of assessing impairment, individual
cash-generating units (“CGUs”) are grouped at a level consistent with the Group’s operating segments.
Recoverable amounts for CGUs are based on value in use, which is calculated from cash flow projections
using data from the Group’s latest internal forecasts, being a one-year detailed forecast and extrapolated
forecasts thereafter, the results of which are approved by the Board. The key assumptions for the
value-in-use calculations are those regarding discount rates and growth rates.
CVS Group plc
Annual Report 2018
57
Strategic reportGovernanceFinancial statements 2. Summary of significant accounting policies continued
Impairment of non-current assets continued
In respect of assets other than goodwill, an impairment loss is reversed if there has been a change in the
estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent
that the asset’s carrying amount does not exceed the carrying amount that would have been determined,
net of depreciation or amortisation, if no impairment loss had been recognised. Impairment losses in
respect of goodwill are not reversed.
Inventories
Inventories comprise goods held for resale and are stated at the lower of cost and net realisable value
on a first in, first out basis. Net realisable value is based on estimated selling price less further costs
expected to be incurred to disposal. Where necessary, provision is made for obsolete, slow moving
or defective inventory.
Financial instruments
Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group
becomes a party to the contractual provisions of the instrument.
a) Trade and other receivables
Trade and other receivables are initially recognised at fair value and subsequently measured at amortised
cost less provision for impairment. A provision for impairment is established when there is objective
evidence that the Group will not be able to collect all amounts due according to the original terms of the
receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy
or financial reorganisation, and default or delinquency in payments (more than 90 days overdue) are
considered indicators that the trade receivable is impaired. The amount of the provision is the excess
of the asset’s carrying amount and the present value of estimated future cash flows, discounted at the
original effective interest rate. The amount of any loss is recognised in the income statement within
administrative expenses. Subsequent recoveries of amounts previously written off are credited against
administrative expenses in the income statement.
b) Investments
Gains and losses arising from changes in the fair value of available-for-sale investments in equity instruments
that have a quoted market price are recognised directly in other comprehensive income until the security
is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously
recognised in equity is included in the net result for the year.
In accordance with IAS 39 Financial Instruments: Recognition and Measurement, available-for-sale
investments in equity instruments that do not have a quoted market price in an active market and whose
fair value cannot be reliably measured are measured at cost. The Group assesses at each balance sheet
date whether there is objective evidence that a financial asset or a group of financial assets is impaired.
Dividends on an available-for-sale equity instrument are recognised in the income statement when the
Group’s right to receive payment is established.
In the Company’s financial statements, investments in subsidiary undertakings are initially stated at cost.
Provision is made for any permanent impairment in the value of these investments.
c) Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual
arrangements entered into. Financial liabilities are obligations to pay cash or other financial assets and
are recognised when the Group becomes a party to the contractual provisions of the instrument. Financial
liabilities are recorded initially at fair value and subsequently at amortised cost using the effective interest
method, with interest related charges recognised as an expense in finance cost in profit or loss. A financial
liability is derecognised only when the obligation is extinguished. An equity instrument is any contract that
gives a residual interest in the assets of the Group after deducting all of its liabilities.
d) Interest-bearing borrowings
Interest-bearing bank loans and overdrafts are initially recorded as the proceeds received, net of associated
transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised
cost with any difference between cost and redemption value being recognised in the income statement
over the period of the borrowings using the effective interest method. Borrowings are classified as current
liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve
months after the balance sheet date.
e) Trade and other payables
Trade and other payables are not interest bearing and are stated at their amortised cost.
f) Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
g) Derivative financial instruments and hedging activities
The Group uses derivative financial instruments to hedge its exposure to interest rate risks arising from
financing activities. The Group does not hold or issue derivative financial instruments for trading purposes;
however, if derivatives do not qualify for hedge accounting they are accounted for as such.
Derivative financial instruments are recognised and stated at fair value. The fair value of derivative financial
instruments is determined by reference to market values for similar financial instruments, by discounted
cash flows, or by the use of option valuation models. The fair value of interest rate swap arrangements is
calculated as the present value of the estimated future cash flows. Where derivatives do not qualify for hedge
accounting, any gains or losses on remeasurement are immediately recognised in the income statement.
Where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the
nature of the hedge relationship and the item being hedged.
The Group documents at the inception of the transaction the relationship between hedging instruments
and hedged items, as well as its risk management objectives and strategy for undertaking various hedging
transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis,
of whether or not the derivatives that are used in hedging transactions are highly effective in offsetting
changes in cash flows of hedged items.
The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining
maturity of the hedged item is more than twelve months and as a current asset or liability when the remaining
maturity of the hedged item is less than twelve months.
58 CVS Group plc
Annual Report 2018
Financial statementsNotes to the consolidated financial statements continuedfor the year ended 30 June 2018 2. Summary of significant accounting policies continued
Financial instruments continued
(g) Derivative financial instruments and hedging activities continued
Cash flow hedging
Derivative financial instruments are classified as cash flow hedges when they hedge the Group’s exposure
to variability in cash flows that are either attributable to a particular risk associated with a recognised asset
or liability, or a highly probable forecasted transaction.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow
hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is
recognised immediately in the income statement where material. Amounts accumulated in equity are recycled
in the income statement in the periods when the hedged item affects the income statement. The classification
of the effective portion when recognised in the income statement is the same as the classification of the
hedged transaction. Any element of the remeasurement of the derivative instrument which does not meet
the criteria for an effective hedge is recognised immediately in the income statement within finance costs.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge
accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised
in the income statement when the forecast transaction is ultimately recognised in the income statement.
When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported
in equity is immediately transferred to the income statement.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and deposits with maturities of three months or less
from inception. Bank overdrafts that are repayable on demand and form an integral part of the Group’s
cash management are included as a component of cash and cash equivalents for the purposes of the
cash flow statement.
Current and deferred income tax
The tax expense represents the sum of the current tax payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as
reported in the income statement because it excludes some items of income or expense that are taxable
or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s
liability for current tax is calculated on the basis of tax laws and tax rates that have been enacted or
substantively enacted by the balance sheet date. Management periodically evaluates positions taken in
tax returns with respect to situations in which applicable tax regulation is subject to interpretation and
establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability method, on temporary differences arising
between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial
statements. However, deferred income tax is not accounted for if it arises from initial recognition of an
asset or liability in a transaction other than a business combination that at the time of the transaction
affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates
(and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to
apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Where the intrinsic value of a share option exceeds the fair value, the corresponding deferred tax on the
excess is recognised directly in equity.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will
be available against which the temporary differences can be utilised.
Revenue
Revenue represents amounts receivable from customers for veterinary services, related veterinary
products, laboratory diagnostic services, the sale of products on-line and crematoria services provided
during the year. Revenue is recognised to the extent that it is probable that the economic benefits will flow
to the Group and the revenue can be reliably measured. The revenue recognition point is when a diagnostic
laboratory test, a veterinary consultation, a veterinary procedure or a cremation is completed. Sales of goods
are recognised when goods are dispatched and title has passed; for example, on-line sales are recognised
when the goods are dispatched from the warehouse. Revenue is measured at the fair value of the
consideration received or receivable, excluding value added tax and discounts.
Members of customer loyalty schemes, for example the Healthy Pet Club, pay annual or monthly
subscription fees and receive preventative consultations and treatments over a twelve-month period.
The monthly subscription fees are spread evenly over the twelve-month period whereas the services and
drugs provided to the customer do not evenly match this profile. Appropriate adjustments are made through
deferred and accrued income to recognise revenue when the underlying service has been performed.
Revenue is recognised net of a provision to reflect cancellations as a result of animal deaths due to our
policy not to invoice our customers in such an event. The provision is calculated based on historical
membership cancellation data. All other cancellations are accounted for as an impairment of receivables
within administration expenses. Our accounting policy for other cancellations was revised in the previous
year; the impact on revenue and profit is not material and therefore the change in policy has not been
accounted for as a prior year adjustment.
Out-of-hours consultations and procedures provided by third parties are not recorded as revenue. The work
is completed by the third party and the third-party provider invoices the customer. CVS does not act as
principal or agent in this transaction.
Pet Medic Recruitment principally sources locum clinical staff for the Veterinary Practices Division.
Revenue is therefore intra-division and eliminated on consolidation within the Veterinary Practices Division.
Rebates received from manufacturers
Rebates received from drug and consumable manufacturers in respect of CVS purchases are deducted
from the purchase price within cost of sales.
Rebates negotiated on behalf of our buying group members, MiVetClub and VetShare, are recorded on the
Group’s balance sheet as a receivable and the corresponding liability for the rebate due to the member is
recorded as a payable. The commission receivable by the Group is recorded as revenue in the income
statement at the point at which the buying Group member purchases the drugs and consumables.
CVS Group plc
Annual Report 2018
59
Strategic reportGovernanceFinancial statements 2. Summary of significant accounting policies continued
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks
and rewards of ownership to the lessee. All other leases are classified as operating leases. Assets held
under finance leases are recognised as assets of the Group at their fair value or, if lower, at the present
value of the minimum lease payments, each determined at the inception of the lease. The corresponding
liability is included in the balance sheet as a finance lease obligation. Lease payments are apportioned
between finance charges and reduction of the lease obligations so as to achieve a constant rate of interest
on the remaining balance of the liability. Finance charges are charged to the income statement. The property,
plant and equipment acquired under finance leases are depreciated over the shorter of the useful
economic life of the asset and the lease term.
Rentals payable under operating leases are charged to the income statement on a straight line basis over
the term of the relevant lease. Benefits received and receivable as an incentive to sign an operating lease
are similarly spread on a straight line basis over the lease term.
Share-based payments
Certain employees of the Group receive part of their remuneration in the form of share-based
payment transactions, whereby employees render services in exchange for shares or rights over
shares (equity-settled transactions).
The fair values of equity-settled transactions are measured indirectly at the dates of grant using
Black-Scholes option pricing models, taking into account the terms and conditions upon which the
awards are granted. The fair value of share-based payments under such schemes is expensed on a
straight line basis over the vesting period, based on the Group’s estimate of shares that will eventually
vest and adjusted at each reporting date for the effect of non-market-based vesting conditions. The fair
value of options awarded to employees of subsidiary undertakings is recognised as a capital contribution
and recorded in investments on the Company balance sheet.
Foreign currency translation
Functional and presentational currency
The individual financial statements of each Group company are presented in the currency of the primary
economic environment in which it operates (its functional currency). For the purpose of the consolidated
financial statements, the results and financial position of each Group company are expressed in Sterling,
which is the functional currency of the Company, and the presentation currency for the consolidated
financial statements, rounded to the nearest £0.1m.
In preparing the financial statements of the individual companies, transactions in currencies other than the
entity’s functional currency (foreign currencies) are recognised at the rates of exchange prevailing on the
dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated
in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair
value that are denominated in foreign currencies are translated at the rates prevailing at the date when the
fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign
currency are not retranslated.
Exchange differences are recognised in profit or loss in the period in which they arise.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s
foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense
items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly
during that period, in which case the exchange rates at the date of transactions are used. Exchange differences
arising, if any, are recognised in other comprehensive income and accumulated in a separate component
of equity (attributed to non-controlling interests as appropriate).
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets
and liabilities of the foreign entity and translated at the closing rate. The Group has elected to treat
goodwill and fair value adjustments arising on acquisitions before the date of transition to IFRS as
Sterling-denominated assets and liabilities. Exchange differences arising are recognised in other
comprehensive income.
Retirement benefit costs
The Group makes contributions to stakeholder and employee personal pension defined contribution
schemes in respect of certain employees. The Group has no further payment obligations once the
contributions have been paid. The contributions are recognised as an employee benefit expense in the
period to which they relate. Prepaid contributions are recognised as an asset to the extent that a cash
refund or a reduction in the future payments is available.
Financing costs
Financing costs comprise interest payable on borrowings, debt finance costs and gains and losses
on derivative financial instruments that are recognised in the income statement.
Interest expense is recognised in the income statement as it accrues, using the effective interest method.
Use of non-GAAP measures
Adjusted EBITDA, adjusted profit before tax (“adjusted PBT”) and adjusted EPS
The Directors believe that adjusted EBITDA, adjusted PBT and adjusted EPS provide additional useful
information for shareholders on 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 and 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 2016, revenue is included from
September 2017 in the like-for-like revenue calculation.
60 CVS Group plc
Annual Report 2018
Financial statementsNotes to the consolidated financial statements continuedfor the year ended 30 June 2018 2. Summary of significant accounting policies continued
Share premium
The share premium reserve comprises the premium received over the nominal value of shares issued.
Excluding the impact of the interest rate swap arrangement, bank borrowings bear interest at 1.45% to
2.7% above LIBOR. The applicable interest rate is dependent upon the net debt to EBITDA ratio. During the
year the bank borrowings carried a rate averaging 1.87% above LIBOR.
Capital redemption reserve
Upon cancellation of redeemable Preference shares on redemption, a capital redemption reserve was
created representing the nominal value of the shares cancelled. This is a non-distributable reserve.
Merger reserve
The merger reserve resulted from the acquisition of CVS (UK) Limited and represents the difference
between the value of the shares acquired (nominal value plus related share premium) and the nominal
value of the shares issued.
Profit for the financial year
As permitted by Section 408 of the Companies Act 2006 the Company has elected not to present its own
profit and loss account or statement of comprehensive income for the year. The profit attributable to the
Company is disclosed in the footnote to the Company’s balance sheet.
3. Financial risk management
Financial risk factors
The Group’s activities expose it to a variety of financial risks: market risk (being interest rate risk and other
price risks), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the
unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial
performance. The Group uses derivative instruments to manage its exposure to interest rate movements.
It is not the Group’s policy to actively trade in derivatives.
Given the size of the Group, the Board monitors financial risk management. The policies set by the Board
of Directors are implemented by the Group’s finance department.
a) Market risk
i) Foreign exchange currency rate risk
The Group has very limited exposure to foreign exchange risk as substantially all of its transactions are
denominated in the Company’s functional currency of Sterling. The Group has a policy to minimise foreign
exchange currency rate risk through the regular monitoring of foreign currency flows. Currency exposures
are reviewed regularly and all significant foreign exchange transactions are approved by Group management.
The Group does not currently hedge any foreign currency transactions but continues to keep this policy
under review.
ii) Cash flow and fair value interest rate risk
The Group has interest-bearing assets and liabilities. The Group’s income and operating cash inflows are
substantially independent of changes in market interest rates. The Group’s interest rate risk arises from
long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk.
At the year end, the Group had interest hedging arrangements in place covering £40.0m of debt. This allows
the Group to minimise its exposure to significant interest rate increases whilst enabling the Group to take
advantage of interest rate reductions. The strategy for undertaking the hedge is to match the loan liability
with a coterminous derivative that allows interest to float within an agreed range and thereby limits the
cash flow exposure relating to interest.
At 30 June 2018, the Group has considered the impact of movements in interest rates over the past
year and has concluded that a 1% movement is a reasonable benchmark. At 30 June 2018, if interest
rates on Sterling-denominated borrowings had been 1% higher or lower, with all other variables held
constant, post-tax profit and the movement in net assets for the year would have been approximately
£1.0m (2017: £1.0m) lower or higher, mainly as a result of the movement in interest rates on the floating
rate borrowings, net of the hedging derivative instrument in place.
b) Credit risk
The Group has no significant concentrations of credit risk. The Group’s principal financial assets are
cash and bank balances, and trade and other receivables. A large number of receivables are very small;
therefore, there is not any concentration of credit risk in a single counterparty or group of counterparties
with similar characteristics.
The credit risk on liquid funds and derivative financial instruments is limited because the counterparties
are banks with high credit ratings assigned by international credit rating agencies.
Concentrations of credit risk with respect to trade receivables are limited due to the Group’s diverse
customer base. The Group also has in place procedures that require appropriate credit checks on
potential customers before sales, other than on a cash basis, are made. Customer accounts are also
monitored on an ongoing basis and appropriate action is taken where necessary to minimise any credit
risk. The Directors therefore believe there is no further credit risk provision required in excess of normal
provision for impaired receivables.
Group management monitors the ageing of receivables which are more than one month overdue and debtor
days on a regular basis. At 30 June 2018 gross trade receivables amounted to 6.6% of revenue for the year
(2017: 5.8%). Of these gross trade receivables, 52.9% (2017: 48.0%) were more than one month overdue.
The maximum exposure to credit risk at 30 June 2018 is the fair value of each class of receivable as
disclosed in note 17 to the financial statements.
c) Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and
the availability of funding through an adequate amount of committed credit facilities. The Group actively
maintains cash balances and a mix of long-term and short-term finance facilities that are designed to
ensure the Group has sufficient available funds for operations and acquisitions. Management monitors
rolling forecasts of the Group’s liquidity reserve on the basis of expected cash flow. The table below
summarises the remaining contractual maturity for the Group’s financial liabilities. The amounts shown
are the contractual undiscounted cash flows, which include interest, analysed by contractual maturity.
When the amount payable or receivable is not fixed, the amount disclosed has been determined by
reference to the projected interest rates as illustrated by the yield curves existing at the reporting date.
The Group’s revolving credit facility (“RCF”) is utilised on 30-day terms; however, the RCF is available for
utilisation until November 2021, and therefore the liability is included in due in more than three years but
not more than five years.
CVS Group plc
Annual Report 2018
61
Strategic reportGovernanceFinancial statements 3. Financial risk management continued
Financial risk factors continued
c) Liquidity risk continued
30 June 2018
Non-derivative financial liabilities
Borrowings
Trade and other payables (excluding
social security and other taxes)
(note 20)
Derivative contracts
Interest rate swap arrangements
30 June 2017
Non-derivative financial liabilities
Borrowings
Trade and other payables (excluding
social security and other taxes)
(note 20)
Derivative contracts
Interest rate swap arrangements
In more than
one year but
not more than
two years
£m
In more than
two years but
not more than
three years
£m
In more than
three years
but not more
than five years
£m
In less than
one year
£m
Total
£m
84.0
84.0
—
43.1
—
43.1
—
—
—
—
—
—
—
—
—
—
84.0
In more than
one year but
not more than
two years
£m
In more than
two years but
not more than
three years
£m
In more than
three years
but not more
than five years
£m
In less than
one year
£m
43.1
—
127.1
Total
£m
3.1
38.7
—
41.8
—
—
—
—
—
—
—
—
—
—
104.5
38.7
—
146.3
Capital risk management
The Group’s policy is to maintain a strong capital base, defined as bank facilities plus total shareholders’
equity, so as to maintain investor, creditor and market confidence and to sustain future development
of the business. Within this overall policy, the Group seeks to maintain an optimum capital structure by
a mixture of debt and retained earnings.
The bank facilities include both financial and non-financial covenants. There have been no breaches
of the terms of the respective loan agreements, breaches of covenants or defaults during the current
or comparative years.
Funding needs are reviewed periodically and also each time a significant acquisition is made. A number
of factors are considered which include the net debt/adjusted EBITDA ratio, future funding needs (usually
potential acquisitions) and Group banking arrangements.
62 CVS Group plc
Annual Report 2018
Net debt (note 26)
Adjusted EBITDA (note 4)
Ratio
2018
£m
69.0
47.6
1.44
2017
£m
100.0
42.1
2.38
The ratio above is calculated based upon EBITDA disclosed in the Annual Report. The actual ratio calculated
for the bank covenants takes account of a twelve-month EBITDA adjustment for businesses acquired;
therefore, the ratio for the purposes of the bank covenants is 1.4.
There were no changes to the Group’s approach to capital management during the year.
The primary sources of funding for the Group are internally generated cash and syndicated borrowings.
The Group’s £5.0m working capital facility and £68.0m of the £85.0m revolving credit facility were undrawn
at 30 June 2018.
Fair value measurement
The following table presents the Group’s financial assets and liabilities that are measured at fair value
at 30 June 2018 by level of fair value hierarchy:
• quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);
• inputs other than quoted prices included within level 1 that are observable for the asset or liability,
either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2); and
Assets
Available-for-sale financial assets
(note 15)
Liabilities
Derivative financial instruments
(interest rate swap arrangements)
(note 16)
30 June 2018
30 June 2017
Level 1
£m
Level 2
£m
Total
£m
Level 1
£m
Level 2
£m
Total
£m
0.1
—
0.1
0.1
—
—
—
—
—
—
0.1
—
4. Segmental reporting
The operating segments are based on the Group’s management and internal reporting structure
and monitored by the Group’s 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 and liabilities, costs relating to business
combinations, and Head Office salary and premises costs.
104.5
107.6
• inputs for the asset or liability that are not based on observable market data (that is, unobservable
inputs) (level 3).
Financial statementsNotes to the consolidated financial statements continuedfor the year ended 30 June 2018 Veterinary
Practices
£m
247.9
28.1
44.7
232.6
(59.7)
28.1
—
4.7
10.1
1.8
44.7
Laboratories
£m
Crematoria
£m
16.3
2.9
3.6
13.8
(4.2)
2.9
—
0.7
—
—
3.6
6.3
1.9
2.1
8.0
(1.3)
1.9
—
0.2
—
—
2.1
Animed
Direct
£m
13.0
0.6
0.7
6.0
(5.1)
0.6
—
0.1
—
—
0.7
Head
Office
£m
(11.7)
(19.0)
(9.0)
2.3
(104.4)
(19.0)
2.7
0.2
5.9
1.2
(9.0)
4. Segmental reporting continued
The business operates predominantly in the UK. It performs a small amount of laboratory work for
Europe-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.
Revenue comprises £240.5m of fees and £86.8m of goods (2017: £201.9m and £69.9m, respectively).
Operating segments
The Group is split into four operating segments (Veterinary Practices Division, Laboratories Division,
Crematoria Division and Animed Direct) and a centralised support function (Head Office) for business
segment analysis. In identifying these operating segments, management generally follows the Group’s
service 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 2018
Revenue
Profit/(loss) before income tax
Adjusted EBITDA
Total assets
Total liabilities
Reconciliation of adjusted EBITDA
Profit/(loss) before income tax
Finance expense
Depreciation
Amortisation
Costs relating to business combinations
Adjusted EBITDA
Veterinary
Practices
£m
Laboratories
£m
Crematoria
£m
297.5
29.3
50.1
283.0
(67.2)
29.3
0.1
6.8
12.2
1.7
50.1
17.9
3.3
3.9
14.9
(2.2)
3.3
—
0.6
—
—
3.9
6.6
1.9
2.3
10.0
(1.1)
1.9
—
0.4
—
—
2.3
Animed
Direct
£m
18.8
1.2
1.2
8.5
(6.6)
1.2
—
—
—
—
1.2
Head
Office
£m
(13.5)
(21.6)
(9.9)
2.6
(84.2)
(21.6)
3.5
0.2
6.2
1.8
(9.9)
Group
£m
327.3
14.1
47.6
319.0
(161.3)
14.1
3.6
8.0
18.4
3.5
47.6
Year ended 30 June 2017
Revenue
Profit/(loss) before income tax
Adjusted EBITDA
Total assets
Total liabilities
Reconciliation of adjusted EBITDA
Profit/(loss) before income tax
Finance expense
Depreciation
Amortisation
Costs relating to business combinations
Adjusted EBITDA
5. Finance expense
Interest expense, bank loans and overdraft
Amortisation of debt arrangement fees
Finance expense
6. Expenses by nature
Amortisation and impairment of intangible assets
Depreciation of property, plant and equipment
Employee benefit expenses
Cost of inventories recognised as an expense (included in cost of sales)
Repairs and maintenance expenditure on property, plant and equipment
Trade receivables impairment charge
Operating lease rentals payable
Other expenses
Total cost of sales and administrative expenses
Group
£m
271.8
14.5
42.1
262.7
(174.7)
14.5
2.7
5.9
16.0
3.0
42.1
2017
£m
2.3
0.4
2.7
2017
£m
16.0
5.9
127.7
48.5
3.4
0.6
12.6
39.9
254.6
2018
£m
3.2
0.4
3.6
2018
£m
18.4
8.0
148.5
62.6
4.0
1.4
14.3
52.4
309.6
CVS Group plc
Annual Report 2018
63
Strategic reportGovernanceFinancial statements 6. Expenses by nature continued
Services provided by the Company’s auditor and associates
During the year the Group obtained the following services from the Company’s auditor at costs
as detailed below:
8. Directors’ remuneration and key management compensation
2018
£’000
2017
£’000
Salaries and other short-term employee benefits
Company contributions to money
purchase schemes
Highest paid Director
Directors’ emoluments
2018
£m
0.4
0.1
0.5
2017
£m
0.7
0.1
0.8
2018
£m
0.9
0.1
1.0
2017
£m
1.3
0.1
1.4
Audit services
Fees payable to the Group’s auditor for the audit of the parent company
and consolidated financial statements
Other services
The audit of the Company’s subsidiaries pursuant to legislation
All other services
7. Employee benefit expense and numbers
Group
Employee benefit expense for the Group
Wages and salaries
Social security costs
Other pension costs (note 30)
Share-based payments (note 11)
31
228
—
259
2018
£m
133.4
12.0
1.8
1.3
148.5
30
155
7
192
2017
£m
115.0
10.1
1.1
1.5
127.7
Employee benefit expense included within cost of sales is £109.0m (2017: £90.0m). The balance is
recorded within administrative expenses.
The average monthly number of people employed by the Group (including Executive Directors) during the
year, analysed by category, was as follows:
Veterinary surgeons and pathologists
Nurses, practice ancillaries and technicians
Crematorium staff
Central support
2018
Number
1,419
3,956
78
189
5,642
2017
Number
1,153
3,421
77
190
4,841
The Company has no employees, other than the Directors. The Directors received remuneration in respect
of their services to the Company from a subsidiary company.
64 CVS Group plc
Annual Report 2018
Retirement benefits are accruing to one Director (2017: one) under a personal pension plan.
The remuneration of the Executive Directors amounting to £0.8m (2017: £1.3m) is borne by the
subsidiary company CVS (UK) Limited, without recharge. The remuneration of the Non-Executive Directors
amounting to £0.2m (2017: £0.1m) is borne by the subsidiary company CVS (UK) Limited and recharged
to the Company.
Share options
Under the Company’s SAYE schemes the Directors have the following options at the balance sheet date:
SAYE
scheme
Date of
grant
Earliest exercise
date and vesting date
N Perrin
SAYE9
25 November 2016
1 January 2020
Exercise
price
790p
Number of
shares
318
Shares awarded to Executive Directors under the Long Term Incentive Plans (“LTIPs”) as at the balance
sheet date are as follows:
S Innes
S Innes
S Innes
S Innes
N Perrin
N Perrin
N Perrin
N Perrin
LTIP
LTIP8
LTIP9
LTIP10
LTIP11
LTIP8
LTIP9
LTIP10
LTIP11
Date of
grant
Market price
on date of grant
Earliest exercise
date and vesting date
Number of
shares
24 September 2014
24 September 2015
20 December 2016
17 January 2018
24 September 2014
24 September 2015
20 December 2016
17 January 2018
352p
699p
1,067p
1,031p
352p
699p
1,067p
1,031p
30 June 2017
30 June 2018
30 June 2019
30 June 2020
30 June 2017
30 June 2018
30 June 2019
30 June 2020
88,169
57,000
40,000
40,000
53,570
29,500
25,000
20,800
The exercise price for all shares is 0.2p.
LTIP8 was exercised in the year; see the Remuneration Committee Report on page 42 for further details.
Further details of the above schemes are included in the Remuneration Committee Report on pages 37 to 42.
Financial statementsNotes to the consolidated financial statements continuedfor the year ended 30 June 2018 8. Directors’ remuneration and key management compensation continued
Key management compensation
Key management is considered to be those on the Executive Committee (being the Executive Directors
and other senior management) and the Non-Executive Directors. The employment costs of key management
are as follows:
Salaries and other short-term employee benefits
Post-employment benefits
Share-based payments
2018
£m
2.0
0.1
0.9
3.0
9. Income tax expense
a) Analysis of income tax expense recognised in the income statement
Current tax expense
UK corporation tax
Adjustments in respect of previous years
Total current tax charge
Deferred tax expense
Origination and reversal of temporary differences
Adjustments in respect of previous years
Effect of tax rate change on opening deferred tax balance
Total deferred tax credit (note 22)
Total income tax expense
2018
£m
5.9
(0.1)
5.8
(2.5)
0.7
(0.6)
(2.4)
3.4
2017
£m
2.7
0.1
1.3
4.1
2017
£m
4.8
(0.1)
4.7
(1.6)
0.3
(0.4)
(1.7)
3.0
Factors affecting the current tax charge
UK corporation tax is calculated at 19.0% (2017: 19.8%) 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:
Profit before tax
Effective tax charge at 19.0% (2017: 19.8%)
Effects of:
Expenses not deductible for tax purposes
Effect of tax rate change on opening deferred tax balance
Adjustments to deferred tax charge in respect of previous years
Adjustments to current tax charge in respect of previous years
Total income tax expense
2018
£m
14.1
2.7
0.6
(0.6)
0.8
(0.1)
3.4
2017
£m
14.5
2.9
0.4
(0.5)
0.3
(0.1)
3.0
The main rate of corporation tax will reduce from 19% to 17% from 1 April 2020. This change had been
substantively enacted at the balance sheet date and, therefore, it is reflected in these financial statements.
10. Earnings per Ordinary share
a) Basic
Basic earnings per Ordinary share is calculated by dividing the profit after taxation by the weighted average
number of shares in issue during the year.
Earnings attributable to Ordinary shareholders (£m)
Weighted average number of Ordinary shares in issue
Basic earnings per share (p per share)
2018
10.7
2017
11.5
66,369,383
62,105,419
16.0
18.5
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 LTIP 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.
CVS Group plc
Annual Report 2018
65
Strategic reportGovernanceFinancial statements
10. Earnings per Ordinary share continued
(b) Diluted continued
Earnings attributable to Ordinary shareholders (£m)
Weighted average number of Ordinary shares in issue
Adjustment for contingently issuable shares – LTIPs
Adjustment for contingently issuable shares – SAYE schemes
2018
10.7
2017
11.5
66,369,383
259,505
98,081
62,105,419
398,654
549,732
Weighted average number of Ordinary shares for diluted earnings per share
66,726,969
63,053,805
Diluted earnings per share (p per share)
15.9
18.2
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 number of Ordinary shares in issue in the period.
Earnings attributable to Ordinary shareholders
Add back taxation
Profit before taxation
Adjustments for:
Amortisation (note 12)
Costs relating to business combinations (note 4)
Adjusted profit before income tax
Tax charge amended for the above adjustments
2018
£m
10.7
3.4
14.1
18.4
3.5
36.0
(7.8)
2017
£m
11.5
3.0
14.5
16.0
3.0
33.5
(6.9)
Adjusted profit after income tax and earnings attributable to owners
of the parent
28.2
26.6
Weighted average number of Ordinary shares in issue
Weighted average number of Ordinary shares for diluted earnings per share
66,369,383
66,726,969
62,105,419
63,053,805
Adjusted earnings per share
Diluted adjusted earnings per share
Pence
42.4p
42.1p
Pence
42.8p
42.2p
Details of the share options outstanding during the year under the LTIP schemes are as follows:
Outstanding at 1 July 2017
Granted during the year
Forfeited during the year
Exercised during the year*
Outstanding at 30 June 2018
Exercisable at 30 June 2018
July 2017
scheme (“LTIP11”)
Number of
share awards
July 2016
scheme (“LTIP10”)
Number of
share awards
July 2015
scheme (“LTIP9”)
Number of
share awards
July 2014
scheme (“LTIP8”)
Number of
share awards
—
115,654
—
—
115,654
—
136,747
—
(16,111)
—
120,636
—
146,000
—
—
—
146,000
146,000
243,205
—
—
(243,205)
—
—
* The weighted average share price at the date of exercise was £10.15.
Options are exercisable at 0.2p per share. The weighted average exercise price is 0.2p at the beginning
and end of the period.
The options outstanding at the year end under LTIP11, LTIP10 and LTIP9 have a weighted average
remaining contractual life of two years, one year and nil years, respectively.
The share-based payment charge for the year in respect of the options issued under the LTIP schemes
amounted to £0.8m (2017: £1.1m) and has been charged to administrative expenses. National Insurance
contributions amounting to £0.1m (2017: £0.5m) have been accrued in respect of the LTIP scheme
transactions and are treated as cash-settled transactions.
Further details of the above schemes are included in the Remuneration Committee Report on pages 37 to 42.
Save As You Earn (“SAYE”)
The Group operates an incentive scheme for all employees, the CVS Group SAYE plan, an HM Revenue &
Customs-approved scheme. The SAYE7 scheme was opened for subscription in December 2014 (with
options granted in January 2015), the SAYE8 scheme was opened for subscription in December 2015 (with
options granted in January 2016), the SAYE9 scheme was opened for subscription in December 2016 (with
options granted in January 2017) and the SAYE10 scheme was opened for subscription in December 2017
(with options granted in January 2018). Under the SAYE schemes awards have been made at a 20% discount
for SAYE7 and SAYE8; SAYE9 and SAYE10 were at a 10% discount of the closing mid-market price on date of
invitation, vesting over a three-year period. There are no performance conditions attached to the SAYE scheme.
Details of the share options outstanding during the year under the SAYE schemes are as follows:
11. Share-based payments
Long Term Incentive Plans (“LTIPs”)
The Group operates an incentive scheme for certain Senior Executives, the CVS Group Long Term
Incentive Plan (“LTIP”).
Under the LTIP scheme awards are made at an effective nil cost, vesting over a three-year performance
period conditional upon the Group’s earnings per share growth, as adjusted for amortisation of intangibles,
exceptional items and fair value adjustments in respect of derivative instruments and available-for-sale assets
over the same period. The LTIP scheme arrangements are equity settled.
Outstanding at 1 July 2017
Granted during the year
Forfeited during the year
Exercised during the year*
Outstanding at 30 June 2018
Exercisable at 30 June 2018
SAYE10
Number of
share awards
SAYE9
Number of
share awards
SAYE8
Number of
share awards
SAYE7
Number of
share awards
—
294,998
(22,615)
—
192,463
—
(24,691)
(258)
198,678
—
(20,689)
(1,918)
272,383
167,514
176,071
—
—
—
625,986
7,636
—
(633,622)
—
—
* The weighted average share price at the date of exercise was £9.46.
66 CVS Group plc
Annual Report 2018
Financial statementsNotes to the consolidated financial statements continuedfor the year ended 30 June 2018 11. Share-based payments continued
Save As You Earn (“SAYE”) continued
Options are exercisable at 1,257p for the SAYE10 scheme, 790p for the SAYE9 scheme and 536p per share
for the SAYE8 scheme.
The weighted average exercise price at the beginning of the period for the options outstanding was £6.47
and end of the period was £9.37.
The options outstanding at the year end under the SAYE10, SAYE9 and SAYE8 schemes have a weighted
average remaining contractual life of two years and five months, one year and five months and nil years
and five months, respectively.
The share-based payment charge for the year in respect of the options issued under the SAYE schemes
amounted to £0.5m (2017: £0.4m) and has been charged to administrative expenses.
Options for both schemes were valued using the Black-Scholes option pricing model. The fair value per
option granted and the assumptions used in the calculation are as follows:
12. Intangible assets
Cost
At 1 July 2016
Additions arising through business
combinations (note 14)
Fair value adjustment in respect
of prior periods
Other additions
At 30 June 2017
Additions arising through business
combinations (note 14)
Other additions
Grant date
Share price at grant date
Fair value per option
Exercise price
Number of employees
Shares under option at date of grant
Vesting period/option life/expected life
Weighted average remaining contractual life
Expected volatility*
Expected dividends expressed as a dividend yield
LTIP11
SAYE10
At 30 June 2018
5 December 2016
£10.31
£10.31
0.2p
36
115,654
3 years
2 years
32.45%
0.35%
November 2017
£9.90
£1.43
£12.87
1,279
294,998
3 years
2 years 5 months
32.45%
0.35%
Accumulated amortisation
At 1 July 2016
Amortisation for the year
At 30 June 2017
Amortisation for the year*
At 30 June 2018
Net book amount
At 30 June 2018
At 30 June 2017
At 1 July 2016
Goodwill
£m
Trade
names
£m
Patient data
records
£m
Computer
software
£m
31.1
15.7
—
—
46.8
21.0
—
67.8
—
—
—
(0.6)
(0.6)
68.4
46.8
31.1
1.5
156.7
—
—
—
1.5
—
—
1.5
0.8
0.2
1.0
0.2
1.2
0.3
0.5
0.7
35.0
0.5
—
192.2
33.2
—
225.4
57.5
15.6
73.1
18.4
91.5
133.9
119.1
99.2
2.2
—
—
0.5
2.7
—
0.5
3.2
1.7
0.2
1.9
0.4
2.3
0.9
0.8
0.5
Total
£m
191.5
50.7
0.5
0.5
243.2
54.2
0.5
297.9
60.0
16.0
76.0
18.4
94.4
203.5
167.2
131.5
* Expected volatility has been determined by reference to the historical share return volatility of CVS Group plc.
Amortisation expense is charged to administrative expenses.
The patient data records, customer lists and trade names were acquired as a component of business
combinations. See note 14 for further details of current year acquisitions. It is not practical to disclose the
carrying amount and remaining life of each intangible asset; however, material business combinations in
the current year have been separately disclosed in note 14.
The components of goodwill are disclosed by the grouped cash-generating units (“CGUs”) shown below.
In the prior year the Group changed the way in which it assesses each CGU. Although each practice,
laboratory and crematorium is considered to be an individual CGU the Company monitors and tests for
impairment on a group of CGUs that is no bigger than the operational segments.
* Amortisation in the year includes a credit of £0.6m in respect of negative goodwill arising on the bargain purchase of acquisitions.
CVS Group plc
Annual Report 2018
67
Strategic reportGovernanceFinancial statements 12. Intangible assets continued
13. Property, plant and equipment
Veterinary Practices
Laboratories
Crematoria
2018
£m
63.7
2.1
2.6
68.4
2017
£m
42.1
2.1
2.6
46.8
Impairment tests
The pre-tax discount rate applied to the cash flow projections is derived from the Group’s post-tax weighted
average cost of capital after adjusting for tax. The risks relating to each of the CGUs are considered to be
the same as a result of the Group’s operations being entirely focused in the veterinary market and, as
such, the discount rate applied to each CGU is the same. The use of the Group’s weighted average cost of
capital is consistent with the valuation methodology used when determining the offer price for business
combinations and therefore is considered an appropriate discount rate. The Directors consider the growth
rate to be broadly consistent between CGUs; a 2.0% growth per annum in EBITDA has been assumed for
the purposes of assessing net present value of future cash flows, with EBITDA used as an approximation
to cash flow given the insignificant impact of working capital adjustments. The budget for the next
financial year is used as a basis for the cash flow projections. The growth rate used in the impairment
tests is based upon a prudent assessment of market-specific growth assumptions. Further details of the
impairment tests are disclosed in note 2.
Estimates are based on past experience and expectations of future changes to the market. Growth rate
forecasts are extrapolated based on estimated long-term average growth rates for the markets in which
the CGU operates (estimated at 2.0%). The pre-tax discount rate used to calculate value in use is 13.4% at
30 June 2018 (2017: 10.8%). These discount rates are derived from the Group’s post-tax weighted average
cost of capital.
Based on the results of the current year impairment review, no impairment charge has been recognised
by the Group in the year ended 30 June 2018 (2017: £nil).
Having assessed the anticipated future cash flows the Directors do not consider there to be any
reasonably possible changes in assumptions that would lead to such further impairment charges in the
year ended 30 June 2018. The 2% growth rate is considered the worst case scenario given growth rates
experienced in the veterinary market and therefore further sensitivity analysis is not required.
Group
Cost
At 1 July 2016
Additions arising through business
combinations (note 14)
Fair value adjustment in respect
of prior periods
Additions
Disposals
At 30 June 2017
Additions arising through business
combinations (note 14)
Additions
Disposals
At 30 June 2018
Accumulated depreciation
At 1 July 2016
Fair value adjustment in respect
of prior periods
Charge for the year
Disposals
At 30 June 2017
Charge for the year
Disposals
At 30 June 2018
Net book amount
At 30 June 2018
At 30 June 2017
At 1 July 2016
Freehold land
and buildings
£m
Leasehold
improvements
£m
Fixtures,
fittings and
equipment
£m
Motor
vehicles
£m
10.4
16.5
27.1
Total
£m
55.7
3.6
(0.4)
13.3
(0.4)
71.8
2.8
10.2
(0.3)
84.5
1.7
—
—
0.5
(0.2)
2.0
0.1
0.3
(0.2)
2.2
2.3
(0.2)
4.2
(0.2)
33.2
2.2
5.0
—
40.4
15.2
1.1
22.9
0.2
3.3
(0.1)
18.6
5.3
—
23.9
16.5
14.6
11.9
—
0.2
(0.1)
1.2
0.2
(0.2)
1.2
1.0
0.8
0.6
0.2
5.9
(0.2)
28.8
8.0
(0.2)
36.6
47.9
43.0
32.8
—
(0.6)
3.7
—
13.5
—
0.9
—
14.4
0.6
—
0.3
—
0.9
0.3
—
1.2
13.2
12.6
9.8
1.3
0.4
4.9
—
23.1
0.5
4.0
(0.1)
27.5
6.0
—
2.1
—
8.1
2.2
—
10.3
17.2
15.0
10.5
Freehold land amounting to £0.2m (2017: £0.2m) has not been depreciated.
68 CVS Group plc
Annual Report 2018
Financial statementsNotes to the consolidated financial statements continuedfor the year ended 30 June 2018
14. Business combinations
Details of business combinations in the year ended 30 June 2018 are set out below, in addition to an
analysis of post-acquisition performance of the respective business combinations, where practicable.
The reason for each acquisition was to expand the CVS Group business through acquisitions as explained
on pages 10 and 11.
Given the nature of the veterinary surgeries acquired 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 at the beginning of that year.
The table below summarises the assets acquired in the year ended 30 June 2018:
Property, plant and equipment
Patient data records and customer lists
Inventory
Deferred tax liability (note 22)
Trade and other receivables
Trade and other payables
Loans
Total identifiable assets
Goodwill
Total initial consideration paid (net of cash acquired)
Book value of
acquired assets
£m
Adjustments
£m
Fair value
£m
2.8
3.8
1.2
(0.2)
4.8
(4.0)
(2.3)
6.1
—
—
29.4
—
(6.2)
—
—
—
23.2
21.0
2.8
33.2
1.2
(6.4)
4.8
(4.0)
(2.3)
29.3
21.0
50.3
Goodwill recognised represents the excess of purchase consideration over the fair value of the identifiable
net assets. Goodwill reflects the synergies arising from the combination of the businesses; this includes
cost synergies arising from shared support functions and buying power synergies. Goodwill includes the
recognition of deferred tax in respect of the acquired patient data records and customer lists.
Post-acquisition revenue and post-acquisition EBITDA were £18.9m and £1.6m respectively. The post-
acquisition period is from the date of acquisition to 30 June 2018. Post-acquisition EBITDA represents the
direct operating result of practices from the date of acquisition to 30 June 2018 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 £1.7m for the
year and are included within other expenses in note 6 of the financial statements.
Name of business combination
Cundall & Duffy Veterinary Surgeons (trade and assets)
Maatschap Dierenkliniek Wolvega (trade and assets)
Strule Veterinary Services (trade and assets)
B&W Equine Group Limited
Aire Veterinary Centre Ltd
Diergeneeskundig Centrum Noord Nederland B.V.
All Creatures Veterinary Centre Limited
Acorn Veterinary Centre (trade and assets)
Three Valleys Veterinary Ltd
Dierenkliniek Vrieselaar (trade and assets)
BVCM Limited
Ashburn Veterinary Centre Limited
MSVets Limited
Ruddington and East Leake Veterinary Centre Limited
Victoria Veterinary Clinic Limited
Dierenartsenpraktijk NOP B.V.
Beaconvet Limited
Wessex Equine Limited
Maatschap De Boer & Waarsenburg (trade and assets)
Ashman Jones Vets (trade and assets)
The Equine Veterinary Centre (trade and assets)
Thompsons Vets Limited
Keown O’Neill Limited
Weighbridge Referral Service Limited
Maatschap Diernartsenpraktijk Schildwolde (trade and assets)
Maatschap Stelma Van Der Zijden (trade and assets)
Western Counties Equine Hospital Limited
Milfeddygon Bennett Williams (trade and assets)
Dierenkliniek De Tweesprong (trade and assets)
J R T Jones Veterinary Surgery (trade and assets)
Yoredale Vets Ltd
Troytown Greyabbey Equine Veterinary Services (trade and assets)
Date of acquisition
1 August 2017
3 August 2017
22 August 2017
11 September 2017
28 September 2017
3 October 2017
17 October 2017
19 October 2017
24 October 2017
26 October 2017
31 October 2017
14 November 2017
21 November 2017
30 November 2017
5 December 2017
7 December 2017
12 December 2017
13 December 2017
19 December 2017
30 January 2018
1 February 2018
5 February 2018
6 March 2018
15 March 2018
26 March 2018
4 April 2018
1 May 2018
10 May 2018
15 May 2018
19 June 2018
29 June 2018
29 June 2018
All businesses were acquired via 100% share purchase agreement unless indicated as such in the
table above.
CVS Group plc
Annual Report 2018
69
Strategic reportGovernanceFinancial statements 14. Business combinations continued
B&W Equine Group Limited
Property, plant and equipment
Patient data records
Inventory
Deferred tax liability
Trade and other receivables
Trade and other payables
Loans
Total identifiable assets
Goodwill
Total consideration paid
Book value of
acquired assets
£m
Adjustments
£m
Fair value
£m
1.4
0.7
0.2
(0.1)
1.4
(1.5)
(0.6)
1.5
—
—
4.2
—
(0.9)
—
—
—
3.3
4.1
1.4
4.9
0.2
(1.0)
1.4
(1.5)
(0.6)
4.8
4.1
8.9
Post-acquisition revenue and post-acquisition EBITDA for B&W Equine Group Limited were £5.1m and
£0.0m respectively. The post-acquisition period is from the date of acquisition to 30 June 2018.
Keown O’Neill Limited
Property, plant and equipment
Patient data records
Inventory
Deferred tax liability
Trade and other receivables
Trade and other payables
Loans
Total identifiable assets
Goodwill
Total consideration paid
Book value of
acquired assets
£m
Adjustments
£m
Fair value
£m
—
1.1
0.1
—
0.5
(0.7)
—
1.0
—
—
2.0
—
(0.5)
—
—
—
1.5
2.4
—
3.1
0.1
(0.5)
0.5
(0.7)
—
2.5
2.4
4.9
BVCM Limited
Property, plant and equipment
Patient data records
Inventory
Deferred tax liability
Trade and other receivables
Trade and other payables
Loans
Total identifiable assets
Goodwill
Total consideration paid
Book value of
acquired assets
£m
Adjustments
£m
Fair value
£m
0.1
—
0.1
—
0.5
(0.3)
(0.2)
0.2
—
—
1.9
—
(0.3)
—
—
—
1.6
1.9
0.1
1.9
0.1
(0.3)
0.5
(0.3)
(0.2)
1.8
1.9
3.7
Post-acquisition revenue and post-acquisition EBITDA for BCVM Limited were £1.2m and £0.3m
respectively. The post-acquisition period is from the date of acquisition to 30 June 2018.
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 2017.
Business combinations subsequent to the year end
Subsequent to the year end, the Group has made ten acquisitions which are summarised as follows:
• the trade and assets of Gilabbey Veterinary Hospital, a one-site practice based in Cork, Ireland,
on 26 July 2018;
• 100% of the Ordinary share capital of Slate Hall Veterinary Group, a four-site provider of services
and medicines based in Cambridge, Hereford and Metheringham, on 27 July 2018;
• 100% of the Ordinary share capital of Corner House Equine Clinic Limited, a two-site practice based
in Warwickshire and Romsley, on 31 July 2018;
• 100% of the Ordinary share capital of Endell Veterinary Group Limited, a four-site practice based in
Wiltshire and Hampshire, on 9 August 2018;
Post-acquisition revenue and post-acquisition EBITDA for Keown O’Neill Limited were £0.7m and £0.2m
respectively. The post-acquisition period is from the date of acquisition to 30 June 2018.
• 100% of the Ordinary share capital of Beechwood Veterinary Practice Limited, a one-site practice
based in Seaford, on 23 August 2018;
70 CVS Group plc
Annual Report 2018
• 100% of the Ordinary share capital of Vet Direct Holdings Limited (and its subsidiaries), a supplier
of veterinary equipment and consumables based in Newcastle-Upon-Tyne, on 30 August 2018;
• 100% of the Ordinary share capital of Artemis Veterinary Limited, a one-site practice based in
Carmarthen, on 4 September 2018;
• the trade and assets of Dierenkliniek Fischer, a one-site practice based in Bolsward, Netherlands,
on 6 September 2018;
• 100% of the Ordinary share capital of Arbury Road Vets Limited, a one-site practice based in Cambridge,
on 19 September 2018; and
• 100% of the Ordinary share capital of Briar Dawn Veterinary Centre Limited, a one-site practice based
in Manchester, on 26 September 2018.
Financial statementsNotes to the consolidated financial statements continuedfor the year ended 30 June 2018 14. Business combinations continued
Business combinations subsequent to the year end continued
These acquisitions were purchased for a total cash consideration of £35.1m. Assets acquired comprised
principally goodwill and intangible patient data records with a provisional fair value of £35.1m.
15. Investments
a) Available-for-sale financial assets
Available-for-sale financial assets, which are denominated in Sterling, consist of an investment in
managed investment funds.
The fair values of derivative financial instruments have been disclosed in the Group balance sheet as follows:
Group
Non-current
Interest rate swap arrangements –
cash flow hedges
Movements in fair values
2018
2017
Assets
£m
Liabilities
£m
Assets
£m
Liabilities
£m
0.2
—
0.1
—
The Group holds an investment in managed investment funds which have a quoted market price in an
active market and are accordingly measured at fair value. Gains and losses arising from changes in the
fair value are recognised directly in equity until the security is disposed of or deemed to be impaired.
Group
b) Shares in subsidiary undertakings
Company
Cost and net book amount
At 1 July 2016
Options granted to employees of subsidiary undertakings (note 11)
At 30 June 2017
Options granted to employees of subsidiary undertakings (note 11)
At 30 June 2018
£m
65.6
1.5
67.1
1.3
68.4
Fair value at 1 July 2016
Fair value gain through reserves – hedged
At 30 June 2017
Fair value gain through reserves – hedged
At 30 June 2018
17. Financial instruments
The principal subsidiary undertakings of CVS Group plc are set out in note 1.
16. Derivative financial instruments
Derivatives are used for hedging in the management of exposure to market risks. This enables the
optimisation of the overall cost of accessing debt capital markets, and the mitigation of the market
risk which would otherwise arise from movements in interest rates.
There is no material impact on the Group income statement resulting from hedge ineffectiveness.
There was no ineffective portion of cash flow hedges in 2018 (2017: £nil).
Cash flow hedges
On 6 December 2011, the Group entered into an interest rate swap arrangement limiting the Group’s
exposure to interest rate increases. At 30 June 2018 £40.0m of debt was hedged (2017: £45.0m); the
remainder of the debt was unhedged at the year end.
The Group classifies its interest rate swap arrangement as a cash flow hedge and utilises hedge
accounting to minimise income statement volatility in relation to movements in the value of the
swap arrangement.
The fair values of the Group’s interest rate derivatives are established using valuation techniques, primarily
discounted cash flows, based on assumptions that are supported by observable market prices or rates.
Group – assets as per
balance sheet
Available-for-sale
financial assets
Trade and other
receivables
(excluding
prepayments)
(note 19)
Cash and cash
equivalents
(note 26)
Derivative financial
instruments
(note 16)
Interest
rate swap
arrangements
£m
(0.1)
0.2
0.1
0.1
0.2
2018
2017
Derivative
instruments
in designated
hedge
accounting
relationships
£m
Loans and
receivables
£m
Available
for sale
£m
Total
£m
Derivative
instruments in
designated
hedge
accounting
relationships
£m
Loans and
receivables
£m
Available
for sale
£m
Total
£m
—
—
0.1
0.1
—
—
0.1
0.1
—
—
28.3
—
28.3
15.0
—
15.0
—
—
21.8
—
21.8
6.8
—
6.8
0.2
0.2
—
43.3
—
0.1
0.2
43.6
0.1
0.1
—
28.6
—
0.1
0.1
28.8
CVS Group plc
Annual Report 2018
71
Strategic reportGovernanceFinancial statements 17. Financial instruments continued
19. Trade and other receivables
Company – assets as per balance sheet
Trade and other receivables
(excluding prepayments)
(note 31)
Loans and
receivables
£m
2018
Available
for sale
£m
89.1
89.1
—
—
Loans and
receivables
£m
2017
Available
for sale
£m
31.2
31.2
—
—
Total
£m
89.1
89.1
2018
2017
Group – liabilities as per
balance sheet
Borrowings (note 21)
Trade and other payables
(excluding social security
and other taxes) (note 20)
Derivative
instruments
in designated
hedge
accounting
relationships
£m
—
—
—
Other
financial
liabilities
£m
Total
£m
(84.0)
(84.0)
(43.1)
(43.1)
(127.1)
(127.1)
Derivative
instruments in
designated
hedge
accounting
relationships
£m
Other
financial
liabilities
£m
—
—
—
(106.8)
(106.8)
(38.7)
(38.7)
(145.5)
(145.5)
Total
£m
31.2
31.2
Total
£m
Trade receivables:
Within their due period
Past due (between one and six months old):
Not impaired
Fully impaired
Total trade receivables
Less: provision for impairment of receivables
Trade receivables – net
Amounts owed by Group undertakings (note 31)
Other receivables
Prepayments
Accrued income
Group
2018
£m
10.8
6.3
5.2
22.3
(5.2)
17.1
—
4.6
9.9
6.6
38.2
Group
2017
£m
Company
2018
£m
Company
2017
£m
8.2
4.4
3.2
15.8
(3.2)
12.6
—
3.6
9.1
5.6
30.9
—
—
—
—
—
—
89.1
—
—
—
89.1
—
—
—
—
—
—
31.2
—
—
—
31.2
Group
The carrying amount of trade and other receivables is deemed to be a reasonable approximation to fair
value. The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable
above. The Group does not hold any collateral as security. The Group’s trade and other receivables are
denominated in Sterling.
A provision for impairment is established based on historical experience. The amount of the provision
was £5.2m (2017: £3.2m). The individually impaired receivables relate mainly to individual customers who
are in unexpectedly difficult economic situations. These amounts continue to be legally pursued for collection
notwithstanding they are provided against. Movements on the Group’s provision for impairment of trade
receivables are as follows:
At the beginning of the year
Charged to the income statement within administrative expenses
At the end of the year
Other receivables do not contain impaired assets.
2018
£m
3.2
2.0
5.2
2017
£m
2.5
0.7
3.2
Company
Amounts owed by Group undertakings are unsecured, interest free and repayable on demand.
18. Inventories
All inventories are goods held for resale. The Directors do not consider the difference between the
purchase price of inventories and their replacement cost to be material.
72 CVS Group plc
Annual Report 2018
Financial statementsNotes to the consolidated financial statements continuedfor the year ended 30 June 2018
20. Trade and other payables
Current
Trade payables
Social security and other taxes
Other payables
Accruals
Group
2018
£m
31.3
10.8
2.8
9.0
53.9
Group
2017
£m
24.5
9.6
2.8
11.3
48.2
Company
2018
£m
Company
2017
£m
—
—
—
—
—
—
—
—
—
—
The carrying amount of trade and other payables is deemed to be a reasonable approximation to fair value.
The maximum exposure to credit risk at the reporting date is the fair value of each class of payable above.
The Group does not hold any collateral as security. The Group’s trade and other payables are denominated
in Sterling.
21. Borrowings
Borrowings comprise bank loans and hire purchase agreements and are denominated in Sterling.
The repayment profile is as follows:
fluctuations in interest rates on £45.0m of its RCF facility. The swap reduced to £40.0m on 1 March 2018,
followed by a further reduction to £35.0m on 1 March 2019.
At the balance sheet date £40.0m of the term loan was hedged using an interest rate swap. The remainder
of the debt is not hedged.
Undrawn committed borrowing facilities
At 30 June 2018 the Group has a committed overdraft facility of £5.0m (2017: £5.0m) and an RCF of £85.0m
(2017: £47.5m). The overdraft facility was undrawn at 30 June 2018 and 30 June 2017. £68.0m of the RCF
was undrawn at 30 June 2018 (2017: £10.5m).
22. Deferred income tax
Deferred income tax assets comprised:
Group
Tax effect of temporary differences:
Share-based payments
Losses
2018
£m
0.5
0.1
0.6
2017
£m
2.0
0.1
2.1
Group
Within one year or on demand
Between one and two years
After more than two years
2018
£m
0.5
0.1
83.4
84.0
2017
£m
3.3
—
103.5
106.8
The Group’s deferred tax assets have been recognised based on historical performance and future budgets.
The Directors believe that it is probable that there will be sufficient taxable profits against which the assets
will reverse.
Deferred income tax liabilities comprise the excess of qualifying depreciation and amortisation over
tax allowances:
The balances above are shown net of issue costs of £1.0m (2017: £1.1m), 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.
Group
Tax effect of temporary differences:
Excess of qualifying depreciation and amortisation
In September 2018 the Group increased its available bank facilities through exercising the accordion
contained within the November 2015 bank facility agreement. Total facilities of £190.0m are available
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, and comprise the following elements:
• a fixed term loan of £95.0m, repayable on 23 November 2021 via a single bullet repayment; and
• a six-year revolving credit facility (“RCF”) of £95.0m that runs to 23 November 2021.
In addition the Group has a £5.0m overdraft facility renewable annually.
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 3.0. 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 twelve months’ performance adjusted for the full year impact of acquisitions made
during the period.
Interest rate risk is also managed centrally and derivative instruments are used to mitigate this risk.
On 1 March 2017, the Group entered into a three-year interest rate fixed swap arrangement to hedge
The movement in the net deferred income tax liabilities is explained as follows:
Group
Share-based payments
Unutilised tax losses carried forward
Excess of qualifying depreciation
and amortisation over capital
allowances
At 1 July
2017
£m
2.0
0.1
(16.8)
(14.7)
(Charged)/
credited to
income
statement
£m
Deferred tax
gross up on
acquisitions
£m
Credited to
statement of
changes in
equity
£m
(1.0)
—
3.4
2.4
—
—
(6.4)
(6.4)
(0.5)
—
—
(0.5)
At 30 June
2018
£m
0.5
0.1
(19.8)
(19.2)
CVS Group plc
Annual Report 2018
73
2018
£m
19.8
19.8
2017
£m
16.8
16.8
Strategic reportGovernanceFinancial statements
22. Deferred income tax continued
At 1 July
2016
£m
1.7
0.1
(14.6)
(12.8)
Group
Share-based payments
Unutilised tax losses carried forward
Excess of qualifying depreciation
and amortisation over capital
allowances
The deferred tax balance is non-current.
23. Share capital
(Charged)/
credited to
income
statement
£m
Deferred tax
gross up on
acquisitions
£m
Credited to
statement of
changes in
equity
£m
(1.6)
—
3.3
1.7
—
—
(5.5)
(5.5)
Issued and fully paid
70,334,204 (2017: 63,903,911) Ordinary shares of 0.02p each
25. Share premium
During the previous financial year the Group established an Employee Benefit Trust (“EBT”) for the
purposes of satisfying the exercise of certain share options vesting under the Group’s LTIP and SAYE
schemes. The Group has accounted for the purchase of the shares held by the EBT as treasury shares
and has deducted these from reserves.
26. Analysis of movement in net debt
Group
Cash and cash equivalents
Borrowings – current
Borrowings – non-current
Net debt
At 1 July
2017
£m
6.8
(3.3)
(103.5)
(100.0)
Cash flow
£m
Non-cash
movement
£m
At 30 June
2018
£m
8.2
5.9
20.1
34.2
—
(3.1)
(0.1)
(3.2)
15.0
(0.5)
(83.5)
(69.0)
Non-cash movements comprise amortisation of issue costs on bank loans, new finance lease obligations,
bank debt acquired and transfers between categories of borrowings. Cash and cash equivalents comprise
cash at bank and in hand.
27. Cash flow generated from operations
At 30 June
2017
£m
2.0
0.1
(16.8)
(14.7)
2017
£m
0.1
1.9
—
—
1.9
2018
£m
0.1
During the year, 243,205 shares were issued for consideration of £486 in respect of the vesting of LTIP8,
and 605,693 shares were issued for consideration of £1,875,521 in respect of SAYE7, SAYE8 and SAYE9.
5,581,395 shares were issued in February 2018 for consideration of £59,067,960 following a placing.
Details of shares under option are provided in note 11 to the financial statements.
The authorised share capital of the Company is 352,000,000 Ordinary shares of 0.2p each.
Dividends
The Directors have proposed a final dividend of 5.0p (2017: 4.5p) per share, total: £3.5m (2017: £2.9m),
payable on 7 December 2018 to shareholders on the register at the close of business on 23 November
2018. The dividend has not been included as a liability as at 30 June 2018. During the year a dividend of
4.5p per share amounting to £2.9m was paid.
24. Revaluation reserve
The revaluation reserve is used to record any surplus following a revaluation of property, plant and
equipment. The revaluation reserve arose on the revaluation of a property in the subsidiary undertaking
Precision Histology International Limited. The revaluation reserve is not a distributable reserve until realised.
Profit/(loss) for the year
Taxation
Total finance costs
Amortisation of intangible assets
Depreciation of property, plant and equipment
Decrease/(increase) in inventories
(Increase) in trade and other receivables
Increase in trade and other payables
Share option expense
Total net cash flow generated from operations
Group
2018
£m
10.7
3.4
3.6
18.4
8.0
0.3
(4.9)
5.9
1.3
46.7
Group
2017
£m
11.5
3.0
2.7
16.0
5.9
(1.5)
(4.5)
2.6
1.5
37.2
Company
2018
£m
Company
2017
£m
(0.2)
—
—
—
—
—
(59.1)
—
1.3
(58.0)
(0.2)
—
—
—
—
—
(27.7)
—
1.5
(26.4)
74 CVS Group plc
Annual Report 2018
Financial statementsNotes to the consolidated financial statements continuedfor the year ended 30 June 2018 28. Guarantees and other financial commitments
Capital commitments
The Group had no capital commitments as at 30 June 2018 (2017: £nil).
Bank guarantees
The Company is a member of the Group banking arrangement, under which it is party to unlimited
cross guarantees in respect of the banking facilities of other Group undertakings, amounting to £98.0m
at 30 June 2018. The Directors do not expect any material loss to the Company to arise in respect
of the guarantees.
31. Related party transactions
Directors’ and key management’s compensation is disclosed in note 8.
Company
During the year the Company had the following transactions with CVS (UK) Limited:
Recharge of expenses incurred by CVS (UK) Limited on behalf of the Company
Cash advanced to fund payment of dividend
2018
£m
(0.2)
(2.9)
2017
£m
(0.2)
(2.1)
29. Operating lease commitments
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
The following balances were owed by related companies:
Not later than one year
Later than one year and
not later than five years
Later than five years
Total
2018
Plant and
machinery
£m
0.8
1.3
0.2
2.3
Property
£m
11.0
27.6
14.0
52.6
2017
Plant and
machinery
£m
0.8
1.2
—
2.0
Property
£m
10.1
27.5
15.6
53.2
Total
£m
11.8
28.9
14.2
54.9
Total
£m
10.9
28.7
15.6
55.2
Operating lease commitments primarily represent rentals payable by the Group in respect of its veterinary
practices and office premises.
30. Pension schemes
The Group contributes to certain employees’ personal pension schemes in accordance with their service
contracts. The amounts are charged to the income statement as they fall due. The amounts charged during
the year amounted to £1.8m (2017: £1.1m). The amount outstanding at the end of the year included in trade
and other payables was £0.5m (2017: £0.2m).
CVS (UK) Limited
2018
2017
Receivable
£m
89.1
Payable
£m
—
Receivable
£m
31.2
Payable
£m
—
Amounts owed by CVS (UK) Limited are unsecured and interest free and have no fixed date of repayment.
Transactions with Directors and key management
Annual market-based rent payable to the spouse of S Innes for the rental of premises amounts to £0.1m
(2017: £0.1m), of which £0.1m (2017: £0.1m) was paid in the year.
During the year the following dividends were paid to the Directors: R Connell £4,500; M McCollum £3,481;
S Innes £11,091; and N Perrin £1,440. Dividends were also paid to the spouse of S Innes and the spouse
of R Connell of £259 and £96 respectively.
Ultimate controlling party
The Directors consider there is no ultimate controlling party.
CVS Group plc
Annual Report 2018
75
Strategic reportGovernanceFinancial statements 2018
£m
327.3
151.6
17.7
(3.6)
14.1
(3.4)
10.7
47.6
36.0
46.7
(10.7)
(50.3)
(3.1)
(6.2)
(3.1)
(0.4)
61.0
—
(2.9)
31.0
69.0
Pence
16.0
42.4
2017
£m
271.8
124.5
17.2
(2.7)
14.5
(3.0)
11.5
42.1
33.5
37.2
(13.8)
(46.9)
(1.5)
(5.4)
(2.1)
(0.8)
30.6
(2.1)
(2.1)
(6.9)
100.0
Pence
18.5
42.8
2016
£m
218.1
105.9
11.8
(2.7)
9.1
(2.1)
7.0
32.8
24.9
33.6
(11.5)
(53.5)
(7.8)
(3.3)
(2.4)
(0.4)
0.2
—
(1.8)
(46.9)
93.1
Pence
11.6
32.4
2015
£m
167.3
79.1
9.8
(1.3)
8.5
(1.7)
6.8
23.0
18.2
22.2
(6.5)
(21.1)
(4.2)
(2.3)
(1.3)
(0.5)
0.3
—
(1.5)
(14.9)
46.2
Pence
11.6
24.7
2014
£m
142.9
65.2
7.5
(1.2)
6.3
(1.5)
4.8
18.3
14.3
20.7
(5.3)
(12.4)
—
(2.5)
(1.2)
—
0.5
—
(1.1)
(1.3)
31.3
Pence
8.3
19.0
Five-year history
Revenue
Gross profit
Operating profit
Finance expense
Profit before tax
Income tax expense
Profit for the year
EBITDA
Adjusted EBITDA
Adjusted profit before income tax
Cash generated from operations
Capital expenditure
Acquisitions
Loans and borrowings acquired through business combinations
Taxation paid
Interest paid
Amortisation of debt issue costs
Proceeds from Ordinary shares
Purchase of own shares
Dividends paid
Reduction/(increase) in net debt
Year-end net debt
Basic earnings per share
Adjusted basic earnings per share
76 CVS Group plc
Annual Report 2018
Financial statements Contact details and advisors
Registered office
CVS House
Owen Road
Diss
Norfolk
IP22 4ER
Nominated advisor and broker
N+1 Singer
One Bartholomew Lane
London
EC2N 2AX
Company Secretary
R Gilligan
Bankers
NatWest Bank Plc
12 High Street
Southampton
SO14 2BF
Royal Bank of Scotland Plc
36 St Andrew Square
Edinburgh
EH2 2YB
HSBC Bank Plc
8 Canada Square
London
E14 5HQ
Independent auditor
Deloitte LLP
1 Station Square
Cambridge
CB1 2GA
Legal advisors
Blake Morgan LLP
New Kings Court, Tollgate
Eastleigh
Hampshire
SO53 3LG
Leathes Prior
74 The Close
Norwich
NR1 4DR
DLA Piper UK LLP
Victoria Square House
Victoria Square
Birmingham
B2 4DL
CVS Group plc is committed to the environmental issues reflected in
this Annual Report. The report is printed on Novatech Silk, which is FSC®
certified and ECF (Elemental Chlorine Free). Printed in the UK by Pureprint
using its environmental printing technology. Both manufacturing mill and
the printer are registered to the Environmental Management System ISO 14001
and are Forest Stewardship Council® (FSC) chain-of-custody certified.
Group plc
Passionate about animal care
Group plc
Passionate about animal care
CVS Group plc
Group plc
Passionate about animal care
Group plc
Passionate about animal care
CVS House
Owen Road
Diss
Norfolk
IP22 4ER
Group plc
Passionate about animal care
Group plc
Passionate about animal care
Group plc
Passionate about animal care
Group plc
Passionate about animal care
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