CVS
CVS
CVS
CVS
GROUP PLC
GROUP
Passionate about animal care
Passionate about animal care
GROUP PLC
Passionate about animal care
Annual Report and
Financial Statements
For the year ended 30 June 2019
Contents
Strategic report
3
Financial highlights
4 CVS at a glance
6 Chairman’s statement
12 Our market
14 Our business model
16 Our strategic priorities
18 Key performance indicators
20 Our business
26 Business review
30 Our culture and values
32 Principal risks and uncertainties
38 Finance review
Governance
Financial statements
42
Board of Directors and Company
Secretary
44 Corporate governance statement
48 Remuneration Committee report
56 Directors’ report
60 Independent auditor’s report
66 Consolidated income statement
67
Consolidated statement of
comprehensive income
68
Consolidated and Company
statement of financial position
69
Consolidated statement of
changes in equity
70
Company statement of changes in
equity
71
72
Consolidated and Company
statement of cash flow
Notes to the consolidated financial
statements
105 Five-year history
106 Contact details and advisors
We are committed to providing the
highest levels of clinical care to our
patients and their owners through our
integrated veterinary model.
Financial highlights
Revenue (£m)
£406.5m
+24.2%
Adjusted EBITDA¹ (£m)
£54.5m
+14.5%
19
18
17
16
406.5
327.3
271.8
218.1
19
18
17
16
54.5
47.6
42.1
32.8
Adjusted profit before tax² (£m)
Adjusted earnings per share³ (p)
£41.4m
+15.0%
46.7p
+10.1%
19
18
17
16
41.4
36.0
19
18
17
16
33.5
24.9
32.4
46.7
42.4
42.8
Proposed dividend per share (p)
Cash generated from operations (£m)
5.5p+10.0%
19
18
17
16
5.5
5.0
4.5
3.5
£52.1m
+11.6%
19
18
17
16
46.7
37.2
33.6
52.1
Profit before tax (£m)
£11.7m
-17.0%
Basic earnings per share (p)
11.6p
-27.5%
19
18
17
16
11.7
14.1
14.5
9.1
19
18
17
16
11.6
11.6
16.0
18.5
CVS GROUP PLC
Annual Report and Financial Statements 2019
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Adjusted financial measures are defined below and reconciled to the financial measures defined
by International Reporting Standards (“IFRS”) on page 38 and 89 (adjusted profit before tax and
adjusted earnings per share).
1. Adjusted EBITDA (earnings before interest,
tax, depreciation and amortisation) is profit
before income tax adjusted for interest (net
finance expense), depreciation, amortisation,
costs relating to business combinations, and
exceptional items.
2. Adjusted profit before tax is calculated as
profit before amortisation, taxation, costs
relating to business combinations, and
exceptional items.
3. Adjusted earnings per share is calculated
as adjusted profit before income tax less
applicable taxation divided by the weighted
average number of Ordinary shares in issue in
the year.
5. Adjusted EBITDA is used as a financial metric
that removes the cost of debt, cost relating to
assets and one off costs to get a normalised
number that is not distorted by irregular items
or structural investment.
4. Percentage increases have been calculated
throughout this document based on the
unrounded values.
CVS GROUP PLC
Annual Report and Financial Statements 2019
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CVS at a glance
CVS at a glance continued
We are continuing to expand our European coverage with
further acquisitions in the Netherlands and in the Republic
of Ireland
The Group has four main business areas:
Veterinary Practices
Laboratories
88.0%
revenue
share*
4.8%
revenue
share*
First-opinion and referral practices providing
specialist treatment for companion animals, equine
and farm animals.
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
schemes called Healthy Pet Club (“HPC”) and Healthy Horse
Programme (“HHP”). We also have a number of own brand
MiPet medicines and products.
P20 Veterinary Practices review
Our laboratories provide diagnostic services to CVS
veterinary practices and third parties.
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
our customer expectations.
P21 Laboratories review
Crematoria
Animed Direct
1.7%
revenue
share*
5.5%
revenue
share*
Our crematoria provide pet cremation and clinical
waste services to our practices and third-party
practices and directly to pet owners.
Our on-line pharmacy and retail business sells
prescription and non-prescription medicines, pet
food and other animal related products.
Our business in action
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.
P22 Crematoria review
* Revenue share before intercompany sales between
practice and other divisions.
CVS GROUP PLC
Annual Report and Financial Statements 2019
4
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.
Save for MiPet products which are exclusively sold in practice,
we offer 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.
P23 Animed review
*
Our geographical coverage (as at the date of this report)
Our acquisitions have further strengthened our geographical coverage in 2019.
x510
x7
x4
1
Scotland & North East
61 veterinary practices
3 crematoria
2
Northern Ireland
13 veterinary practices
3
North West
44 veterinary practices
2 crematoria
4
Yorkshire
22 veterinary practices
5
East Midlands
42 veterinary practices
6
West Midlands
2
43 veterinary practices
7
East of England
12
46 veterinary practices
1 laboratory
8
South West & Wales
75 veterinary practices
1 crematorium
1 laboratory
9
South East
131 veterinary practices
1 crematorium
2 laboratories
10
London
2 veterinary practices
11
The Netherlands
25 veterinary practices
12
The Republic of Ireland
6 veterinary practices
1
3
6
1
4
5
8
7
8
10
9
11
CVS GROUP PLC
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Chairman’s statement
Chairman’s statement continued
A significant improvement in half two performance
facilitate a further increase in our ability to undertake direct
supply of drugs to our practices and will allow us to further
expand our own brand drug range.
Revenue from Animed Direct, our on-line dispensary and
retailer, increased by 24.3% in the year to £23.3m (2018:
£18.8m). The new warehouse management system will also
support the further expansion of our product range in Animed
Direct and help deliver improvements in margins.
Our Laboratory division continues to focus on the provision
of in-house analysers and re-agents to CVS and private
practices and in the provision of a full range of pathology
tests on samples taken from patients. New equine and farm
tests are being developed in support of our first opinion
practices. We continue to invest in our pet Crematoria
division with a new Equine cremator being installed in our
Whitley Brook crematorium and a planned redevelopment of
our Greenacres crematorium in order to increase capacity.
We will continue to seek opportunities to acquire further
laboratory and crematoria businesses in support of our non-
UK businesses in Ireland and the Netherlands.
In August 2018 we acquired Vet Direct, an equipment and
consumables supply business which provides a one-stop
shop for CVS and private practices. We will seek to expand
the Vet Direct product range and have now folded our
existing Vetisco instruments business into Vet Direct.
Organic growth from our existing businesses will be
supported by selective acquisitions where the Board is
confident that appropriate returns can be achieved. We
continue to maintain a pipeline of acquisition opportunities.
Our people
CVS now employs 6,548 staff (2018: 6,150) including 75
specialists (2018: 57), 1,829 veterinary surgeons (2018:
1,460) and 2,376 nurses (2018: 2,041).
Our staff are at the heart of our business and we are
committed to investing in their continued development and
well being. Our culture and values drive our business and
success through our people is a core value. Further details on
our culture and values are set out on page 30.
We recruited Professor Renate Weller in October 2018 to
lead our learning, education and development programme
with our goal being to ensure that all staff have access to
the clinical and non-clinical training and support they need.
We are committed to providing all staff with opportunities to
progress, whether in advancing their clinical education and
experience, or in developing leadership opportunities within
the business.
Our staff are at the heart
of our business and we are
committed to investing in their
continued development and
well being.
Highlights
Our integrated veterinary platform gives CVS a
strong base on which to deliver future growth
Organic growth from our existing business will
be supported by selective acquisitions where
the board is confident that appropriate
returns can be achieved
£52.1m
cash generated
from operations
£406.5m
revenue in 2019
Our integrated veterinary platform gives CVS a strong base
from which to deliver future growth. Our core first opinion
and referrals practices enable us to provide the highest
levels of end to end clinical care. We have seen significant
growth in the financial year from our Referrals business with
revenues increasing by 21.6% to £22.5m (2018: £18.5m).
This reflects our success in recruiting a number of additional
specialists and in increasing the number of referral cases.
We are focused on delivering further growth in our referrals
business in the coming year. We have launched a new
referrals website to make it easier for first opinion veterinary
surgeons to refer cases by putting them in touch with our
growing list of specialists and allowing them access the most
appropriate specialist care.
We will continue to promote our Healthy Pet Club as a means
to providing the highest levels of preventative medicine.
We had 401,000 members at 30 June 2019 an increase of
10.8% in the year (2018: 362,000). We have also launched a
Healthy Horse Programme which had 7,000 members at 30
June 2019 (2018: 3,000).
Through the above focus in both our first opinion and
referrals practices we are able to offer our clients and
patients an increasing level of clinical care. This naturally
results in advanced clinical procedures, better outcomes for
our patients and a resulting increase in average transaction
values.
We have 22 specialist out-of-hours centres in operation
following the opening of three new sites in the financial year.
We have plans in place to open a further eight sites in the
next twelve months to provide dedicated round the clock care
to both CVS and private practices.
We launched our own brand MiPet medicines for small
animal practices in 2013 and these now account for 25% of
our small animal drug sales. We also launched our first own
label Equine product in July 2019. We are investing in a new
warehouse management system at our Diss offices which will
go live in the second half of the new financial year. This will
Richard Connell
Non-Executive Chairman
The Group delivered a significant improvement
in financial performance in the second half of the
financial year following a disappointing first half.
A number of actions have been taken to address
performance and I am confident that CVS is well
positioned for future growth and a continued
restoration of shareholder value.
Financial performance
We generated revenue for the year of £406.5m, a 24.2%
increase over the prior year (2018: £327.3m). This increase
reflected a number of acquisitions in the first half of the
financial year coupled with robust like-for-like sales growth of
5.2% for the Group as a whole (2018: 4.9%) and 4.3% in our
veterinary Practices (2018: 3.0%).
Adjusted EBITDA increased by 14.5% to £54.5m (2018:
£47.6m) reflecting a stronger second half of the year.
Adjusted EPS increased by 10.1% to 46.7p (2018: 42.4p).
Cash generated from operations increased by 11.6% to
£52.1m (2018: £46.7m). Profit before tax decreased by 17.0%
to £11.7m (2018: £14.1m) due to increased amortisation. Basic
EPS decreased by 27.5% to 11.6p (2018: 16.0p).
CVS finished the year with net debt of £102.0m (2018:
£69.0m) and leverage of 2.08x (2018: 1.44x).
Strategic priorities and growth initiatives
We have a number of opportunities to develop the business
and generate enhanced shareholder value as set out on pages
12 and 13 ‘Our market’, pages 14 and 15 ‘Our business model’
and pages 16 and 17 ‘Our strategic priorities’. Risks which we
have identified and our approach to mitigating these are set
out on pages 32 to 36.
The Board remains confident that our business model is
resilient and sustainable.
CVS GROUP PLC
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CVS GROUP PLC
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Chairman’s statement continued
Case Study - Learning, Education and Development
We have introduced our new education strategy
The pace of growth in the UK economy may be impacted by
Brexit uncertainty, but the veterinary sector has proven to
be resilient in past periods of economic downturn and the
Board believes CVS is sufficiently resilient to withstand any
potential future downturn.
The performance of the business was considerably improved
in the second half of the financial year and the Board is
confident that the Group is well placed to deliver further
enhancement in shareholder value in the forthcoming
financial year.
I would like to thank all of our colleagues for their
contribution to the past financial year. Their professionalism,
dedication and commitment to providing the highest levels
of clinical care to our customers and their animals forms the
heart of our business. I look forward to working with them to
continue the successful growth of CVS in the future.
Richard Connell
Non-Executive Chairman
27 September 2019
Our people continued
We have launched a new wellbeing and mental health
awareness programme in support of our staff with on-site
support provided through trained mental health workplace
champions.
One of the key structural issues facing the veterinary
profession in the UK has been the shortage of vets and
nurses, as illustrated with CVS vet vacancy rates peaking
at 12.5% in the previous financial year. We are pleased
that the Home Office has accepted the Migration Advisory
Committee’s proposal to reinstate the veterinary surgeon on
the UK’s Shortage Occupation List and this should in time
improve the supply of overseas vets in the UK. CVS has taken
a number of actions to improve its own vacancy rate and we
are encouraged by the improvement seen in the second half
of the financial year with vet vacancy rates averaging 8.4% in
that period. We will continue to invest in our people and our
existing practices in order to position CVS as the veterinary
employer of choice.
Board Governance
We review the Board composition and effectiveness regularly
and are committed to ensuring we have the right balance of
skills and experience within the Board.
During the year we made one change with Richard Fairman
joining the Board in August 2018 and replacing Nick Perrin as
Chief Financial Officer at the end of September 2018.
In September 2018 we adopted the FRC’s UK Corporate
Governance Code and will continue to promote best practice.
Shareholder engagement
The Board as a whole, and the Chairs of the Audit and
Remuneration Committees continue to consult with
shareholders on key matters. We were delighted to host a
number of our major shareholders at our Lumbry Park referral
hospital in July 2019.
Dividends
It is proposed to pay a dividend of 5.5p per share in December
2019, a 10.0% increase on the 5.0p per share paid in 2018.
The financial performance of the business and its strong cash
generation support an increase in dividends whilst enabling
the Group to retain sufficient funds for further investment in
the business.
Outlook
CVS operates in a sector with favourable market and
consumer trends, with pet owners increasingly willing to
spend money on their pets and medical enhancements
increasing the range of services we can offer.
Despite continued uncertainty over Brexit with the
potential for a “hard” Brexit increasingly likely, the Board
is confident that CVS is well positioned to avoid significant
adverse impacts from the UK’s decision to exit the EU.
Pharmaceutical manufacturers and wholesalers are
increasing their stock levels in order to reduce the risk of
supply shortages and following the acquisition of Vet Direct,
CVS now controls more of its equipment and consumables
supplies.
CVS increases focus on Learning, Education and
Development through the launch of a new Framework
Professor Renate Weller, RCVS Specialist in Diagnostic
Imaging, joined CVS as Director of Education in 2018. She and
her Learning, Education and Development (“LED”) team have
built a LED framework that supports seamless individualised
professional development for all of our colleagues.
The multi-path framework is based on the principle of
structured options that enable colleagues to choose a
progressive pathway that works for them personally as well
as for CVS commercially.
Consisting of three skill tiers: Essentials, Intermediate and
Advanced, the framework accommodates individuals at a
level appropriate to their current experience. This gives us
the flexibility to tailor a programme to meet individuals’
learning needs and makes it easy for people to integrate
with CVS regardless of their background and experience. Its
structure also supports those returning to work following a
career break.
The framework includes eight topical pathways based on the
skills, knowledge and attributes needed to build a successful
veterinary business. This means colleagues can focus
on different areas that they wish to explore. Our topical
pathways are: Clinical Care, Business Management, Customer
Care, Learning, Education and Development, Pastoral Care,
Quality Improvement and Support Services.
At CVS, we believe that effective leadership is key to success
and we offer the opportunity to develop leadership skills
alongside whichever topical pathway colleagues choose to
follow.
Learning opportunities are packaged in modules to ensure
we deliver a dynamic offering that adapts to evolving needs,
both in terms of personal and professional development
of the individual and the changing demands of our
business too, while providing a clearly structured and
sustainable approach. This enables effective career and
talent management on a personal basis while fulfilling the
requirements of the business.
Delivery of learning opportunities follow a blended model
approach by employing a combination of face-to-face and
mobile learning. CVS’s existing face-to-face course portfolio
will be expanded and augmented by a new purpose built
virtual learning platform that will go live in autumn 2019.
This will allow CVS colleagues to not only choose from a
range of topics but to personalise how they learn to suit
their circumstances too. In addition to maximising learner
engagement this will ultimately optimise learning outcomes
to the benefit of the learner, the business and importantly,
the animals under our care.
Professor Renate Weller
Director of Education
CVS GROUP PLC
Annual Report and Financial Statements 2019
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CVS GROUP PLC
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Celebrating 20 years of CVS
CVS GROUP PLC
Annual Report and Financial Statements 2019
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CVS GROUP PLC
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Our market
Our market continued
Our market opportunities
Market opportunities
Maximising revenues
Our integrated services model
Industry update
• Increasing consumer spend on veterinary care
• Continued consolidation by corporate operators
• Significant investment in veterinary services market
• Advancement of corporate model in the Netherlands and
the Republic of Ireland
• Opportunities to extend service offering to meet all of our
customers’ needs, for example further expansion of our
specialist out-of-hours services
• Continued expansion of our referral centres
Our strategic response
Our strategic response
• Continue to provide the highest levels of clinical care
• Organic growth from our existing business
• Continue to acquire practices where they meet our criteria
• Further expansion in the Netherlands and the Republic of
Ireland
• Continue to maintain strong cash flow and a healthy
Consolidated and Company statement of financial position
to support development and growth
• Further investment in core business activities
• In the UK the small animal market is advanced in terms of
corporate consolidation
• Consolidation of the UK veterinary market continues
apace
• Integrated model is at an early stage of development in
the Netherlands and the Republic of Ireland
• Consolidation of the Netherlands market is in its early
stages
Our strategic response
• Continuing development of referral services
• Introduction of more own brand products
• Growth and development of the Healthy Pet Club and
Healthy Horse programme
• Development of greenfield locations and relocations of
existing practices
• 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
CVS GROUP PLC
Annual Report and Financial Statements 2019
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CVS GROUP PLC
Annual Report and Financial Statements 2019
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Our business model
What sets us apart?
Our commitment is to provide the highest levels
of clinical care to our patients and their owners
through our integrated model, together with
expanding our opportunities in the Netherlands and
the Republic of Ireland, whilst providing increasing
returns to our shareholders.
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 pet insurance. Our business model
focuses on creating value through the provision of integrated
services and the best customer care.
P30 Our culture and values
Our business model continued
Our business model is underpinned
by our core values
Geographic coverage
510 surgeries
Passionate people
6,548 staff
Customer
focus
Success through
our people
Commitment
to excellence
Honesty
and integrity
As at the date of this report we have 510
surgeries, four laboratories and seven
crematoria providing coverage of England,
Scotland, Wales, the Netherlands, Northern
Ireland and the Republic of Ireland.
High quality clinical care and facilities
57 veterinary diploma holders
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.
Customer focus
401,000 Healthy Pet Club Members
Our staff are dedicated to providing a quality
service with the highest levels of customer
and clinical care.
We employ dedicated and trained professionals who
are committed to excellent clinical care.
Integrated services
22 specialist out-of-hours 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.
Financial strength
£54.5m Adjusted EBITDA
We continue to deliver growth in revenues, adjusted
EBITDA and operating cash flow.
Geographic
coverage
Financial
strength
Passionate
people
CVS
High quality
clinical
care and
facilities
Integrated
services
Customer
focus
Forming relationships with and creating value for...
Customers
Shareholders
Colleagues
Suppliers
Community
We continue to
focus on the creation
of shareholder value.
We aim to meet
all our customers’
needs with an
increased focus
in both our first
opinion and referral
practices we are
able to offer our
clients and patients
an increasing level of
clinical care.
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.
We aim to foster
successful long term
relationships with
our key suppliers
built on a foundation
of trust.
Our nominated
charities of the year
for 2019 are Street
Vet and Redwings
Horse Sanctuary.
We encourage our
practices to engage
with the community
to support both our
nominated charities
of the year and local
charities which helps
foster relationships
between us and the
local communities.
CVS GROUP PLC
Annual Report and Financial Statements 2019
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CVS GROUP PLC
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Our strategic priorities
Our strategic priorities continued
We are progressing towards our goals
358
graduate vets in
three years
31
clinical
pathologists
employed
510
surgeries
401,000
members
of HPC
scheme
34
surgeries
acquired in the
year
4
surgeries
acquired since
the year end
18
high quality
own brand
products
247,000
tests performed
by our labs for
third parties
i) Excellent customer service and care
ii) Meeting all of our customers’ needs
iii) Expanding our business
iv) Building on our strengths to provide services to
How we performed
How we performed
• 57 of our vets are diploma holders, the highest recognised
qualification
• A further 153 vets have been recruited in our graduate
programme during the year bringing the total to 358 over a
three-year period. A further 104 have already signed up for
the 2019/20 course
• 180 nurses have enrolled on our new Nursing Excellence
Award run by the Royal Veterinary College
• 31 clinical pathologists are employed in our Laboratories
Division
Our focus
• We own 510 surgeries across the UK (479), the Netherlands
(25) and the Republic of Ireland (6) four laboratories and
seven crematoria
• There are 401,000 members in our HPC scheme
• We invested £3.6m in relocating and developing our
surgeries to improve facilities
• We operate eight specialist referral centres, including the
Gilabbey Veterinary Hospital in the Republic of Ireland
• We opened another three out-of-hours centres during the
year bringing the total to 22
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 launched a new well-being and mental health
awareness programme and have recruited Professor Renate
Weller to lead our learning, education and development
programme.
• Further expansion of our referrals business
• 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
• We also sponsor further qualifications for our vets such as
RCVS Advanced Veterinary Practitioner and Diplomas
• Further development and expansion of our MiPet brand of
products
• Launch of peripatetic service
• Development of our own brand pet insurance, MiPet Cover
Links to key performance indicators
P18 Key performance indicators
BA
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F G
Links to key performance indicators
P18 Key performance indicators
A
B C
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F G
Links to risks
P32 Principal risks and uncertainties
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Links to risks
P32 Principal risks and uncertainties
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6 7
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CVS GROUP PLC
Annual Report and Financial Statements 2019
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How we performed
• 34 surgeries acquired during the year
• 4 surgeries acquired since the year end
Our focus
• We aim to continue to grow our business through organic
growth, selective acquisitions and greenfield development
sites
• We will 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
external practices
How we performed
• Our laboratories performed 433,000 tests in 2019, of
which 247,000 were for third parties
• Our crematoria performed 149,000 cremations, of which
75,000 were for third parties
• 18 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
Links to key performance indicators
P18 Key performance indicators
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B C
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F G
Links to key performance indicators
P18 Key performance indicators
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F G
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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 Ability to source pharmaceutical supplies
7 Ability to source and integrate acquisitions
8 Maintain appropriate insurance
9 Compliance with legal and regulatory requirements
10 Changes in laws and regulations impact our
operations and margins
11 Change in UK pet population
CVS GROUP PLC
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Key performance indicators
Key performance indicators continued
Monitoring our progress against the Group’s strategy by
reference to the following financial KPIs
Revenue (£m)
a) £406.5m
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406.5
327.3
271.8
218.1
Definition
Total revenue of the Group.
Changes in 2019
• Total revenue increased by £79.2m.
• Revenue before the impact of prior year and current year
acquisitions was £339.2m, a £17.8m increase compared with
2018. 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 revenue of £82.3m, an increase
of £63.2m.
• Intercompany sales eliminated on consolidation were
£14.9m, an increase of £1.8m, principally due to the impact
of internal crematoria and laboratory sales to practices
acquired in 2018 and 2019, in addition to our internal
equipment and instrument sales.
Like-for-like sales (%) performance
b) 5.2%
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Definition
5.2
4.9
6.3
4.8
Revenue generated from like-for-like operations compared
to the prior year. Revenue for 2019 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 2017, revenue is included from
September 2018 in the like-for-like calculation.
Changes in 2019
• The like-for-like performance reflects strong
performances in all divisions.
Adjusted EBITDA (£m)
e) £54.5m
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47.6
42.1
32.8
Adjusted EPS (p)
f) 46.7p
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46.7
42.4
42.8
32.4
Definition
Definition
Earnings before income tax, net finance expense, depreciation,
amortisation, costs relating to business combinations and
exceptional items. The reconciliation to profit before tax is on
page 66.
Earnings, adjusted for amortisation, costs relating to business
combinations, exceptional items 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 2019
Changes in 2019
• The improvement in adjusted EBITDA is explained by the
full year impact of prior year acquisitions (£1.8m) and
acquisitions in the current year (£5.4m), partly offset
by a £0.3m increase in central costs incurred to build a
foundation for further development and expansion of the
Group.
• The increase reflects the increase in adjusted profit before
tax of £5.4m
Links to strategy
P16 strategy
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Links to strategy
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Links to strategy
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Links to strategy
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Gross margin before clinical staff costs (%)
Cash generated from operations (£m)
Healthy Pet Club members
c) 401,000
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401,000
362,000
306,000
253,000
d) 76.2%
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76.2
79.6
79.8
79.6
Definition
Definition
Number of members in our Healthy Pet Club Scheme
Changes in 2019
• Healthy Pet Club membership increased from 362,000 to
401,000 members.
Gross margin which represents revenue after deducting the cost
of drugs, laboratories’ fees and cremation fees, and other goods
sold or used by the business, expressed as a percentage of total
revenue.
Gross margin was £168.9m, after deducting £140.9m of clinical
staff costs.
Changes in 2019
• The decrease in the gross margin is principally due to the
increase in our farm animal division, which operates at a lower
margin to our small animal division.
Our strategic priorities
i Excellent customer service and care
ii Meeting all of our customers’ needs
iii Expanding our business
iv Building on our strengths to provide services to
external practices
g) £52.1m
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Definition
52.1
46.7
37.2
33.6
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 2019
• 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.
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P16 strategy
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Links to strategy
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Links to strategy
P16 strategy
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CVS GROUP PLC
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Our business
Veterinary practices
Our Veterinary Practices Division is the heart of our
business. We added a further 34 surgeries during
the year and 4 since the year end.
Our services
• 510 first-opinion and referral surgeries across the UK, the
Netherlands and the Republic of Ireland, trading under
locally established brand names
• HPC and HHP loyalty schemes
• MiPet own brand products
• MiVetClub and VetShare buying groups, using our buying
strength to provide a unique offering to third-party
practices
• Vet Direct providing surgical kits and instruments for our
own and third-party practices
• MiPet Cover own brand insurance
CVS GROUP PLC
Annual Report and Financial Statements 2019
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Revenue (£m)
£370.7m
+24.6%
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17
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370.7
297.5
247.9
198.1
Adjusted EBITDA (£m)
£56.2m
+12.2%
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17
16
56.2
50.1
44.7
35.6
HPC Customers
401,000
+10.8%
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17
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401,000
362,000
306,000
253,000
88.0%
revenue
share
Our business continued
*
Laboratories
Our laboratories provide diagnostic services to CVS
veterinary practices and third parties. Over 433,000
tests were performed in 2019, of which 247,000
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
Revenue (£m)
£20.1m
+12.4%
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17
16
20.1
17.9
16.3
14.8
Adjusted EBITDA (£m)
£4.3m+10.3%
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17
16
4.3
3.9
3.6
3.1
Lab tests performed
433,000
+2.1%
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17
16
433,000
424,000
405,000
380,000
4.8%
revenue
share
CVS GROUP PLC
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Our business continued
Our business continued
Crematoria
Our crematoria provide pet cremation services and
clinical waste collection for veterinary practices
and pet owners. Over 149,000 cremations were
performed in 2019 of which 75,000 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
Revenue (£m)
£7.3m+10.1%
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17
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7.3
6.6
6.3
5.0
Adjusted EBITDA (£m)
£2.5m+8.8%
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17
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2.5
2.3
2.1
1.7
Cremations
149,000
+10.4%
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17
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149,000
135,000
142,000
118,000
1.7%
revenue
share
CVS GROUP PLC
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*
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
Revenue (£m)
£23.3m
+24.3%
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17
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23.3
18.8
13.0
8.4
Adjusted EBITDA (£m)
£1.7m+40.0%
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17
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1.7
1.2
0.7
0.3
Unique customers
244,000
+19.6%
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17
16
244,000
204,000
170,000
125,000
5.5%
revenue
share
CVS GROUP PLC
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Case Study - Leading the way on quality improvement
We introduced independent accreditation as a standard
The scheme provides a clear pathway to improvement for all
types of practice and is a means for practices to demonstrate
where they excel through awards.
A similar scheme has been introduced by CVS for its
practices in the Netherlands, even though no official scheme
exists there, enabling all CVS practices to achieve the same
consistent high standards.
In 2019 all CVS UK practices were accredited by
the Royal College of Veterinary Surgeons Practice
Standards Scheme (“PSS”).
The Practice Standards Scheme is a voluntary initiative
to accredit veterinary practices in the UK. Through
setting standards and carrying out regular assessments
by independent assessors, the Scheme aims to promote
and maintain the highest standards of veterinary care.
Practices are assessed across a range of different criteria
encompassing areas such as client experience and clinical
governance. In addition to the PSS accreditations, practices
can apply to be assessed for optional awards, to demonstrate
where they excel. Practices may be designated as ‘Good’ or
‘Outstanding’ within each award.
As part of CVS’s drive to continuously improve clinically in all
practices, they have been encouraged to undertake the new
RCVS PSS Awards run by the scheme. At 30 June 2019 118
CVS practices have been awarded “Outstanding” and CVS
now has approximately 35% of the total PSS awards, leading
the veterinary industry in this field.
CVS GROUP PLC
Annual Report and Financial Statements 2019
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CVS GROUP PLC
Annual Report and Financial Statements 2019
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Business review
Business review continued
We continue to invest in our practices and people to achieve
our strategic priorities
Highlights
Revenue from our four key practice
areas increased by 23.6%
Continued growth in
Healthy Pet Club
Continued excellent growth
in Animed Direct
Veterinary Practices Division
Revenue
Adjusted EBITDA
EBITDA margin %
2019
£m
370.7
56.2
15.2
2018
£m
297.5
50.1
16.9
*This includes all businesses owned throughout the years ended
30 June 2018 and 2019.
The Veterinary Practices division comprises the four key
veterinary practice areas of Small Animal, Referrals, Equine
and Farm plus ancillary areas such as MiPet Insurance, Vet
Direct and our buying groups. Like-for-like growth from the
four key veterinary practice areas, prior to intercompany sales
elimination, was 4.3% for the year (2018: 2.9%).
Revenue for these four key areas amounted to £360.2m
(2018: £291.4m) an increase of 23.6%. Total revenue for the
veterinary practice division amounted to £370.7m (2018:
£297.5m), an increase of 24.6% on the prior year. Like-for-like
sales for the practices division as a whole increased by 3.7%
(2018: 3.0%).
The mix of revenue within the veterinary practices division
changed in the year reflecting growth from the newer Farm
practices which accounted for 10.4% of veterinary practice
division revenue in the year (2018: 4.3%). Revenue from Farm
practices comprises a higher proportion of drug sales and a
lower proportion of veterinary fees, than that in small animal
practices. The acquisition of Slate Hall, a specialist poultry
practice, further impacted this change. Both the increase in
the mix of Farm revenue, and the proportion of this revenue
generated from drug sales, resulted in a decrease in the overall
Gross margin achieved (before the deduction of employment
costs) in the veterinary practice division which reduced to
77.4% for the year (2018: 80.8%).
In the first half of the financial year the veterinary practices
division faced increased employment costs due to an industry
wide structural shortage of veterinary surgeons and nurses in
the UK. The Group had previously awarded above inflationary
salary increases to veterinary surgeons and nurses on 1
January 2018 and these resulted in clinical salaries in the six
month period to 31 December 2018 being c. 8.0% higher than
in the equivalent six month period to 31 December 2017.
Simon Innes
Chief Executive
CVS Group operates an integrated veterinary
platform with our Veterinary Practices division at the
core of the business. This is integrated with a range
of complementary supporting services to internalise
services and improve margins, with these services
provided from our Laboratories, Crematoria and
Animed Direct divisions.
Revenue by division £m
2019
2018
Veterinary Practices
Laboratories
Crematoria
Animed Direct
Head Office - intercompany
Total Group
30 June
2019
£m
370.7
20.1
7.3
23.3
(14.9)
406.5
Like for like revenue
Group revenue
Adjustments for acquisitions
2018
327.3
2019
406.5
(62.2)
30 June
2018
£m
297.5
17.9
6.6
18.8
(13.5)
327.3
Growth
(%)
Underlying Group Revenue
344.3
327.3
5.2%
The Group has taken a number of proactive steps to address
this issue including an increased focus on clinical recruitment,
further investment in learning, education and development,
the introduction of more flexible working and the award of
an additional day’s holiday per annum for employees with
five years’ CVS service. In light of these actions the Group
has seen a reduction in its veterinary surgeon vacancy rate,
with an average vacancy rate of 8.4% in the second half of
the financial year ended 30 June 2019 compared to a peak
of 12.5% in April 2018. This reduction, along with additional
controls and visibility over the use of locum vets, has resulted
in reduced locum spend in the second half of the financial year
to 30 June 2019. The Group has also seen a reduction in its
nurse vacancy rate with an average of 4.3% in the second half
of the financial year compared to a peak of 8.8% in January
2018. In light of the reduced veterinary surgeon and nurse
vacancy rates and the reduced reliance on locums, the Group’s
employment costs reduced to 50.4% of revenue in the second
half of the financial year ended 30 June 2019 in comparison to
51.7% in the first half of the financial year.
The Group welcomed the review of the Shortage Occupation
List (“SOL”) published by the Migration Advisory Committee
in May 2019 in which it was recommended that veterinary
surgeons be reinstated on the SOL. The Home Office
subsequently confirmed that it was implementing this
recommendation and the Group believes this will have a
positive impact on its future ability to recruit veterinary
surgeons from outside of the European Union.
The expansion of the veterinary services division to newer
Farm, Equine and Netherlands based practices led to certain
practices, acquired in the previous two financial years,
delivering returns in the first half of the financial year which
were below expectations. A number of steps were taken in
the financial year to improve performance in these practices
and these actions resulted in improvements being seen in the
second half.
In the full financial year, the veterinary practices division
acquired 34 surgeries operating as 26 businesses. These
businesses contributed £47.0m of revenue and £5.5m of
EBITDA in the year. Practices acquired during the year and
after the year end are set out in note 14. The Group is focused
on delivering organic growth from its veterinary practices
division, with this growth supported by future acquisitions
where multiples are considered acceptable and where
returns will be accretive. In light of this, the Group’s rate of
acquisitions slowed considerably in the second half of the
financial year with only two of the acquisitions in the year
completing in the second half.
Adjusted EBITDA for the Group as a whole, as a percentage
of sales, fell from 16.9% to 15.2%. This reduction is due to
the increased mix of Farm revenues at naturally lower gross
margins, increased employment costs in the first half of the
financial year and the impact of certain acquisitions in the first
half as noted above.
The veterinary services division generated significant growth
from its specialist Referrals practices which provide the
most sophisticated levels of clinical care across all referral
specialisms. Revenue from Referral practices increased by
21.6% in the financial year to £22.5m (2018: £18.5m). This
growth was achieved through increased referrals from CVS
first opinion practices and the recruitment of additional
leading referral specialists, a number of whom, joined CVS
from our direct competitors. The further development of our
referrals business, and the recruitment of further specialist
resource, remains a key strategic priority for CVS.
Our preventative medicine scheme, the Healthy Pet Club,
continued to prove popular with our clients with total
membership increasing by 10.8% in the year to 401,000 pets
covered by the scheme at 30 June 2019 (2018: 362,000). The
scheme provides preventative medicine to our customers’
pets as well as a range of discounts and benefits. CVS benefits
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
£45.4m (2018: £38.0m). We also launched a new Healthy
Horse Programme in the previous year with 7,000 equine
clients covered by the scheme at 30 June 2019.
We continue to expand our specialist MiNight Vet centres
which provide out-of-hours and emergency support to both
CVS and private practices. We now have 22 centres with three
new sites opened in the year, including the UK’s first dedicated
equine out-of-hours service, called Equicall. The Group will
seek further expansion of dedicated out-of-hours centres with
a further eight centres planned to open in the next twelve
to eighteen months. Our strategic objective is to become
self-sufficient in the provision of out-of-hours cover over the
medium term.
Our MiPet own brand range continues to expand and now
represents c.25.0% of our small animal practice drug sales.
The range is well supported by both our customers and our
staff. MiPet products are only available in our surgeries and to
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. Further discounts were
secured in the second half of the financial year on Endectrid,
a flea treatment, and Milbeworm, a worming treatment
and these will help to improve margins. We have recently
launched our first Equine product and our new warehouse
management system, which will go live in the new financial
year, will facilitate further expansion of our product range.
We are focused on the internalisation of spend within
the Group and in August 2018 we acquired Vet Direct, a
consumables and equipment supply business. We have now
incorporated Vetisco into Vet Direct to provide a “one stop
shop” for both CVS and private practices to purchase all their
equipment and consumable needs from one place and we will
look to deliver further growth from Vet Direct in the future.
We continue to invest
significantly in our existing
practices
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Business review continued
Business review continued
Laboratories Division
Animed Direct
Head Office
Our laboratories division provides diagnostic
services and in-practice laboratory analysers to CVS practices
and third party owned veterinary surgeries. Diagnostic
services are offered via post and courier allowing complete
coverage of the UK.
Revenue
Adjusted EBITDA
EBITDA margin %
2019
£m
20.1
4.3
21.4
2018
£m
17.9
3.9
21.9
The Laboratories Division generated revenue of £20.1m, a
12.4% increase on the prior year figure of £17.9m. Adjusted
EBITDA grew by 9.8% from £3.9m to £4.3m and profit before
tax increased from £3.3m to £3.7m.
Revenue from the analysers business (analysers and related
consumables) increased in the year, driven by increased
reagent (consumables) sales. Analysers are installed in newly
acquired CVS owned practices and independent practices and
since the analyser machines have an economic life of several
years, the sale of the machines leads to consumable sales for
several further years.
Revenue from the diagnostics testing business increased
steadily during the year. Further Equine and Farm tests are
being developed and these are expected to deliver further
growth in the future.
EBITDA as a percentage of sales fell slightly from 21.9% to
21.4%.
Crematoria Division
Our Crematoria division provides individual and
communal cremation services for companion animal and
equine clients and clinical waste disposal services for CVS
and independently owned practices.
Revenue
Adjusted EBITDA
EBITDA margin %
2019
£m
7.3
2.5
34.2
2018
£m
6.6
2.3
34.6
Revenue in our Crematoria division increased by 10.1% to
£7.3m (2018: £6.6m). The Crematoria Division benefits
from becoming the supplier to veterinary practices that we
acquire.
Adjusted EBITDA grew by 8.8% to £2.5m (2018: £2.3m).
EBITDA as a percentage of sales slightly decreased from
34.6% to 34.2%.
Animed Direct, is the Group’s on-line dispensary
and pet food and equipment retailer. Animed Direct focuses
on prescription and non-prescription medicines where the
Group’s buying power allows it to be extremely competitive.
Central administration costs include those of the central
finance, IT, human resource, purchasing, legal and property
functions. Total costs were £10.2m (2018: £9.9m),
representing 2.5% of revenue (2018: 3.0%).
Revenue
Adjusted EBITDA
EBITDA margin %
2019
£m
23.3
1.7
7.2
2018
£m
18.8
1.2
6.4
The business performed well during the year, with revenue
growing by 24.3% to £23.3m (2018: £18.8m) and with
adjusted EBITDA increasing by 39.9% to £1.7m (2018: £1.2m).
The EBITDA margin percentage improved slightly from 6.4%
to 7.2%. The business now has an active customer database
of over 244,000 people (2018: over 204,000 people).
Whilst the increased scale of the Group’s operations requires
additional investment in support functions, the Group is able
to benefit from economies of scale with Head Office costs
reducing to 2.5% of revenue in the financial year. Continued
investment will be made in support areas to ensure that CVS
continues to have appropriate systems and controls and to
ensure the divisions receive appropriate support. The Group
will continue to base support staff in the regions where they
can more easily provide the close support that the operations
teams require.
Simon Innes
Chief Executive
27 September 2019
Case Study - Lowestoft
*
*
We continue to invest in our practices
*
*
In March 2019 our Lowestoft surgery relocated into
its new 10,000 square foot home. Our open day
was attended by over 600 people and the site was
opened by our CEO Simon Innes.
The project was delivered in 40 weeks at a total cost of just
over £2.0m and the investment secured the future for the
practice and provided the space and facilities required to
allow continued expansion.
The new site provides an additional 3 consultation rooms, 1
theatre, separate cat and dog wards, separate isolation, large
waiting area with designated cat and dog waiting areas, on
site parking and disabled access for clients, an imaging suite,
designated office spaces, a groomers and a large conference
room. There is on site accommodation also available for
visiting clinical staff and training.
The additional facilities and new equipment have enabled
the clinical team to increase the number and availability
of appointments as well as the range and complexity of
procedures offered. The site also includes a radioiodine
treatment unit for treating Hyperthyroid cats which will open
later in the year and provide this referral service to other
practices across East Anglia.
The facilities have also been a huge benefit to the practice
team who are all enjoying seeing the new site reach its full
potential.
We continue to invest in our existing practices with £2.9m
of capital expenditure incurred in the financial year in the
relocation of existing surgeries and a further £0.7m of capital
expenditure incurred in refurbishing existing sites. We are
committed to delivering the highest levels of clinical care
and we invested a further £1.0m of capital expenditure in
new clinical equipment in the financial year. Investment will
continue in appropriate capital expenditure projects which
facilitate the delivery of high clinical standards and drive
increased average transaction values and hence revenues in
practices. We will continue to invest in greenfield sites and
practice relocations where we are confident that appropriate
financial returns will be achieved.
We launched our own insurance product, MiPet Cover, in
August 2017. CVS does not take any underwriting risk and
receives a commission on the sale and renewal of each policy.
We had 9,000 policies in force as at 30 June 2019, a 173.0%
increase from the prior year (2018: 3,000). The business will
take time to develop fully and made a small loss in the year.
CVS continues to support the RCVS Practice Standards
Scheme with all CVS practices participating and 118
“Outstanding” awards received under the scheme. The
Group’s Springfield practice has achieved outstanding awards
in all six categories. We are focused on providing the highest
levels of clinical care and we continue to invest in clinical
audits of practices to monitor compliance. We will continue
to promote the Vetsafe scheme to capture and learn from
significant events/near misses.
The Group believes that the highest levels of patient care can
be provided through face to face consultations in its practices
or through its ambulatory teams. The Group will explore
opportunities to provide remote consultations through
telemedicine provision where it is confident that services can
be provided in an effective manner without compromising its
high standards of clinical patient care.
CVS continues to place significant emphasis on staff training
and career opportunities. We are focused on improved
staff retention through the provision of diverse clinical
experience from our broad practice specialisms, continued
support in studying for enhanced professional qualifications
and through the opportunity for clinical staff to undertake
leadership roles in the business. The Group recruited a record
number of graduate veterinary surgeons in September 2018
and our leading graduate induction and support programme
will continue to evolve. This will ensure that all of our
graduates are best equipped to fulfil their future careers from
a combination of industry leading clinical training alongside
communication, resilience and customer service training.
Professor Renate Weller will oversee the development of the
Group’s clinical training for veterinary surgeons and nurses
and has a wealth of experience in this area.
CVS has been campaigning for our highly skilled Qualified
Nurses to be better recognised by the professional bodies
and for them to be allowed to undertake additional clinical
work currently preserved for veterinary surgeons. We will
continue to campaign for this much needed change in the
sector which will allow our Nurses to have increased career
opportunities whilst reducing pressure on scarce veterinary
surgeon resource.
We will continue to invest in the highest levels of employee
training and development and in providing appropriate career
pathways in order to position CVS as the employer of choice
in the sector.
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Our culture and values
Case Study - Slate Hall Poultry Vets
Culture and values are at the heart of our business
We acquired Slate Hall Poultry Vets in July 2018
What influenced the decision to sell Slate Hall to CVS?
Slate Hall is one of the largest poultry veterinary businesses
in the UK providing specialist veterinary care and veterinary
medicines to all areas of the poultry industry including
hatcheries, breeders, broilers layers, ducks and game birds.
Established in 1996 and having been grown by its four
Partners, it was clear by 2017 that to continue to expand, the
business needed to seek funding from external investors or
acquirers.
CVS were one of a number of parties who expressed interest
and following initial discussions it was decided to look more
closely at the opportunity to work with CVS. Whilst CVS had
a significant number of companion animal practices, they
had more recently expanded in to the farm animal sector and
Slate Hall would be their first acquisition in the poultry sector.
This gave the Partners confidence that they would retain a
strong influence over the direction of the business whilst
benefiting from the scale of the CVS group.
What worried you at the time?
Slate Hall has strong client relationships, built up over many
years and an excellent practice team. The Partners were keen
that the business should be able to maintain its identity,
provide confidence to clients that they would continue to get
the same excellent service and that staff would feel secure
under new ownership.
It is good to report that post sale all of these aims were met.
What is the vision for the future?
The poultry sector continues to grow however this is mirrored
by an increasingly competitive market. Slate Hall intends
to continue to be the leading veterinary provider of poultry
services, working alongside our clients to help them address
market challenges. It will seek to expand its services and
product offerings within the sector, building on the footprint
of CVS to have a wider geographical presence and to act as
a catalyst for further acquisitions in the poultry sector. As
evidence of this it will be shortly be opening its new practice
in Yorkshire.
Daniel Parker
Original Partner
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.
The board is satisfied that the policies, practices and behaviour
throughout the business is aligned with our culture and values and
our strategy.
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
as at June 2019
1 7 %
6
Board
%
8 3
Male
Female
9 %
11
Executive
team
management
9 1 %
1 5 %
6,542
Total
employees
%
8 5
Customer focus
Success through our people
• We value our customers and treat them with
warmth and respect
• We communicate with our customers
appropriately
• We keep our commitments
• We understand and manage customer
expectations
• We are focused on our customers’ and their
animals’ needs
• We make our customers feel welcome
• We appreciate and act upon feedback
• 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 value employee feedback via our consultation
groups and surveys
• We foster a collaborative and mutually supportive
working environment for our staff
Our dedication to our customers is at the heart
of our business
• We assist all our employees in achieving their
career aspirations
We attract, develop and retain the best people
for our profession
Commitment to excellence
Honesty and integrity
• We get things right first time
• We encourage employees to be innovative to
improve the way we work
• 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 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 trust each other to do a good job and give
praise and encouragement
• We value long-term relationships with our
customers and suppliers
• We demonstrate professionalism at all times
• We own up to our mistakes
We constantly strive to achieve the highest
possible standards
We treat our employees and customers with
honesty and respect
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Principal risks and uncertainties
Principal risks and uncertainties continued
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.
The board has undertaken a robust assessment of the group’s emerging
and principal risks. An annual review on the effectiveness of the group’s
internal controls and risk management is undertaken. Further details are
set out below including mitigating actions which are being taken.
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.
The Group’s businesses are subject to a wide variety of risks. Some of
the most significant risks are explained below together with details of
actions that have been taken to mitigate these risks.
IDENTIFY
RISK
REGULARLY
REVIEW AND
EVALUATE
ASSESS RISK
AND IMPACT
UPDATE KEY
RISK REGISTER
CREATE
MITIGATION
STRATEGY
Our strategic priorities
i Excellent customer service and care
ii Meeting all of our customers’ needs
iii Expanding our business
No change in risk
Reducing risk
Increasing risk
iv Building on our strengths to provide services to
external practices
RISK
1
Key staff
DESCRIPTION
MITIGATING FACTORS
The Group is committed to maintaining salaries for its employees which are
competitive in the marketplace and regular benchmarking is undertaken.
The Group maintains close relationships with UK veterinary schools and has a
market leading graduate induction programme in place in order to attract and
develop leading graduates.
The training and development of the Group’s employees is a key focus and
Professor Renate Weller was recruited during the year to lead the Group’s Learning
Education and Development programme. The Group has developed a range of
training programmes for its employees which include clinical, customer service and
management training. The Group has focused on providing more flexible working
for its employees and increased wellbeing support.
The retention of senior employees is encouraged through a Group LTIP scheme. An
annual SAYE scheme is in place to incentivise all staff and help improve retention.
Staff surveys and exit interviews are undertaken and the feedback from these is
used to address any common issues or concerns.
A highly qualified recruitment team is in place to facilitate the recruitment of
employees from the UK and overseas.
The group’s veterinary surgeon vacancy rate and nurse vacancy rate are both
internal performance indicators which are reported to the Board each month.
The Home Office has recently confirmed that it supports the Migration Advisory
Committee’s recommendation that the role of veterinary surgeon should be
reinstated on the UK Shortage Occupation List and the Board welcomes this as a
positive step in helping to address the UK shortage of veterinary surgeons.
The Group is exposed
to risk in relation to its
ability to attract and retain
key staff, in particular
appropriately qualified
veterinary surgeons and
specialists.
The market for veterinary
surgeons is highly
competitive and there are
insufficient UK veterinary
surgeons and nurses
to fill all positions with
a resulting reliance on
foreign nationals.
Furthermore, there are
other changes in the
industry such as, the
increasing feminisation of
veterinary surgeons which
may have an impact in due
course.
As a result of the above
factors there has been an
increase in the veterinary
surgeon and nurse vacancy
rates in the UK and an
increased reliance on
locums. This has resulted
in increased salary cost
inflation.
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DESCRIPTION
MITIGATING FACTORS
RISK
2
Economic
environment
The continued Brexit
uncertainty and a decline
in the UK economy could
result in a reduction in
consumer confidence and
spending on veterinary
services.
The veterinary sector has proven to be resilient in times of past economic downturn
and the Board believes that the characteristics of our business make it relatively
resilient to future economic fluctuations.
The Group has diversified the business and provides a wide range of integrated
veterinary services to small animal, equine and farm patients and clients in the UK,
Republic of Ireland and the Netherlands.
The Group continues to focus on providing the best levels of clinical care and its
preventative healthcare schemes serve to bond clients to the Group. The Group
now has 401,000 members of its Healthy Pet Club and has recently launched a
Healthy Horse Programme. These schemes, and the Group’s ability to provide end to
end veterinary services, bond clients to the Group and increase retention.
The range of businesses within the Group, and our geographic expansion, reduces
the risk of the impact of any economic downturn. The small animal, equine and
farm veterinary markets have slightly different characteristics and the Group’s
expansion of its equine and farm divisions reduces its risk.
The Group’s Animed Direct business protects the Group against an increase in
customers who may switch to purchasing pharmaceuticals online. The Group’s own
brand products are only available in practices and are not available to customers
online.
The impact from a future Brexit on the Group’s business remains uncertain. The
Board believes that the main risks from Brexit are from short term disruption to
its key supplies and from a subsequent reduction in economic growth. The Group
has taken a number of steps to reduce the impact from disruption to its supplies
including working with manufacturers and wholesalers to ensure they increase
stocks, the development of a new warehouse management system and through
short term stock building. The Board believes that the veterinary industry is
relatively resilient to economic downturns and hence the impact from Brexit is likely
to be less than for many industries. Brexit uncertainty has already impacted on the
availability of veterinary surgeons and nurses in the UK and the Board believes that
future Brexit certainty will help to improve its ability to attract and retain employees
from the EU.
The Group focuses on providing the best levels of clinical care and customer service
to its clients.
The Group’s integrated veterinary platform allows it to provide the full range of
veterinary services to our clients. The Group provides referral services, out of hours
provision, buying group membership discounts, laboratory and crematoria services
and these help bond clients to the Group.
The Group continues to invest in high class facilities and equipment to provide
appropriate clinical service. Employees pride themselves on providing the highest
levels of clinical care and excellent customer service. New peripatetic services are
being launched to facilitate greater access to specialist care in local practices in
order to improve customer access to local care.
The Group assesses each acquisition opportunity on its own merits and against a
clear set of criteria. The Group will only make acquisitions at acceptable multiples
and where it is confident that it will achieve appropriate returns.
The Group regularly reviews the pricing of its products and services and seeks to
remain competitive in each of the business areas in which it operates.
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Competition
Increasing corporate
consolidation and
acquisition of independent
veterinary practices by our
competitors results in a
loss of clients to the Group.
Independent practices
which currently procure
services from the Group
are likely to switch their
business post acquisition
by a corporate competitor
thereby resulting in lost
revenue to the Group.
Increasing acquisition
multiples being paid by
competitors increases
the value of potential
acquisition targets and
reduces the margins
available and the Group’s
ability to successfully
acquire and integrate
acquisitions.
Increased price
competition may limit the
Group’s ability to pass on
increases in employment,
pharmaceutical and other
costs and result in reduced
margins.
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Principal risks and uncertainties continued
Principal risks and uncertainties continued
DESCRIPTION
MITIGATING FACTORS
RISK
4
Adverse
publicity
Adverse publicity could
result in a reduction
in customer numbers,
revenue and earnings and
in our ability to attract and
retain key staff.
The Group aims to provide the highest levels of clinical care and has policies
and procedures in place to monitor delivery. The Group’s practices participate
in the RCVS Practice Standards Scheme and the Group has to date attained 118
outstanding awards. The Group is committed to an ongoing programme of Quality
Improvement (‘QI’) and has been awarded the RCVS Knowledge QI Champion award.
The Group operates clinical advisory committees to promote and set appropriate
clinical standards and drugs lists across the Group. An independent clinical team
monitors practice standards and makes recommendations for future improvement
where appropriate.
The individual branding of our practices reduces the risk of any adverse publicity at
one practice impacting on another or on the wider Group.
The Group has a Marketing/communication team in place which can respond swiftly
to any adverse publicity.
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 influence within the industry.
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5
Information
technology
The Group is dependent
on secure and reliable
IT technology for the
continued operation of its
business.
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. The IT service desk have agreed a number of operational
KPIs with the business aimed at ensuring the systems are reliable with minimum
down time.
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.
Systems are regularly backed up to the cloud and the recovery of those systems is
tested.
The main system used by operations is the practice management system in our
surgeries. One well 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 periodically
developed to meet the needs of the business.
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CVS GROUP PLC
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RISK
6
Ability to
source
pharmaceutical
supplies
DESCRIPTION
MITIGATING FACTORS
The Group’s operations
require it to acquire
and supply significant
quantities of
pharmaceutical products
at appropriate prices. The
majority of medicines
are purchased through
one wholesaler and any
operational issues within
that supplier could have
an adverse impact on the
Group. The Group has
expanded its operations
into equine and farm
species and also into
the Netherlands and the
Republic of Ireland and
there is a risk that the
Group fails to achieve
appropriate prices for
pharmaceutical products in
these new areas.
The Group has an appropriate supply agreement in place with its major wholesaler
to secure supplies. Other wholesalers can supply most medicines and hence the
Group is confident that supplies will be available should the existing CVS wholesaler
withdraw. CVS has direct relationships with many manufacturers which would
enable direct supply should any difficulties occur.
The Group has developed an increasing range of own brand medicines which are
supplied directly to our warehouse in Diss for onward supply to our practices. These
own brand medicines now account for c.25% of small animal first opinion practice
drug sales. The Group has developed a new warehouse management system which
is expected to go live in the new financial year and this will facilitate further growth
in direct distribution.
The Group undertakes regular reviews with manufacturers on drug prices and
compares pricing for small animal products in the UK, the Netherlands and the
Republic of Ireland to identify anomalies in pricing. Similarly the Group reviews
equine and farm drug prices in comparison to small animal.
Brexit uncertainty may lead to an adverse impact on the availability of drugs in
the UK. The Group continues to monitor the position. The main wholesaler and
manufacturers are building stocks in advance of a possible Brexit and the Group
will also consider increasing its own stock levels to mitigate any risk of supply
disruption from Brexit.
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7
Ability to
source and
integrate
acquisitions
The Group has completed
a number of veterinary
practice and related
business acquisitions in
recent years and these have
driven significant growth
in revenue and earnings.
Acquisition multiples being
paid in the industry have
increased and there is a risk
that the Group is unable to
make further acquisitions
at acceptable multiples,
or fails to integrate them
successfully with its
existing operations.
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8
Maintaining
appropriate
insurance
The Group’s operations
expose it to a range of risks
which, depending on the
circumstances applicable
to each one, can be
avoided, reduced, accepted
or where considered
appropriate transferred
through the means of
insurance. If the Group’s
insurance arrangements
are not appropriate there is
a risk that the Group incurs
loss as a result.
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The Group continues to consider opportunities to acquire practices that provide
veterinary services to small animal, equine and farm clients, where the Group is
confident that they can be acquired at acceptable multiples and can be integrated
effectively. In the UK each of these parts of the veterinary industry are at different
stages of consolidation with a relatively low level of consolidation in the equine and
farm sectors.
In recent years the Group has also acquired practices in the Netherlands and in
the Republic of Ireland. Both of these markets, whilst smaller than the UK market,
are substantially less consolidated and together provide opportunities for further
growth through acquisition. The Group may consider entering other geographic
markets in due course where they are considered attractive.
The Group has developed a robust approach to assess acquisition opportunities
against a clear list of criteria and offers are only made where practices meet these
criteria and where the Group is confident that we can generate appropriate returns
post acquisition and successfully integrate the acquisition target with our existing
operations. The Operations teams, who will be responsible for managing the
acquisition target post a successful acquisition process, are fully involved in the
acquisition process before any offers are made. The Group employs professional
advisers to ensure a robust due diligence process is undertaken prior to acquisition
and formal business cases are presented to the Board for approval. These business
cases clearly set out the rationale for the proposed acquisition, the process by
which the acquisition target will be integrated with the Group, the key priorities
immediately post acquisition and the expected financial returns. Post acquisition,
the results of acquisitions are reported and monitored separately by the Operations
teams, by the Executive Committee and by the Board. Any learnings to be gained
from previous acquisitions are used to refine the acquisition process and approach.
The Group engages a leading insurance broker to help it consider its risks and
to procure appropriate insurance where it decides that it is appropriate and cost
effective to transfer risk to a third party insurer. Regular reviews of the Group’s
insurance requirements are undertaken and amendments to insurance policies,
premiums, claims limits and excesses are made where it is considered appropriate.
The Group works closely with its insurance Broker and its end insurers to minimise
claims arising, to appropriately manage existing claims and to learn lessons from
past cases.
The Group engages with the Veterinary Defence Society (‘VDS’) to help reduce
clinical risks and to provide support to its clinical staff in managing and defending
any claims from customers such as accusations of professional misconduct. The
Group pays an annual premium to the VDS to cover both the advice service for its
clinical staff, and to cover the premium for providing clinical staff with insurance.
The Group’s Clinical team work closely with the VDS to review claims and any near
misses and in order to ensure that lessons are learned. The Group works closely with
its clinical staff in this process in order to ensure they receive appropriate support.
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Principal risks and uncertainties continued
Case Study - Leading the way on quality improvement
**
Case Study - Leading the way on quality improvement
DESCRIPTION
MITIGATING FACTORS
We introduced our first Quality Improvement Report
RISK
9
Compliance
with legal and
regulatory
requirements
The Group is subject to a
wide range of legislation
and regulations. Non
compliance with laws and
regulations could lead
to limitations on certain
areas of the business or
ultimately fines, penalties
and the suspension of
certain operations.
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10
Changes in
laws and
regulations
impact our
operations and
margins
The Group’s operations
are subject to a number of
laws and regulations and
changes in these could
have a material adverse
impact to the Group. For
example, the RCVS is
debating changes which
could allow telemedicine
providers to prescribe
medicine remotely and
this could have a material
impact on the Group.
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11
Change in UK
pet population
Pet ownership levels in the
UK have remained relatively
static in recent years
but we may see a future
decline in the event of an
economic downturn or in
light of changing lifestyles.
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CVS introduced its first Quality
Improvement report in 2018/19
and was the first veterinary
corporate group to do so in the
UK.
The programme was led by Richard
Killen.
Q u a l i t y I m p r o v e m e n t
a n d C l i n i c a l G o v e r n a n c e
2 0 1 8 R e p o r t
Quality Improvement (QI) is a new
area for the veterinary industry
which CVS practices have embraced
and CVS is recognised as one of
the world leading groups in this
field. The company has introduced
a Quality Improvement Strategy and strives to
continuously improve clinical standards based on clinical
audits and learning from clinical error.
CVS has introduced a Significant Event Reporting System
across all practices to help identify areas requiring
improvement and to provide support to practices in
implementing systems of care. It is recognised that these
systems must be continuously examined for effectiveness
so that they can evolve to ensure that patient safety is
paramount.
All practices have a Head of Quality Improvement to help
local implementation with comprehensive training provided.
A team of eight Hub Clinical Leads were introduced to all
CVS hubs during the spring of 2019. They are all experienced
vets, often with further qualifications, whose role it is to visit
practices and provide guidance in the provision of the highest
clinical standards. They have already made significant
improvements in areas such as pain relief and responsible
use of antibiotics.
CVS has been working with numerous organisations,
including the University of Liverpool and Small Animal
Veterinary Surveillance Network (SAVSNET), on promoting
appropriate use of antibiotics in Small Animal practices and
RCVS Knowledge in promoting QI throughout the veterinary
profession.
CVS is committed to ensuring that high clinical standards,
providing the best patient care and supporting our colleagues
is at the heart of everything we do. We are passionate about
promoting and developing Quality Improvement and Clinical
Governance within all CVS practices to achieve this.
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. The Group obtains professional advice
from third party experts where appropriate.
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.
The Group’s Company Secretary is an experienced data practitioner and manages
compliance with GDPR requirements and legislation.
The Group operates as an Appointed Representative of its pet insurance provider
and hence is subject to regulation by the Financial Conduct Authority. The Group
employs suitably qualified individuals to ensure compliance with appropriate FCA
legalisation and works closely with its insurance provider in this regard.
The Group operates under a number of laws and regulations and operations teams
in each area of the business have procedures in place to monitor compliance and
also to monitor developments and proposed changes.
The Group engages closely with regulatory and legislative bodies to promote best
practice in veterinary care and to maintain awareness of any proposed changes and
to lobby for changes where considered appropriate. For example, the Group believes
that its highly skilled veterinary nurses should be able to undertake further clinical
work and continues to lobby for this change.
The Group has lobbied in recent years for the veterinary surgeon to be added back
to the UK Shortage Occupation list and is delighted that the Home Office have now
agreed to that change.
The Group is focused on providing excellent clinical care and choice to our
customers. The Group’s integrated veterinary model allows it to provide end to end
veterinary care including first opinion services, preventive medicine, out of hours
provision, specialist referral procedures, pet insurance and online purchasing of
drugs, food and equipment.
The Group prices it services appropriately in order to compete effectively in the
markets in which it operates and believes it is well placed to compete. The Group
continues to invest in new facilities, equipment and clinical services in order to
promote higher clinical standards and to deliver enhanced clinical work leading to
additional revenue per client.
The Group’s preventative medicine scheme, the Healthy pet Club, now has over
401,000 members and this helps bond customers to the Group.
The Group continues to invest in facilities and customer service and has developed a
new range of peripatetic services to provide specialist treatments in local practices.
The Group monitors practice visits and advanced clinical care as two internal
KPIs and hence any adverse trends in these measures would be identified so that
appropriate action can be taken in response.
CVS GROUP PLC
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Finance review
Finance review continued
Continued growth in revenue, adjusted EBITDA and cashflow
from operations
Financial highlights
CVS has continued to deliver growth
in revenues.
Adjusted EBITDA increased by 14.5% from £47.6m to £54.5m.
Adjusted EBITDA as a percentage of revenue (adjusted
EBITDA margin) decreased from 14.5% in 2018 to 13.4%.
This reduction largely reflects performance in the first half
of the financial year within the veterinary practices division
with an increasing mix of lower margin Farm revenues, higher
employment costs and performance from certain acquisitions
being below expectations.
Profit before tax for the year decreased from £14.1m to
£11.7m (-17.0%). The decrease in profit before tax is primarily
due to the £3.8m increase in amortisation costs as a result
of the full year impact of prior year acquisitions. Basic EPS
decreased 27.5% to 11.6p (2018: 16.0p).
Adjusted profit before tax increased by 15.0% in the year
from £36.0m to £41.4m. Adjusted EPS (as defined in note 10
to the financial statements) increased 10.1% to 46.7p (2018:
42.4p). Adjusted profit before tax and adjusted EPS exclude
the impact of amortisation of intangible assets, business
combination costs and exceptional items.
Adjusted EBITDA increased by
14.5% from £47.6m to £54.5m.
Richard Fairman
Chief Financial Officer
2019
£m
2018
£m
Change
%
Revenue (£m)
406.5
327.3
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)
54.5
41.4
46.7
15.6
11.7
11.6
47.6
36.0
42.4
17.7
14.1
16.0
24.2
14.5
15.0
10.1
(11.9)
(17.0)
(27.5)
* Adjusted financial measures are defined on page 3 of this Annual
Report and Financial Statements and reconciled to the financial measures
defined by International Financial Reporting Standards (“IFRS”) below, on
page 66 of the annual report (adjusted EBITDA) and on page 89 (adjusted
profit before tax and adjusted earnings per share).
Management uses adjusted EBITDA and adjusted earnings
per share (“EPS”) as the basis for assessing the financial
performance of the Group. These figures exclude costs
relating to business combinations and exceptional items 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
Exceptional items
Adjusted EBITDA
2019
£m
15.6
31.4
7.2
0.3
54.5
2018
£m
17.7
26.4
3.5
-
47.6
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:
2019
£m
2015
£m
Change
%
Revenue (£m)
406.5
167.3
Adjusted EBITDA (£m)
Adjusted profit before tax (£m)
Adjusted earnings per share (p)
54.5
41.4
46.7
23.0
18.2
24.7
24.9
24.1
22.8
17.3
Bank facilities
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 £52.1m (2018:
£46.7m). The increase reflects the growth in adjusted
EBITDA.
Net debt increased by £33.0m to £102.0m (2018: £69.0m).
Cash generated from operations
Capital expenditure - replacement
Taxation paid
Interest paid
Free cash flow
Capital expenditure - development
2019
£m
52.1
(8.9)
(7.3)
(3.4)
32.5
(4.0)
2018
£m
46.7
(7.6)
(6.2)
(3.1)
29.8
(3.1)
Acquisitions
(58.1)
(52.6)
Proceeds from Ordinary shares
Dividends paid
Debt issuance costs amortisation
Acquired finance leases
(Increase)/decrease in net debt
0.6
(3.5)
(0.5)
-
(33.0)
61.0
(2.9)
(0.4)
(0.8)
31.0
Cash available for discretionary expenditure (“free cash
flow”) increased from £29.8m to £32.5m due to improvement
in cash generated from operations.
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 replacement.
£62.0m was paid (including £1.5m repayment of acquired
bank debt) for the 34 surgeries acquired during 2019. £1.0m
of consideration was payable at 30 June 2019 in respect of
completion net asset adjustments. In addition to £62.0m
paid for businesses acquired in the year, £0.1m was paid in
respect of completion net asset adjustments for business
acquired in the 30 June 2018 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 £3.4m was higher than last year (£3.1m) reflecting the
higher average net debt during the financial year.
Proceeds from Ordinary shares arose due to 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 £0.2m, which
represents the £0.5m amortisation of costs during the year,
which is partly offset by the capitalisation of costs £0.3m
associated with the September 2018 refinance.
Net debt and borrowing covenants
The Group’s net debt comprises the following:
within one year
after more than one year
Total borrowings
Cash in hand and at bank
Net debt
2019
£m
2018
£m
0.3
114.2
114.5
0.5
83.5
84.0
(12.5)
(15.0)
102.0
69.0
The total borrowings principally consist of:
• £95.0m term loan (gross of unamortised issue costs). The
term loan is repayable in one bullet payment in 2021; and
• £20.0m drawn down under the RCF (gross of unamortised
issue costs). The RCF is available until 2021.
£75.0m of the RCF remained unutilised at 30 June 2019. The
Board remains committed to expanding the Group through
organic growth and selective acquisitions.
The movement in net debt is explained as follows:
Borrowings repayable:
CVS GROUP PLC
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CVS GROUP PLC
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Finance review continued
Finance review continued
Net debt and borrowing covenants continued
Taxation
The two 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 2019 it was 14.55.
The covenant levels allow a maximum Group borrowing
to EBITDA ratio of 3.25x, although it is not the Group’s
intention to operate at this level. The gearing ratio increased
during the year from 1.44x at 30 June 2018 to 2.08x at 30
June 2019. This increase in the ratio reflects the increase
in borrowings to fund the current year acquisitions. The
Group aims to continue to expand the business, and has an
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 2018,
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 £35.0m on 1
March 2019.
The Board remains committed
to expanding the Group through
organic growth and selective
acquisitions.
Going concern
At the Consolidated and Company statement of financial
position date the Group had cash balances of £12.5m 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 £190.0m facility and the £5.0m
overdraft 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 including Brexit, the
Group’s financial position (including the level of headroom
available within the bank facilities), financial forecasts
for the three-year period to June 2022, 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.
The Group’s effective tax rate was 29.9% (2018: 24.1%). 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
Impact of tax rate change
Actual charge/effective rate of tax
£m
11.7
2.2
0.5
0.5
0.3
3.5
%
-
19.0
4.2
4.2
2.5
29.9
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 £0.1m to £3.5m (2018:
£3.4m) whilst profit before taxation has decreased £2.4m
from £14.1m to £11.7m.
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.
Share price performance
At the year end the market capitalisation was £511.1m
(724p per share), compared to £795.5m (1,131p 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 September 2017 to 30 September
2019.
Indexed Total Return (Indexed to 100)
Indexed Total Return (Indexed to 100)
120
100
80
60
40
20
0
Sep-17
Nov-17
Jan-18
M ar-18
M ay-18
Jul-18
Sep-18
Nov-18
Jan-19
M ar-19
M ay-19
Jul-19
Sep-19
CVS Indexed total return
FTSE AIM All-Share Indexed total return
CVS GROUP PLC
Annual Report and Financial Statements 2019
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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.
Forward-looking statements
Certain statements in this Annual Report and Financial
Statements 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 3 to 41 was authorised by the
Board of Directors on 27 September 2019 and was signed on
its behalf by:
Richard Fairman
Chief Financial Officer
27 September 2019
Case Study - Our culture and values
*
*
We increased our focus on flexible working
**
Flexing to fit with colleagues’ changing needs
delivers dynamic long term working partnerships.
We truly believe that, for CVS to fulfil our potential, it is
essential that we further advance equality and increase
diversity throughout our organisation.
Fundamental to providing equal opportunity to all
employees to achieve their maximum potential at work,
without discrimination, is enabling them to work flexibly
to accommodate their personal circumstances wherever
practical.
Supporting greater flexibility also underpins our work to
promote gender equality within CVS, in particular, addressing
the loss of women across the career pipeline and to
encourage promotion of women into senior roles.
Svandis Sigjonsdottir joined Alver Veterinary Group as an
administrator, progressed to Practice Administrator and is
now Practice Manager. Single mum Svandis explains “While
I work a full 40 hour week, CVS has made it easy for me
to accommodate child care needs by enabling me to work
flexibly. This makes my work/life balance easier to maintain,
the result being I enjoy a fulfilling work and home life.
CVS has supported me
in my desire for career
progression too, they
have provided both
the encouragement
and training that I
needed to develop
my skills and take on
more responsibility in a
managerial role.”
Svandis Sigjonsdottir
Practice Manager
CVS GROUP PLC
Annual Report and Financial Statements 2019
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Board of Directors and Company Secretary
Board of Directors and Company Secretary continued
Richard Connell (64)
Non-Executive Chairman
Appointment to the Board
Simon Innes (59)
Chief Executive
Appointment to the Board
Richard Connell was appointed to the Board in September 2007.
Simon Innes was appointed as chief executive in January 2004.
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.
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 £220.0m 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.
Mike McCollum (52)
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 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
Mike is Chairman of the Remuneration Committee.
Richard Fairman (52)
Chief Financial Officer
Appointment to the Board
Richard Fairman was appointed as Director in August 2018 and was appointed as
Chief Financial Officer 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.
Deborah Kemp (58)
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 CEO roles in the consumer and hospitality sector where she was
a FTSE100 main Board Director at Punch Taverns PLC. Her career started at
Bass PLC as a Chartered Surveyor, subsequently holding key strategic roles in
the evolution and growth of Punch Taverns pub company. Following a period in
private equity and a trade sale of Laurel Funerals, she is now a Director of Vennco
Limited, a consultancy and interim specialist in the consumer-facing retail and
hospitality sector, and assists multi-site businesses through growth change and
transformation.
Committee membership
Deborah is Chairman of the Nominations Committee.
David Harris (57)
Company Secretary
Appointment
David Harris was appointed as Company Secretary in April 2019.
Career and experience
David Harris has a background in commercial litigation and was a partner in a
long-established Norfolk law firm. In recent years David has undertaken roles
involving corporate governance as Monitoring Officer at Broads Authority,
Company Secretary for Whitlingham Trust and is a Board member of and sits on
the Audit and Risk Committee of Norfolk and Norwich Association for the Blind.
David studied at the University of East Anglia and College of Law Guildford and is
a practising solicitor. David also holds qualifications as a Certificated Mediator and
recently qualified as a Data Practitioner in GDPR. David is particularly interested in
corporate governance and risk management.
CVS GROUP PLC
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Corporate governance statement
Corporate governance statement continued
Principles of corporate governance
The Directors are committed to maintaining high standards of corporate governance. In
September 2018, the Directors elected to adopt the FRC UK Corporate Governance Code
(“the Code”). 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 32 to 36.
It should be noted that the Code was adopted part way through the year.
This Annual Report and Financial Statements should, overall, provide information that
enables shareholders to assess how the Directors have performed their duty under section
172 of the Companies Act 2006 to promote the effectiveness of the Company.
Compliance statements
During the year to 30 June 2019, the Company has complied with the principles set out
in the Code save as reported within this Annual Report 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. The following paragraphs consist of Compliance statements.
The purpose of the Company is to provide comprehensive, integrated veterinary services
with excellent customer service and care for the health needs of our clients’ animals
across the small animal, large animal and equine specialisms.
David Harris
Company Secretary
Board of Directors - Leadership and division of responsibilities
CVS BOARD
AUDIT COMMITTEE
REMUNERATION
COMMITTEE
NOMINATION
COMMITTEE
INTERNAL AUDIT
EXECUTIVE
COMMITTEE
AUDIT COMMITTEE
Key responsibilities:
REMUNERATION COMMITTEE
NOMINATION COMMITTEE
Key responsibilities:
Key responsibilities:
• Review and monitor financial
reporting
• Review Executive Director
performance
• Monitor and review the Board
composition
• Internal control and risk
management
• Monitor and review Executive
remuneration
• Co-ordination of annual evaluation
of the Board and committees
• Whistle blowing procedures
• Monitor internal and external audit
arrangements
• Makes recommendations regarding
LTIP awards
• Make recommendations on all
Board appointments and succession
planning
Board of Directors – Leadership and division of
responsibilities
At the 30 June 2019 the Board of Directors consisted of
five members, including a Non-Executive Chair and two
other Non-Executive Directors. The Board 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.
CVS GROUP PLC
Annual Report and Financial Statements 2019
44
The Company achieves shareholder returns through growth
both organically and through the acquisition of practices,
laboratories and crematoria.
The Code requires the Annual Report and Financial
Statements to identify each non-executive director it
considers to be independent.
The Company considers the Chair and both non-executive
directors to be independent, those being respectively Richard
Connell, Mike McCollum and Deborah Kemp and that all three
have been so since appointment.
During the year on 1 October, Richard Fairman took over
as Chief Financial Officer, replacing Nick Perrin. Richard has
brought a wealth of experience to the Group, acquired during
senior financial positions for RAC, Virgin Money and Central
Trust Plc.
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 £1.0m 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 Board identifies Mike McCollum as the Senior
Independent Non-Executive Director and he is available to
shareholders to discuss any matters relating to the Chair.
Although Richard Connell has served as Chair for more than
ten years, he continues to act in an independent manner and
to challenge the Executive Directors.
Richard Connell was appointed on 1 September 2007 and has
accordingly served more than 10 years. The Code indicates
Number of meetings
Richard Connell
Simon Innes
Richard Fairman¹
Mike McCollum
Deborah Kemp
Nick Perrin²
* In attendance by invitation of the respective Committee
¹ Richard Fairman was appointed to the Board on 1 August 2018
² Nick Perrin resigned from the Board on 28 September 2018
that one of several examples which may affect independence
is if a Non-Executive Director has served for more than nine
years from the date of appointment. It also recognises that
the period can be extended for a limited time, particularly in
those cases where the chair was an existing Non-Executive
director on appointment. The Non-Executive Directors
continue to review the Chair’s performance of his roles and
responsibilities and believe that the skills, knowledge and
experience that Richard Connell brings to the role mean he
is suitable to continue as Chair of the Board. The Board has
concluded that Richard Connell continues to demonstrate
objective judgment and promotes a culture of openness and
debate. The ongoing review of the Chair’s performance and
independence will continue throughout the current financial
year.
The Non-executive directors confirm that they have sufficient
time to devote to meet their board responsibilities. In
addition to the 11 scheduled board meetings and committee
meetings, the Non-executive directors make themselves
available for ad-hoc meetings and board calls to deal with
specific projects or matters arising during the year.
The Chairman and Non-executive directors meet from time to
time as appropriate without the Executive Directors present.
The Non-executive directors also visit the practices,
laboratories and crematoria independently to meet with the
workforce and develop their understanding of the business
operations and are invited to attend the annual conference
and take the opportunity to meet colleagues.
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 (of the current Board) and the frequency
of Board and Committee meetings held in the financial year
were as follows: 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 Chair 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
Group.
Board
Audit
Committee
Remuneration
Committee
Nominations
Committee
10
10
10
9
10
9
2
2
2
2*
2*
2
2
1
2
2
1*
1*
2
2
-
1
1
1*
1*
1
1
-
CVS GROUP PLC
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Corporate governance statement continued
Corporate governance statement continued
The Audit Committee
The Committee consists of three Non-Executive Directors,
Richard Connell, Mike McCollum and Deborah Kemp. Richard
Connell is a Chartered Accountant and Mike McCollum has
worked previously as the CFO for a FTSE 250 business.
Although the Chair of the Board is a member and Chair of the
Audit Committee the board believe this to be appropriate given
his significant financial experience and, given that 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 Chief Financial Officer are
invited to attend such meetings, but the Committee also meets
with the auditor without the Chief Executive and the Chief
Financial Officer 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 2019 and up to the date of this
report the actions taken by the Audit Committee to discharge
its duties included:
• reviewing the 2019 Annual Report and Financial Statements
and the Interim Report issued in February 2019. As part
of these reviews the Committee received a report from
the external auditor on its audit of the annual financial
statements;
• advising the Board that the Annual Report and Financial
Statements 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 its programme of internal audit
reviews;
• reviewing the Group’s risk management framework;
• 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 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 and Financial Statements;
• considering papers prepared by the Chief Financial Officer
to support the going concern basis of preparation;
• agreeing the fees to be paid to the external auditor for its
audit of the 2019 financial statements; and
• reviewing the performance and independence of the
external auditor.
The external auditor was appointed for the year ended 30 June
2019 and 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. Details of
the fees paid to Deloitte during the financial year are set out in
note 6 to the Financial Statements.
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 and Financial Statements 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 57.
The Remuneration Committee
The Chair of the Remuneration Committee is Mike McCollum
and its other members are Richard Connell and Deborah Kemp.
The Remuneration Committee has delegated responsibility
for designing and determining remuneration for the Chair,
Executive Directors and next level of senior management, as
well as the Company Secretary.
The Chief Executive and the Chief Financial Officer 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
48 to 55.
The Nominations Committee
The Chair of the Nominations Committee is Deborah Kemp and
its other members are Richard Connell and Mike McCollum. It
meets at least once annually. The Nominations Committee is
responsible for reviewing the structure, size and composition,
including skills, independence, 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, and for ensuring appropriate succession plans
are in place. Given the size of the group and the company’s
AIM listing, the board does not believe external evaluation of
the board to be appropriate. All directors engage in the internal
evaluation and appropriate action is taken in light of the
assessment.
The committee 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 oversaw the
appointment of Richard Fairman following an executive
search and comprehensive interview process overseen by the
Chairman and CEO.
CVS GROUP PLC
Annual Report and Financial Statements 2019
46
The Nominations Committee scrutinises the performance of
the Executive Directors taking into account the performance of
the business against agreed plans. The Nomination Committee
also considers the other commitments of directors and is
satisfied that all directors devote appropriate time to the
Company’s affairs.
The board recognises the importance of a diverse board
and workforce and encourages reviewing ways of working
to ensure candidates from all backgrounds can apply. Each
appointment of a board member or senior executive is made
on merit and the best candidate will be appointed. The board
recognises that further steps can be taken to improve the
diversity of the group at all levels and across all business
streams.
The Company Secretary
The Company Secretary is responsible for ensuring that
board procedures are complied with, advising the board on
all governance matters, supporting the Chair and helping the
board and its committees to function efficiently.
The Company Secretary is also the Group’s Data Protection
Officer and is a qualified Data Practitioner.
Relations with shareholders
Copies of the Annual Report and Financial Statements are
issued to all shareholders where requested 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 Chair, the Chief
Executive and other Directors are available before and after the
meeting for further discussions with shareholders.
The Chief Executive and the Chief Financial Officer have
regular meetings with institutional investors, private client
brokers, individual shareholders, fund managers and analysts
to discuss information made public by the Group.
The Company held a successful Investors Day at its Lumbry
Park Veterinary Hospital on 26 July 2019, which was well-
attended.
The Chair 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.
Audit, Risk and 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;
• a central team that checks clinical, health and safety
compliance in all parts of the Group; and
• the Company’s Scheme of Delegation of Financial Authority,
which has recently been reviewed and updated.
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
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.
Remuneration
The Board considers that policies on executive remuneration
should be transparent. They should be implemented in a
manner which supports strategy and promotes long-term
sustainable growth. In addition, remuneration should reflect
both the performance of the Company as well as individuals.
The Board has delegated to the Remuneration Committee
responsibility for complying with these aspects of the Code
and the work of the committee is reported in full elsewhere in
this annual statement.
By order of the Board
David Harris
Company Secretary
27 September 2019
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Remuneration Committee report
Remuneration Committee report continued
Highlights
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
Mike McCollum
Remuneration Committee Chairman
This report is for the period to 30 June 2019. 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 2019 financial year.
Remuneration policy
The design of remuneration policies structures and schemes
is a crucial part of the remuneration committee’s role. The
remuneration policy in respect of Executive Directors is
designed to ensure that the Group achieves its potential and
increases long term 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 align the
interests of executive directors with shareholders over the
long term. Performance conditions are selected to reflect
the company’s and shareholders’ objectives. 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 2018/19
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 2.0% to £420,240 and to
increase the salary of the CFO by 2.0% to £255,000.
The annual bonus scheme in which the Executive Directors
participate is based on the achievement of adjusted EBITDA
performance. For 2018/19, the bonus maximum for the CEO
was 100% of base pay and for the CFO was 75% 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 CFO.
In October 2018 the Company granted awards under its LTIP
to the CEO with a value of 125% of salary and to 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.
Adjusted EPS for the year ended 30 June 2019 was 46.7p.
This compares to adjusted EPS of 32.4p for the year ended
30 June 2016, a compound annual growth rate (“CAGR”) of
9.71% above inflation. The target CAGR for threshold and
full vesting of LTIPs issued in 2016 was 8% and 12% above
inflation, respectively, and this target has partially been met
and therefore only 66% of the options granted have vested.
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 summarised below and in the summary
policy table.
The Remuneration Committee sees that the existing
remuneration policy supports the Group’s strategy and
objectives and fits the company’s size and profile. CVS is
committed to high standards of corporate governance and for
this reason has adopted the FRC UK Corporate Governance
Code 2018.
In this context, the Committee will make a number of
changes to reflect developments in governance best
practice and some changes to the structure and workings
of its incentive arrangements to increase alignment with
shareholders and ensure they remain appropriate and
effective.
Changes in response to governance developments
The Committee has noted new guidance in respect of
incentive schemes covering malus and clawback, to ensure
a substantial list of specific circumstances in which the
provisions apply and to ensure provisions are consistent
across different incentive schemes, and to ensure that the
Committee has discretion to vary pay-outs in the event
of exceptional negative events and to override formulaic
outcomes. The company will update the documentation
under which annual bonus and long term incentives are
operated and paid to develop these features – malus and
clawback and broad Committee discretion.
Pension arrangements, including contribution rates, for new
executive directors will be aligned with those of the majority
of the UK workforce. The pension arrangements of the CEO
and CFO will remain as they are.
The Remuneration Committee did consider whether to
introduce a number of additional changes. We have decided
not to go down these routes at this stage in order to maintain
flexibility in view of the company’s status as an AIM, not
a Premium List, company. The Committee believes it
appropriate to maintain a three-year performance period
for its LTIP awards and with no additional holding period.
It sees this three-year period as appropriate given that the
company is quoted on AIM. The Committee sees that the
implementation of post-employment holding periods would
be cumbersome and inflexible and prefers to focus at this
point on encouraging executives to build their shareholdings.
Commercial changes
The Remuneration Committee will not make substantial
changes to the basic structure of remuneration, covering
salary, pension, benefits, annual bonus and long-term
incentives but will make a number of modest changes.
The maximum bonus opportunity of our CFO, Richard
Fairman, who joined the company in August 2018, was 75%
of salary in the year 2018/19. This will be increased to 100%
of salary from 2019/20 so that it is competitive and effective.
Annual bonus will remain subject 100% to an EBITDA
performance condition.
To date, LTIP awards have been 100% subject to an EPS
growth target. The Remuneration Committee proposes
that awards made later in 2019 will be subject 50% to an
EPS growth target and 50% to a relative TSR performance
condition, the comparator group being FTSE 250 companies
excluding investment trusts. The reason for making this
change is to increase alignment with shareholders and to
broaden the performance target structure. The Committee
notes that many UK midcap companies have an element
of comparative TSR in their LTIP performance conditions
reflecting investors’ expectations and preferences.
In light of the company’s outlook and strategy, the
Committee is considering the EPS growth target range which
it will apply to awards made in 2019. Over the last four
years, the target range has been the same each year. The
Committee sees that its approach should be more flexible, to
ensure that the targets are robust, achievable and demanding
in view of the company’s strategy and outlook at the point of
award. In pitching targets, the Committee will bear in mind
issues such as the anticipated forward acquisitions profile as
well as the impact of share buy backs.
The Committee will consider and determine the pitching of
this EPS performance condition, as well as the levels of award
to be made to the CEO and the CFO, at the point of award and
state the growth target in the award announcement and in
the 2020 annual report. The Committee intends to consult
with major shareholders on these points shortly before the
awards are made.
A description of how the company has addressed the matters
specified in Rule 41 of the FRC Code is set out under the
policy table.
Moving forwards the remuneration committee will continue
to adopt policies and procedures recommended by the code
in particular we will seek to be innovative and to simplify
remuneration structures in relation to performance based
incentives plans and include a range of financial, non-
financial and strategic measures to deliver value over the
long term.
We were pleased that the advisory vote to approve the
Directors’ Remuneration Report at our 2018 AGM was
supported by 99.31% of votes cast.
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 2019
CVS GROUP PLC
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CVS GROUP PLC
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Executive Directors’ remuneration policy
This part of the Directors’ Remuneration Report sets out the remuneration policy of the Company with regard to its Directors.
Operation
Potential remuneration
Purpose and link
to strategy
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.
Benefits
To complement basic
salary by providing
market competitive
benefits to attract
and retain Executive
Directors.
Salaries are reviewed annually and
benchmarked against similar listed
companies with any changes effective
from 1 January. The review takes into
account:
• 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.
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.
Performance
metrics
Not applicable.
The CEO’s base salary was reviewed on
1 January 2019 (the prior review being
in January 2018) and was increased by
2.0% to £420,240.
The CFO’s base salary was reviewed on
1 January 2019 (the prior review being
on appointment on 1 August 2018) and
was increased by 2.0% to £255,000
The cost of providing these benefits
varies 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 CEO participates in a defined
contribution pension arrangement and also
receives a payment in lieu of a full pension.
The CFO receives a payment in lieu of a
pension.
Pension arrangements, including
contribution rates, for new executive
directors will be aligned with those of the
majority of the UK workforce.
Annual bonus
To drive and
reward exceptional
performance
The Executive Directors are eligible to
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 CEO is entitled to a Company
pension contribution of 15%. This is
primarily taken as a payment in lieu of
a pension.
The CFO is entitled to a Company
pension contribution of 12%. This is
primarily taken as a payment in lieu of
a pension.
For the CEO, 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.
From 2018/19, for the Executive
Directors, the maximum capped bonus
potential is 100% of salary.
In 2018/19 the maximum bonus
opportunity of the CFO was 75% of
salary. From 2019/20, it will be 100%
of salary.
Not applicable.
For the years ended
30 June 2019 and
ending 30 June 2020,
the targets are based
on adjusted EBITDA.
The target is adjusted
to take account of
acquisitions made
in the course of the
year and exceptional
items. The level of
payment commences
from zero at the
threshold target
increasing on a
straight line basis to
full payment at the
maximum target.
Purpose and link to
strategy
Long Term Incentive
Plan (“LTIP”)
To drive and
reward exceptional
performance.
To align the interests of
Executive Directors and
shareholders.
Operation
Potential remuneration
From 2018, the Remuneration
Committee would in normal
circumstances expect to make annual
LTIP awards to the CEO and the Group
CFO at 125% and 100% of salary,
respectively.
The maximum annual award
permissible under the 2017 plan rules
in exceptional circumstances is 200%
of salary.
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 for LTIP10
and 25% of awards vest at threshold
performance for LTIP11, LTIP12 and later.
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.
Performance
metrics
Up to and including
2018, 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, and
exceptional items.
For 2019, awards will
be subject 50% to an
EPS grown target, as
previously, and 50%
subject to a relative
TSR performance
condition against the
FTSE250 companies
excluding investment
trusts.
In addition and
irrespective of the
targets, 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.
An amendment to
the 2017 plan will
be made in 2019
to ensure that the
committee has a
discretion to vary
pay-outs in the
event of exceptional
negative events and
to override formulaic
outcomes.
Shareholding
guideline
To incentivise
executives to achieve
the Company’s long
term strategy and
create sustainable
shareholder value. To
align with shareholder
interests.
Target value to be achieved over five years:
CEO – 100% of salary.
CFO – 100% of salary.
Executives may sell only 50% of vested
awards (after selling sufficient to cover tax
liabilities) until guideline is met.
CVS GROUP PLC
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Save As You Earn (“SAYE”)
Further items specified under Rule 41 of the FRC Code
Remuneration of the Executive Directors
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 2019, 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. 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 2019/20 are set out in the Annual
Report on Remuneration.
The current fees are as follows:
Director
R Connell
M McCollum
D Kemp
£113,081
£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 ceased
on 28 September 2018 and R Fairman entered into his service
agreement on 19 July 2018. The CEO’s agreement can be
terminated by either the CEO or the Company on twelve
months’ notice. The CFO’s agreement can be terminated by
either the CFO or the Company on a six 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 24 September 2019 and is for a
one-year term ending on 24 September 2020. M McCollum
was appointed on 2 April 2013. His most recent service
agreement is for a one-year term ending on 24 September
2020. These appointments can be terminated by the
Company or directors by giving three months notice. D Kemp
was appointed on 2 January 2018 for a three year term ending
on 1 January 2021. Her appointment can be terminated by the
Company or herself by giving six months’ notice.
The Remuneration Committee believes remuneration is
appropriate in the light of the skills and experience of the
executives, the need for differentials between different levels
of seniority and in the context of the amounts and structure
of remuneration at comparable UK companies.
Mindful of provision 40 of the Code adopted during
the year, the Remuneration Committee will continue
to consider factors including clarity, simplicity, risk,
predictability, proportionality and alignment to culture.
The Remuneration Committee believes that the Company’s
remuneration practices are clear and simple, as laid out
in this remuneration report. The committee has always
been mindful of reputational and other risks in managing
remuneration and taking decisions. Malus and clawback
provisions and Remuneration Committee ability to exercise
discretion within the policy support the mitigation of risks.
The committee believes that the range of possible values
of rewards is clearly identified and explained in this report,
that rewards and potential rewards are proportionate and
do not reward poor performance and that remuneration
arrangements are aligned with company culture.
The Remuneration Committee believes that the policy
operated as intended in terms of company performance and
quantum during 2018/19. The Company did not engage with
shareholders on remuneration during 2018/19 but engaged
extensively with shareholders during 2017/18. The Committee
did not engage with the work force in respect of executive
remuneration during 2018/19. The Committee did not apply
discretions in respect of the operation of annual bonus or
LTIP during 2018/19.
Directors’ emoluments
Executive Directors
S Innes
N Perrin*
*Resigned 28 September 2018
R Fairman*
*Appointed 1 August 2018
Non-Executive Chairman
R Connell
Non-Executive Director
M McCollum
D Kemp*
*Appointed 2 January 2018
Basic salary
allowance
and fees
£’000
Benefits
in kind
£’000
Performance
related
bonus
£’000
Pension
£’000
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
416
406
89
264
232
-
113
113
46
46
46
23
38
38
12
19
9
-
-
-
-
-
-
-
44
43
9
28
28
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Value of
share LTIP
awards
vested
during the
year**
£’000
282
398
208
206
-
-
-
-
-
-
-
-
Total
£’000
780
885
318
517
269
-
113
113
46
46
46
23
Benefits in kind include the provision of a company car and medical and life insurance for each Executive Director.
Annual Report on Remuneration
No Director waived emoluments in respect of the years ended 30 June 2019 or 30 June 2018.
Introduction
This Annual Report on Remuneration sets out information
about the remuneration of the Directors of the Company for
the period ended 30 June 2019.
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.
Moving forward we will continue to assess against pay
ratios and pay gaps. The board is satisfied that h2glenfern is
independent and has no connection to any individual director.
**The value of the share LTIP awards vested during the year is calculated using the share price at date of grant and the number of
shares vested.
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.
Simon Innes
Richard Fairman
Bonus
(% of salary)
Range
(adjusted EBITDA)
Actual
£m
Payout
£m
2019
2019
100
75
£56.7m to £59.0m
£56.7m to £59.0m
54.5
54.5
-
-
The remuneration committee has continued to operate a policy in line with the company performance, for example no bonus will be
payable to the CEO or CFO in relation to the 2019 financial year as the company has not met the financial targets as set out in the
bonus schemes above.
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 and Financial
Statements for the year to June 2020.
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Remuneration Committee report continued
Remuneration Committee report continued
Share scheme interests as at 30 June 2019
Details of plans at the reporting date that have not yet vested are set out below.
Award
LTIP10*
Grant date Vesting period
20 December
2016
3 years
The performance targets for LTIP10 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
LTIP11
LTIP 12
17 January 2018
3 years The performance targets for awards LTIP11 and LTIP12 are based on
12 October 2018
3 years
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
• More than 12.0% CAGR – full award
Options over Ordinary shares awarded to Executive Directors under the LTIP and SAYE schemes in place at 27 September 2019
are as follows:
Scheme
S Innes
LTIP10*
LTIP11
LTIP12
R Fairman
LTIP12
SAYE12
Date of grant
20 December 2016
17 January 2018
12 October 2018
12 October 2018
30 November 2018
*These awards have now partly vested.
Directors’ interests in shares
Market price
of shares on
date of grant
Earliest exercise
date and date of
vesting shares
Exercise price
Number
of shares
1,067p
1,031p
807p
807p
913p
30 June 2019
30 June 2020
30 June 2021
30 June 2021
1 January 2022
0.2p
0.2p
0.2p
0.2p
830p
40,000
40,000
63,797
30,969
737
The interests of the Directors when combined with their spouses holdings as at 30 June 2019 in the shares of the Company
were:
R Connell
M McCollum
D Kemp
S Innes
R Fairman
Ordinary shares of
0.2p each
Number
140,000
38,678
6,559
265,334
11,450
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 2019, the market price of the Ordinary shares was 724p.
During the year shares lapsed as follows;
Scheme
N Perrin
LTIP10
LTIP11
SAYE9
Date of grant
20 December 2016
17 January 2018
25 November 2016
Market price
of shares on
date of grant
Earliest exercise
date and date of
vesting shares
Exercise price
1,067p
1,031p
875p
30 June 2019
30 June 2020
1 January 2020
0.2p
0.2p
790p
The following options have been exercised during the year:
S Innes
N Perrin
Scheme
Number of shares
Exercise date
Exercise price
LTIP9
LTIP9
LTIP10
57,000
2 November 2018
29,500
2 November 2018
19,475
12 December 2018
0.2p
0.2p
0.2p
Number
of shares
5,525
20,800
318
Share price at
exercise date
910p
910p
611p
Gains arising on the exercise of options for S Innes and N Perrin amounted to £518,586 and £387,403 respectively.
No options have been exercised for R Fairman.
Statement of voting
At the 2018 AGM, a motion was proposed to the shareholders to approve on an advisory only basis the Directors’ Remuneration
Report contained in the 2018 annual report. 99.31% of votes cast were in favour of the motion.
On behalf of the Remuneration Committee
Mike McCollum
Remuneration Committee Chairman
27 September 2019
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Directors’ report
Directors’ report
The Directors present their Annual Report and
Financial Statements together with the audited
consolidated financial statements for the year
ended 30 June 2019.
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 £8.2m (2018:
£10.7m).
Business review
The information that fulfils the requirements of the business
review, including details of the 2019 results, key performance
indicators, principal risks and uncertainties and the outlook
for future years, is set out in the Chairman’s Statement
(pages 6 to 8), the Business Review (pages 26 to 29) and the
Finance Review (pages 38 to 41) including key performance
indicators (pages 18 and 19) and principal risks and
uncertainties (pages 32 to 36).
Dividends
The Directors recommend the payment of a dividend of 5.5p
per share (2018: 5.0p) amounting to £3.9m (2018: £3.5m).
Subject to approval at the Annual General Meeting, the
dividend will be paid on 6 December 2019 to shareholders on
the register at the close of business on 22 November 2019.
The aggregate dividends recognised as distributions in the
year ended 30 June 2019 amounted to £3.5m (2018: £2.9m).
No interim dividends (2018: £nil) have been paid during the
year.
Dividend policy
The Group has established an ordinary dividend policy that
is both progressive and sustainable, based on growing the
ordinary dividend per share over time. The rate of growth
of the ordinary dividend will be decided by the board in the
light of the circumstances at the time. The board also gives
due consideration to the return of capital through the use of
special dividends or share buybacks.
The ability of the Group to pay a dividend is also subject to
constraints including the availability of distributable reserves
and the Group’s financial and operating performance.
Distributable reserves are determined as required by the
Companies Act 2006 by reference to a Company’s individual
financial statements.
Directors’ report continued
Directors
Substantial shareholdings
The following Directors held office during the year and up to
the date of signing the financial statements unless otherwise
stated:
R Connell
S Innes
M McCollum
D Kemp
N Perrin (resigned 28 September 2018)
R Fairman (appointed 1 August 2018)
Biographical details of the Directors are provided on pages 42
and 43.
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 48
to 55. It includes details of Directors’ remuneration, interests
in the shares of the Company, share options and pension
arrangements.
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 44 to 47.
Financial instruments
Details of the Group’s financial risk management objectives
and policies are included in note 3 to the financial
statements.
Canaccord Genuity Group Inc
JPMorgan Chase & Co
Octopus Investments Limited
The Goldman Sachs Group Inc
Connor, Clark & Lunn
Invesco
Ameriprise Financial
NN Group NV
Slater Investment
BlackRock Inc
Numbers of shares
5,766,044
5,648,725
5,586,750
4,115,661
4,021,492
3,854,607
3,152,701
2,992,020
2,494,434
2,316,597
% of total issued
8.16
8.00
7.91
5.83
5.69
5.46
4.46
4.23
3.53
3.28
Share capital and substantial shareholdings
Details of the share capital of the Company as at 30 June
2019 are set out in note 23 to the financial statements.
At 31 August 2019, the Company has been notified of
the substantial shareholdings detailed in the table above
comprising 3% or more of the issued Ordinary share capital
of the Company.
The board is satisfied that no major shareholders presents a
conflict of interest or exerts undue influence over the board’s
independent judgement.
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.
Deborah Kemp is the Board’s dedicated non-executive
director for employee engagement and Deborah consults
with employees through attendance at our annual employee
conference and through periodic visits to our businesses.
The group regularly consults with and seeks feedback from
employees and the board monitors employee engagement.
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 11th 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 UK Group
employees, including the Executive Directors. Details of the
scheme are included in the Remuneration Committee Report
on pages 48 to 55.
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 Consolidated and Company
statement of financial position 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 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 and Company
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
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Directors’ report continued
• 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 ensuring that the annual
report provides information necessary to enable shareholders
to assess the company’s position, performance, business
model and strategy.
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.
We confirm that the Annual Report and Financial Statements,
taken as a whole, are fair, balanced and understandable and
provide the information necessary for shareholders to assess
the Company’s performance, business model and strategy.
Disclosure of information to auditor
Each of the persons who is a Director at the date of approval
of this Annual Report and Financial Statements 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.
Resolutions concerning the re-appointment of Deloitte LLP
as auditor and authorising the Audit Committee to set it’s
remuneration will be proposed at the AGM.
By order of the Board
David Harris
Company Secretary
27 September 2019
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Independent auditor’s report
Independent auditor’s report continued
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF CVS GROUP PLC
Report on the audit of the financial statements
Conclusions relating to going concern
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 2019 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
We are required by ISAs (UK) to report in respect of the following matters where:
• 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.
We have nothing to report in
respect of these matters.
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Key audit matters
We have audited the financial statements which comprise:
• the consolidated income statement;
• the consolidated statement of comprehensive income;
• the consolidated and company statements of financial position;
• the consolidated and company statements of changes in equity;
• the consolidated and company statement of cash flows; 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.
• Revenue recognition – Healthy Pet Club
• Approach to intangible valuation in acquisition accounting
Our key audit matters are consistent with the prior year.
Materiality
Scoping
Significant changes in our
approach
The materiality that we used for the group financial statements was £1.3m (2018 -
£1.05m), which was determined after considering revenue, pre-tax profit, adjusted
pre-tax profit, adjusted EBITDA and net assets.
Our audit comprised 5 full-scope audits and a further 11 components subject to audit
procedures on specified account balances. The remainder of the group was subject to
review procedures only.
There were no significant changes in our approach during the current year.
Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
How the scope of our audit
responded to the key audit
matter
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.
Revenue recognition – Healthy Pet Club
Key audit matter description
The group earns revenue via the Healthy Pet Club (“HPC”) whereby 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 £45.4 million of HPC revenue during the year, and has 401,000 active
members as at the year-end. The accrued revenue in respect of HPC as at the year-end
is £8.6m.
The revenue recognition for this scheme is complex since IFRS 15 Revenue from
Contracts with Customers requires revenue to be recorded either at a point in time or
over time according to when the performance obligation is satisfied. Revenue must
also be adjusted for anticipated animal deaths (where outstanding fees will be waived)
and irrecoverable debts. There is therefore a risk that the revenue accrual is not
recorded in accordance with IFRS 15 Revenue from Contracts with Customers.
The accounting policy for HPC revenue is to recognise revenue according to the cost
profile associated to providing the services offered in the scheme, and is disclosed in
note 2 to the financial statements.
Our audit procedures included a critical assessment of the appropriateness of
management’s revenue recognition policy with reference to the requirements of IFRS
15, and in particular, whether the profile of revenue recognition matches the timing of
fulfilment of the performance obligation. We have challenged the cost assumptions
and calculations used to determine the cost profile in the model by reference to terms
and conditions of the scheme, supporting documentation for the product and service
costs included and historical fact patterns. We also examined cancellation and animal
death rates to ensure the deduction from the revenue accrual was appropriate.
Key observations
Based on the audit procedures performed, we have concluded that the key
assumptions used by management are reasonable, and the revenue recognition in
respect of HPC is appropriate under IFRS 15.
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Independent auditor’s report continued
Independent auditor’s report continued
Group materiality
£1,300k
Acquisition fair value accounting
Key audit matter description
How the scope of our audit
responded to the key audit
matter
Key observations
The group acquired 26 veterinary practice businesses during the year for total
consideration of £56.6 million. The book value of net assets acquired was £1.4 million,
and management have recognised an additional £29.2 million in respect of separately
identifiable patient data lists, net of deferred tax. Goodwill is therefore £26.3 million,
after other fair value adjustments of £0.3 million. The valuation of the separately
identifiable intangible assets (excluding goodwill) requires significant judgement and
estimation, including application of a customer attrition rate and discount rate for
customer list intangible assets.
Details of the acquisitions are provided in the Strategic Review, on pages 26 to 28.
Note 2 to the financial statements sets out the group’s accounting policy for business
combinations, and Note 14 to the financial statements provides a summary of assets
acquired and acquisition intangibles recorded for all current year acquisitions.
We reviewed the acquisition accounting for all current year acquisitions and checked
that a valuation exercise had been undertaken for all acquired businesses. We then
engaged a valuation specialist to assess the completeness of assumptions included in
the model, and provide sensitised valuations in instances where certain key inputs had
not been included.
We also benchmarked the key assumptions and assessed the appropriateness of
management’s customer attrition rate in the context of data on demographic mobility
and average pet life. The discount rate was compared to a range determined by a
valuation specialist.
We found the valuation methodology adopted by management to be acceptable and
key assumptions used by management fall within a reasonable range. The model does
not incorporate certain key assumptions, including contributory asset charges (CACs),
working capital and an assembled workforce, but the impact of these is immaterial at
the primary statement level.
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:
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £65k (2018:
£53k), 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.
Component
materiality range
£455k to £1,278k
Adjusted PBT
£41,400k
An overview of the scope of our audit
Adjusted PBT
Group materiality
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.
Audit Committee
reporting threshold
£65k
We have focused our work on the UK-based subsidiaries which account for the significant majority of the group’s assets,
liabilities and gains and losses. We have subjected 5 components to full-scope audits and a further 11 components to audits
of specified account balances. The remainder of the group, including components located overseas, were subject to review
procedures only.
All audit work was carried out by the UK engagement team, with no reliance of component auditors. Testing was performed to
component materiality ranging from £455k to £1,100k.
The coverage achieved by this strategy is as follows:
20%
21%
Revenue
14%
Expenses
11%
5%
6%
Net assets
66%
68%
89%
Full audit scope
Full audit scope
Full audit scope
Specified audit procedures
Specified audit procedures
Specified audit procedures
Review at Group level
Review at Group level
Review at Group level
Acquisition fair value
accounting
Group financial statements
Parent company financial statements
Other information
Key audit matter description
£1,300k (2018: £1,050k)
£1,287k (2018: £1,040k)
Basis for determining
materiality
Parent company materiality was
determined based on 1% of net assets,
and capped at 99% of group materiality.
We considered pre-tax profit and revenue
when determining materiality, as well as
the growth of the business (as indicated
by revenue growth) versus FY18. We also
considered the materiality that might be
adopted by reference to non-statutory
measures adjusted pre-tax profit and
adjusted EBITDA, and ultimately used a
blend of these measures.
Materiality represents 3.2% of adjusted
pre-tax profit, and less than 1% of net
assets.
Rationale for the benchmark
applied
We have considered both statutory and
adjusted pre-tax profit and net assets and
reflected the metrics that are deemed to
be of most importance to stakeholders.
As a holding company, net assets was
considered the most relevant benchmark
to users of the parent company financial
statements.
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.
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.
We have nothing to report in
respect of these matters.
CVS GROUP PLC
Annual Report and Financial Statements 2019
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Independent auditor’s report continued
Independent auditor’s report continued
Responsibilities of directors
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 2019
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.
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 of 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 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
ad equate 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.
We have nothing to report in
respect of these matters.
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 these matters.
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Financial statements
Financial statements continued
Consolidated income statement
for the year ended 30 June 2019
Consolidated statement of comprehensive income
for the year ended 30 June 2019
Profit for the year
Other comprehensive income – items that will or may be reclassified to loss in future
periods
Cash flow hedges:
Net movement on cashflow hedge
Exchange differences on translation of foreign operations
Other comprehensive income for the year, net of tax
Total comprehensive income for the year attributable to owners of the parent
Note
16
2019
£m
8.2
(0.1)
0.2
0.1
8.3
2018
£m
10.7
0.1
-
0.1
10.8
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
All activities derive from continuing operations.
Note
4
6
6
5
4
9
10
10
2019
£m
406.5
(237.6)
168.9
(153.3)
15.6
(3.9)
11.7
(3.5)
8.2
11.6p
11.6p
2018
£m
327.3
(175.7)
151.6
(133.9)
17.7
(3.6)
14.1
(3.4)
10.7
16.0p
15.9p
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, and exceptional items.
Non-GAAP measure: adjusted EBITDA
Profit before income tax
Adjustments for:
Finance expense
Depreciation
Amortisation of intangible assets
Costs relating to business combinations*
Exceptional items
Adjusted EBITDA
Note
5
13
12
4
4
4
2019
£m
11.7
3.9
9.2
22.2
7.2
0.3
54.5
2018
£m
14.1
3.6
8.0
18.4
3.5
-
47.6
* Includes amounts paid in respect of acquisitions in prior years expensed to the income statement.
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Financial statements continued
Financial statements continued
Consolidated and Company statement of financial position
as at 30 June 2019
Consolidated statement of changes in equity
for the year ended 30 June 2019
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 registration number; 06312831
Group
2018
£m
Company
2019
£m
Company
2018
£m
203.5
47.9
0.1
0.6
0.2
-
-
-
-
68.5
68.4
-
-
-
-
Group
2019
£m
244.5
51.4
0.1
0.2
0.1
296.3
252.3
68.5
68.4
17.0
51.6
12.5
81.1
377.4
(73.7)
(4.9)
(0.3)
(78.9)
(114.2)
(21.2)
(135.4)
(214.3)
163.1
0.1
99.7
0.6
0.1
(61.4)
124.0
163.1
13.5
38.2
15.0
66.7
319.0
(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
-
85.8
-
85.8
154.3
-
-
-
-
-
-
-
-
-
89.1
-
89.1
157.5
-
-
-
-
-
-
-
-
154.3
157.5
0.1
101.8
0.6
-
-
51.8
154.3
0.1
101.2
0.6
-
-
55.6
157.5
The Company reported a loss for the financial year ended 30 June 2019 of £0.4m (2018: £0.2m).
The notes on pages 72 to 104 are an integral part of these consolidated financial statements.
The financial statements on pages 66 to 104 were authorised for issue by the Board of Directors on 27 September 2019 and
were signed on its behalf by:
Richard Fairman
Director
Simon Innes
Director
CVS GROUP PLC
Annual Report and Financial Statements 2019
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Share
capital
£m
Share
premium
£m
Note
Capital
redemption
reserve
£m
Revaluation
reserve
£m
Merger
reserve
£m
Retained
earnings
£m
99.1
0.6
0.1
(61.4)
At 1 July 2018
Profit for the year
Other comprehensive income
Cash flow hedges:
Fair value loss
Exchange differences on
translation of foreign operations
Total other comprehensive
income
Total comprehensive income
Transactions with owners
Issue of Ordinary shares
Credit to reserves for share-based
payments
Deferred tax relating to share-
based payments
23
11
Dividends to equity holders of the
Company
23
Transactions with owners
At 30 June 2019
0.1
-
-
-
-
-
-
-
-
-
-
0.1
-
-
-
-
-
0.6
-
-
-
0.6
99.7
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.6
0.1
(61.4)
124.0
163.1
Share
capital
£m
Share
premium
£m
Note
Capital
redemption
reserve
£m
Revaluation
reserve
£m
Merger
reserve
£m
Retained
earnings
£m
0.1
38.1
0.6
0.1
(61.4)
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
Credit to reserves for share-based
payments
11
Deferred tax relating to share-
based payments
Dividends to equity holders of the
Company
23
Transactions with owners
At 30 June 2018
-
-
-
-
-
-
-
-
-
0.1
-
-
-
-
61.0
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
61.0
99.1
-
0.6
-
0.1
-
(61.4)
(2.1)
119.2
58.9
157.7
CVS GROUP PLC
Annual Report and Financial Statements 2019
Total
equity
£m
157.7
8.2
119.2
8.2
(0.1)
(0.1)
0.2
0.1
8.3
-
0.1
0.2
0.1
8.3
0.6
0.1
(0.1)
(0.1)
(3.5)
(3.5)
(3.5)
(2.9)
Total
equity
£m
88.0
10.7
0.1
0.1
110.5
10.7
0.1
0.1
10.8
10.8
-
1.3
61.0
1.3
(0.5)
(0.5)
(2.9)
(2.9)
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Financial statements continued
Financial statements continued
Company statement of changes in equity
for the year ended 30 June 2019
Consolidated and Company statement of cash flow
for the year ended 30 June 2019
At 1 July 2018
Total comprehensive loss for the
year
Transactions with owners
Issue of Ordinary shares
Credit to reserves for share-based
payments
Dividends to equity holders of the
Company
Transactions with owners
At 30 June 2019
At 1 July 2017
Total comprehensive loss for the
year
Transactions with owners
Issue of Ordinary shares
Credit to reserves for share-based
payments
Dividends to equity holders of the
Company
Transactions with owners
At 30 June 2018
Note
23
11
23
Note
11
23
Share
capital
£m
0.1
-
-
-
-
-
0.1
Share
capital
£m
0.1
-
-
-
-
-
0.1
Share
premium
£m
101.2
-
0.6
-
-
0.6
101.8
Share
premium
£m
40.2
-
61.0
-
-
61.0
101.2
Capital
redemption
reserve
£m
0.6
-
-
-
-
-
0.6
Capital
redemption
reserve
£m
0.6
-
-
-
-
-
0.6
Retained
earnings
£m
Total equity
£m
55.6
(0.4)
-
0.1
(3.5)
(3.4)
51.8
157.5
(0.4)
0.6
0.1
(3.5)
(2.8)
154.3
Retained
earnings
£m
Total equity
£m
57.4
(0.2)
-
1.3
(2.9)
(1.6)
55.6
98.3
(0.2)
61.0
1.3
(2.9)
59.4
157.5
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
Increase/(Repayment) of borrowings
Net cash generated/(used in) from financing activities
Net (decrease)/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
2019
£m
Group
2018
£m
Company
2019
£m
Company
2018
£m
52.1
(7.3)
(3.4)
41.4
(56.6)
(11.9)
(1.0)
(69.5)
(3.5)
0.6
(0.3)
28.8
25.6
(2.5)
15.0
12.5
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
2.9
-
-
2.9
-
-
-
-
(3.5)
0.6
-
-
(58.0)
-
-
(58.0)
-
-
-
-
(2.9)
60.9
-
-
(2.9)
58.0
-
-
-
-
-
-
Note
27
14
13
12
23
26
26
26
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Financial statements continued
Financial statements continued
Notes to the consolidated financial statements
for the year ended 30 June 2019
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
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 under the Companies Act 2006 and domiciled in England and Wales and
its shares are quoted on AIM of the London Stock Exchange. It’s company registration number is 06312851.
Companies in the consolidated financial statements
The trading subsidiary undertakings included within the consolidation are as follows:
Name of subsidiary
Albavet Limited
Animed Direct Limited
Principal business
Veterinary services and buying club
On-line dispensary
Axiom Veterinary Laboratories Limited
Veterinary diagnostic services
B&W Equine Group Limited
Coen Dierenarts B.V.
CVS (Ireland) Veterinary Services Limited
CVS (Ireland) Veterinary Services No.2 Limited
CVS (Netherlands) B.V.
CVS Netherlands No2 B.V.
CVS (UK) Limited
Dierenartsenpraktijk NOP B.V.
Dierenartsenpraktijk Zuid-West Friesland B.V.
Dierenkliniek Schalekamp B.V.
Dierenziekenhuis Drachten B.V.
Diergeneeskundig Centrum Noord Nederland B.V.
Endell Veterinary Group Limited
Greenacres Pet Crematorium Limited
Veterinary services
Veterinary services
Holding company
Veterinary services
Veterinary services
Veterinary services
Veterinary and diagnostic services
Veterinary services
Veterinary services
Veterinary services
Veterinary services
Veterinary services
Veterinary services
Animal cremation
Greendale Veterinary Diagnostics Limited
Veterinary diagnostic services
Highcroft Pet Care Limited
Insight Laboratory Services Limited
Kliniek voor Gezelschapsdieren Dieren B.V.
MiVet Club Limited
Okeford Veterinary Centre Limited
Pet Doctors Limited
Pet Medic Recruitment Limited
Pet Vaccination Clinic Limited
Pharmsure UK Limited
Veterinary services
Veterinary services
Veterinary services
Veterinary goods and services buying club
Veterinary services
Veterinary services
Recruitment services
Veterinary services
Veterinary services
Precision Histology International Limited
Veterinary diagnostic services
Rossendale Pet Crematorium Limited
Animal cremation and provision of burial grounds
Ruddington and East Leake Veterinary Centre Limited
Veterinary services
Severn Edge Equine Limited
Severn Edge Farm Limited
Severn Edge Veterinary Group Limited
Silvermere Haven Limited
Veterinary services
Veterinary services
Veterinary services
Animal cremation and provision of burial grounds
Silverton Veterinary Practice Limited
Veterinary services
Name of subsidiary
Slate Hall Veterinary Practice Limited
Slate Hall Veterinary Services Limited
The Pet Crematorium Limited
Valley Pet Crematorium Limited
Vet Direct Services Limited
VETisco Limited
Principal business
Veterinary services
Veterinary services
Animal cremation
Animal cremation
Veterinary instrumentation supply
Veterinary instrumentation supply
Whitley Brook Crematorium for Pets Limited
Wyatt Poultry Veterinary Services Limited
Animal cremation
Veterinary services
The dormant subsidiary undertakings included within the consolidation are as follows:
Name of subsidiary
Aire Veterinary Centre Limited
Alcock Veterinary Services Limited
Keown O'Neill Limited
MSVets Limited
All Creatures Veterinary Centre Limited
Newlands Veterinary Group Limited
All Creatures Veterinary Health Centre Limited
Pet Vaccination UK Limited
Alnorthumbria Veterinary Practice Limited
Pinfold House Veterinary Clinic Limited
Ambivet Limited
Arbury Road Vets Limited
Artemis Veterinary Limited
Ashburn Veterinary Centre Limited
Beaconvet Limited
Beechwood Animalcare Limited
Severn Edge Holdings Limited
St Elmo Veterinary Clinic Limited
Superstar Pets Limited
Thompsons Vets Limited
Three Valleys Veterinary Limited
Total Veterinary Services Limited
Boundary Veterinary Clinic Limited
Vet Direct Holdings Limited
Briar Dawn Veterinary Centre Limited
Veterinary Enterprises & Trading Limited
BVCM Limited
Camlas Petcare Vets Limited
Victoria Veterinary Clinic Limited
Weighbridge Referral Service Limited
Campsie Veterinary Centre Limited
Wessex Equine Limited
Cinder Hill Equine Clinic Limited
Western Counties Equine Hospital Limited
Corner House Equine Clinic Limited
Yoredale Vets Limited
Cromlyn Vets Limited
Gurka Animal Care Limited
Your Vets (Holdings) Limited
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, Campsie Veterinary Centre Limited, Keown O’Neill Limited and St Elmo Veterinary Clinic
Limited, which are registered in Northern Ireland, CVS (Ireland) Veterinary Services Limited and CVS (Ireland) Veterinary
Services No.2 Limited, which are registered in the Republic of Ireland, and CVS (Netherlands) B.V., CVS Netherlands No2
B.V., Kliniek voor Gezelschapsdieren Dieren B.V., Dierenartsenpraktijk NOP B.V., Dierenartsenpraktijk Zuid-West Friesland B.V.,
Dierenkliniek Schalekamp B.V., Dierenziekenhuis Drachten B.V., Coen Dierenarts 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.
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Financial statements continued
Financial statements continued
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
1. General information continued
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:
Name of subsidiary
Axiom Veterinary Laboratories Limited
The Manor House, Brunel Road, Newton Abbot, Devon, TQ12 4PB
BVCM Limited
Cromlynvets Limited
19–21 High Street, Strichen, Fraserburgh AB43 6SQ
50 Old Coach Road, Hillsborough, County Down BT26 6PB
All Creatures Veterinary Health Centre Limited
14 Anderson Avenue, Limavady, County Londonderry BT49 0TF
Keown O’Neill Limited
11 Church Street, Ballygawley, Co. Tyrone BT70 2HA
Precision Histology International Limited
The School House, One Eyed Lane, Weybread, Diss, Norfolk IP21 5TT
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 44 to 47. 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 directors do not consider there to be any critical accounting estimates or judgements required in preparing the financial
statements.
Campsie Veterinary Centre Limited
25 Knocknamoe Road, Omagh, BT79 7LB
Changes in accounting policy and disclosure
St Elmo Veterinary Clinic Limited
2 Skeoge Industrial Estate, Beraghmore Road, Londonderry BT48 8SE
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.
Parent Company Guarantee
The following wholly owned subsidiaries are exempt from the requirements of the UK Companies Act 2006 relating to the audit
of individual accounts by virtue of s479A of the Act.
Name of subsidiary
Greenacres Pet Crematorium Ltd
Greendale Veterinary Diagnostics Ltd
MiVet Club Ltd
Okeford Veterinary Centre Ltd
Rossendale Pet Crematorium Ltd
Ruddington and East Leake Veterinary Centre Ltd
Severn Edge Veterinary Group Ltd
Silvermere Haven Ltd
Silverton Veterinary Practice Ltd
The Pet Crematorium Ltd
Valley Pet Crematorium Ltd
Vet Direct Holdings Ltd
Vet Direct Services Ltd
Whitley Brook Crematorium for Pets Ltd
07877237
05138112
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09523786
02187947
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05167635
04734723
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.
Standards, adopted by the Group for the first time
A Number of new and revised standards, including IFRS 9 and 15, are effective for annual periods beginning on or after 1
January 2018. Adoption of these standards, on a modified retrospective basis, has not had an impact on the Group’s financial
statements, except the following:
• IFRS 9 Financial Instruments came into effect for the Group’s period starting 1 July 2018 and impacted the rules relating to
the classification, measurement and impairment of financial assets. The Group holds all financial assets with the intention
of collecting the contractual cash flows and no contractual terms have failed the “solely payments of principal and interest”
test. Moving from the “incurred credit loss” model to the “expected credit loss model” under IFRS 9 has not given rise to a
material change in bad debt provision.
• IFRS 15 Revenue from Contracts with Customers came into effect for the Group’s period starting 1 July 2018 replacing IAS
18 Revenue and related interpretations. It dealt with revenue recognition and established principles for reporting useful
information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows
arising from an entity’s contracts with customers;. Revenue is recognised when a customer obtains control of a good or
service and thus has the ability to direct the use and obtain the benefits from the good or service. The Group has carried
out a review of existing contractual agreements as part of this process to identify the customer contracts, the performance
obligations, the transaction price and when the performance obligation is satisfied, and has determined that there was no
material impact on the Group’s revenue streams as set out in note 4.
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 2019 or later periods but which the Group has not early adopted:
• IFRS 9 Financial Instruments – Amendments to prepayment features with negative compensation (effective 1 January 2019)
• IFRS 16 Leases (effective 1 January 2019)
• IFRS 17 Insurance Contracts (effective 1 January 2021)
• IFRIC 23 Uncertainty over Income Tax Treatments (effective 1 January 2019)
• 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)
IFRS 16 replaces IAS 17 ’Leases’ and is effective for annual periods beginning on or after 1 January 2019. The Group’s accounting
as a lessor will remain aligned to the current approach under IAS 17; however, for the lessee accounting there will no longer
be a distinction between finance and operating leases. The transition approach adopted by the Group is estimated to result in
the recognition of right-of-use assets and lease liabilities of approximately £111.5m in respect of leased properties, vehicles
and equipment previously accounted for as operating leases; there will be no impact on shareholders’ equity. As permitted by
the transition options under IFRS 16, comparative figures for the prior year will not be restated. Going forward, the Group will
recognise a finance charge on the lease liability and a depreciation charge on the right-of-use asset, whereas previously the
Group included lease rentals within Administrative expenses.
The Group intends to take advantage of a number of exemptions within IFRS 16, including the election not to recognise a lease
liability and a right-of-use asset for leases for which the underlying asset is of low value.
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Financial statements continued
Financial statements continued
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
2. Summary of significant accounting policies continued
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 2019.
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.
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 Consolidated and Company statement of financial position
when the Group becomes a party to the contractual provisions of the instrument.
a) Trade and other receivables
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for
impairment. A provision for impairment of trade and other receivables is recognised if there is considered to be expected credit
losses. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial
recognition of the financial asset. Losses arising from impairment are recognised in the Income Statement on page 66.
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 IFRS 9 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 Consolidated and Company statement of financial position 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.
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Financial statements continued
Financial statements continued
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
2. Summary of significant accounting policies continued
Financial instruments continued
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 Consolidated and Company statement of financial position 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.
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 Consolidated and Company statement of cash flow.
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 Consolidated and Company statement of financial
position 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 Consolidated and Company statement of financial
position 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 recognition
Revenue is measured in accordance with relevant accounting standards. For all contracts within the scope of IFRS 15, the
Company determines whether enforceable rights and obligations have been created with the customer and recognises revenue
based on total transaction price as estimated at the contract inception, being the amount which the Company expects to
be entitled to and has present enforceable rights under contract. Revenue is allocated proportionately across the contract
performance obligations and recognised either over time or at a point in time as appropriate.
Service revenue
Revenue represents sales of veterinary services, laboratory diagnostic services and crematoria services which are recognised
in accordance with IFRS 15, at the point in time when the performance obligation is satisfied. Revenue is recognised when the
laboratory test, veterinary consultation, veterinary procedure or a cremation is completed.
Members of customer loyalty schemes, for example Healthy Pet Club, pay annually 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 to revenue under IFRS 15 to recognise each of the individual performance obligations over the contract
when the obligations has been met. The adjustments are made through deferred and accrued income and the contract asset for
this is shown in note 19. 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 administrative expenses.
Products
Revenue relating to the sale of veterinary products, is recognised according to the terms of sale, at the point in time when the
performance obligations are satisfied.
Rebates received from manufacturers
Consistent with standard industry practice, CVS has agreements with suppliers whereby volume-related allowances and various
other fees are received in connection with the purchase of goods from those suppliers in the form of rebates. Rebates received
from drug and consumable manufacturers in respect of CVS purchases relating to inventories are held by CVS at the reporting
date, the rebate is included within the cost of those inventories, and recognised in cost of sales upon sale of those inventories.
Rebates negotiated on behalf of our buying group members, MiVetClub and VetShare, are recorded on the Group’s Consolidated
and Company statement of financial position 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 when all
obligations attached to the rebate have been discharged and the rebate can be measured reliably based on the terms of the
contract which is taken as at the point at which the buying group member purchases the drugs and consumables.
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Financial statements continued
Financial statements continued
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
2. Summary of significant accounting policies continued
Financing costs
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 Consolidated and Company statement of financial position
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 statement of financial position.
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, costs relating to business combinations and exceptional items.
Adjusted profit before income tax is calculated as profit 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 2017, revenue is included from September 2018 in the like-for-like revenue calculation.
Foreign currency translation
Share premium
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
Consolidated and Company statement of financial position 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 Consolidated and Company statement of financial position 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.
The share premium reserve comprises the premium received over the nominal value of shares issued.
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.
Loss 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 loss attributable to the Company is disclosed in the footnote
to the Company’s Consolidated and Company statement of financial position.
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 limited exposure to foreign exchange risk as the majority 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.
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Financial statements continued
Financial statements continued
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
3. Financial risk management continued
Financial risk factors continued
a) Market risk continued
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 £35.0m 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.
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 1.76% above LIBOR.
At 30 June 2019, 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 2019, 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 £1.2m (2018: £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
IFRS 9 requires the Group to recognise a loss allowance for expected credit losses on financial assets. 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 Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss
allowance for all trade receivables which are not subject to the receivable sale arrangement.
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 2019 gross trade receivables amounted to 7.1% of revenue for the year (2018: 6.6%). Of these gross trade
receivables 49.3% (2018: 52.9%) were more than one month overdue.
The maximum exposure to credit risk at 30 June 2019 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 usually 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 two years but not more than three years.
30 June 2019
Non-derivative financial liabilities
Borrowings
Trade and other payables (excluding
social security and other taxes)
Note
21
20
30 June 2018
Non-derivative financial liabilities
Borrowings
Trade and other payables (excluding
social security and other taxes)
Note
21
20
Capital risk management
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
0.3
60.5
60.8
-
-
-
114.2
-
114.2
-
-
-
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
0.5
43.1
43.6
0.1
-
0.1
-
-
-
83.4
-
83.4
Total
£m
114.5
60.5
175.0
Total
£m
84.0
43.1
127.1
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 financial covenants and a number of general undertakings. 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.
Net debt
Adjusted EBITDA
Ratio
Note
26
4
2019
£m
102.0
54.5
1.87
2018
£m
69.0
47.6
1.44
The ratio above is calculated based upon adjusted EBITDA disclosed in the Annual Report and Financial Statements. 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 2.08.
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 £75.0m of the £95.0m revolving credit facility were undrawn at 30 June 2019.
Fair value measurement
The following table presents the Group’s financial assets and liabilities that are measured at fair value at 30 June 2019 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
• inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
Level 1
£m
30 June 2019
Level 2
£m
Total
£m
Level 1
£m
30 June 2018
Level 2
£m
Note
Total
£m
Assets
Available-for-sale financial assets
15
0.1
-
0.1
0.1
-
0.1
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Financial statements continued
Financial statements continued
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
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.
The business operates predominantly in the UK. As at 30 June 2019, it has 24 veterinary practices in the Netherlands and three
in the Republic of Ireland. 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 £287.0m of fees and £119.5m of goods (2018: £240.5m and £86.8m respectively). Revenue from contracts
totalled £4.5m in the year (2018: £38.0m).
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.
Veterinary
Practices
£m
Laboratories
£m
Crematorium
£m
Animed
Direct
£m
Head Office
£m
Veterinary
Practices
£m
Laboratories
£m
Crematorium
£m
Animed
Direct
£m
Head Office
£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
18.8
1.2
1.2
8.5
(13.5)
(21.6)
(9.9)
2.6
(6.6)
(84.2)
1.2
(21.6)
-
-
-
-
3.5
0.2
6.2
1.8
1.2
(9.9)
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
5. Finance expense
Interest expense, bank loans and overdraft
Amortisation of debt arrangement fees
Finance expense
6. Expenses by nature
Group
£m
406.5
11.7
54.5
377.4
(14.9)
(26.4)
(10.2)
2.3
370.7
30.7
56.2
332.4
(65.6)
30.7
0.1
7.8
13.2
4.4
-
56.2
20.1
3.7
4.3
18.5
(3.3)
3.7
-
0.6
-
-
-
7.3
2.1
2.5
12.3
(1.8)
2.1
-
0.4
-
-
-
4.3
2.5
23.3
1.6
1.7
11.9
(8.9)
1.6
-
-
0.1
-
-
1.7
(134.7)
(214.3)
(26.4)
3.8
0.4
8.9
2.8
0.3
(10.2)
11.7
3.9
9.2
22.2
7.2
0.3
54.5
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
390.9
309.6
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:
Audit services
Fees payable to the Group’s auditor for the audit of the
parent company and consolidated financial statements
The audit of the Company’s subsidiaries pursuant to legislation
2019
£‘000
2018
£‘000
31
252
283
31
228
259
CVS GROUP PLC
Annual Report and Financial Statements 2019
Year ended 30 June 2019
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
Exceptional items
Adjusted EBITDA
CVS GROUP PLC
Annual Report and Financial Statements 2019
84
Group
£m
327.3
14.1
47.6
319.0
(161.3)
14.1
3.6
8.0
18.4
3.5
47.6
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
2019
£m
3.4
0.5
3.9
2019
£m
22.2
9.2
181.0
92.2
4.8
0.8
17.1
63.6
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Financial statements continued
Financial statements continued
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
7. Employee benefit expense and numbers
Group
Employee benefit expense for the Group
Wages and salaries
Social security costs
Other pension costs
Share-based payments
Note
30
11
2019
£m
162.2
15.4
3.3
0.1
2018
£m
133.4
12.0
1.8
1.3
181.0
148.5
Employee benefit expense included within cost of sales is £140.9m (2018: £109.0m). 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
2019
Number
2018
Number
1,640
4,519
78
175
1,419
3,956
78
189
6,412
5,642
Share options
Under the Company’s SAYE schemes the Directors have the following options at the Consolidated and Company statement of
financial position date:
R Fairman
SAYE11
30 November 2018
1 January 2022
830p
737
SAYE
scheme
Date of grant
Earliest excercise
date and vesting
date
Excercise
price
Number of
shares
Shares awarded to Executive Directors under the Long Term Incentive Plans (“LTIPs”) as at the Consolidated and Company
statement of financial position date are as follows:
S Innes
S Innes
S Innes
S Innes
R Fairman
LTIP
Date of grant
LTIP9 24 September 2015
LTIP10
20 December 2016
LTIP11
LTIP12
LTIP12
17 January 2018
12 October 2018
12 October 2018
Market price on
date of grant
Earliest excercise
date and vesting
price
699p
1,067p
1,031p
873p
873p
30 June 2018
30 June 2019
30 June 2020
30 June 2021
30 June 2021
Number
of shares
57,000
40,000
40,000
63,797
30,969
The exercise price for all shares is 0.2p.
LTIP9 was exercised in the year; see the Remuneration Committee Report on page 55 for further details.
Further details of the above schemes are included in the Remuneration Committee Report on pages 48 to 55.
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.
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:
8. Directors’ remuneration and key management compensation
Salaries and other short-term employee benefits
Company contributions to money purchase schemes
Highest paid Director
Directors’ Emoluments
2019
£m
0.4
0.1
0.5
2018
£m
0.4
0.1
0.5
2019
£m
1.0
0.1
1.1
2018
£m
0.9
0.1
1.0
Salaries and other short-term employee benefits
Post-employment benefits
Share-based payments
2019
£m
2.6
0.2
-
2.8
2018
£m
2.0
0.1
0.9
3.0
Retirement benefits are accruing to two Directors (2018: one) under a personal pension plan. The remuneration of the Executive
Directors amounting to £0.8m (2018: £0.8m) is borne by the subsidiary company CVS (UK) Limited, without recharge. The
remuneration of the Non-Executive Directors amounting to £0.2m (2018: £0.2m) is borne by the subsidiary company CVS (UK)
Limited and recharged to the Company.
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Financial statements continued
Financial statements continued
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
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
Total income tax expense
Factors affecting the current tax charge
Note
2019
£m
2018
£m
7.0
1.1
8.1
(4.2)
(0.9)
0.5
(4.6)
3.5
5.9
(0.1)
5.8
(2.5)
0.7
(0.6)
(2.4)
3.4
22
UK corporation tax is calculated at 19.0% (2018: 19.0%) 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% (2018: 19.0%)
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
2019
£m
11.7
2.2
0.5
0.5
(0.8)
1.1
3.5
2018
£m
14.1
2.7
0.6
(0.6)
0.8
(0.1)
3.4
The main rate of corporation tax will reduce from 19% to 17% from 1 April 2020. This change had been substantively enacted at
the Consolidated and Company statement of financial position date and, therefore, it is reflected in the deferred income tax 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)
2019
8.2
2018
10.7
70,506,476
66,369,383
11.6
16.0
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.
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
Weighted average number of Ordinary shares for diluted earnings per share
Diluted earnings per share (p per share)
2019
8.2
2018
10.7
70,506,476
66,369,383
88,379
259,505
-
98,081
70,594,855
66,726,969
11.6
15.9
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
Costs relating to business combinations
Exceptional items
Adjusted profit before income tax
Tax charge amended for the above adjustments
Adjusted profit after income tax and earnings attributable to owners of the parent
Weighted average number of Ordinary shares in issue
Weighted average number of Ordinary shares for diluted earnings per share
Adjusted earnings per share
Diluted adjusted earnings per share
Note
12
4
4
2019
8.2
3.5
11.7
22.2
7.2
0.3
41.4
(8.5)
32.9
2018
10.7
3.4
14.1
18.4
3.5
-
36.0
(7.8)
28.2
70,506,476 66,369,383
70,594,855 66,726,969
Pence
46.7p
46.6p
Pence
42.4p
42.1p
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Financial statements continued
Financial statements continued
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
Options are exercisable at 830p for the SAYE11 scheme, 1287p per share for the SAYE10 scheme and 790p per share for the
SAYE9 scheme.
The weighted average exercise price at the beginning of the period for the options outstanding was £9.37 and end of the period
was £9.39.
The options outstanding at the year-end under the SAYE11, SAYE10 and SAYE9 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 £0.3m
(2018: £0.5m) 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:
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
Expected volatility*
Expected dividends expressed as a dividend yield
LTIP12
SAYE11
12 October 2018 30 November 2018
£8.07
£8.07
0.2p
43
187,113
3 years
£6.51
£1.27
£8.30
1,174
423,494
3 years
2 years
2 years 5 months
38.94%
0.54%
38.94%
0.54%
* Expected volatility has been determined by reference to the historical share return volatility of CVS Group plc.
Options are exercisable at 0.2p per share. The weighted average exercise price is 0.2p at the beginning and end of the period.
Weighted average remaining contractual life
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.
Details of the share options outstanding during the year under the LTIP schemes are as follows:
Outstanding at 1 July 2018
Granted during the year
Forfeited during the year
Exercised during the year*
Outstanding at 30 June 2019
Exercisable at 30 June 2019
* The weighted average share price at the date of exercise was £9.10.
July 2018
scheme
(“LTIP12”)
Number of
share awards
July 2017
scheme
(“LTIP11”)
Number of
share awards
July 2016
scheme
(“LTIP10”)
Number of
share awards
July 2015
scheme
(“LTIP9”)
Number of
share awards
-
115,654
120,636
146,000
187,113
(6,314)
-
-
-
(28,880)
(15,303)
-
-
-
(19,475)
(146,000)
180,799
86,774
-
-
85,858
85,858
-
-
The options outstanding at the year-end under LTIP12, LTIP11 and LTIP10 have a weighted average remaining contractual life of
two years, one year and nil years, respectively.
The share-based payment credit for the year in respect of the options issued under the LTIP schemes amounted to £0.2m (2018:
£0.8m charge) and has been credited to administrative expenses. National Insurance contributions of £0.1m have been credited
to administrative expenses (2018: £0.1m charged) in respect of the LTIP scheme transactions due to the fall in percentage
vesting and are treated as cash-settled transactions.
Further details of the above schemes are included in the Remuneration Committee Report on pages 48 to 55.
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 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), the SAYE10 scheme was opened
for subscription in December 2017 (with options granted in January 2018) and the SAYE11 scheme was opened for subscription
in December 2018 (with options granted in January 2019). Under the SAYE schemes awards have been made at a 10% discount
for SAYE8; SAYE9, SAYE10 and SAYE11 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:
Outstanding at 1 July 2018
Granted during the year
Forfeited during the year
Exercised during the year*
Outstanding at 30 June 2019
Exercisable at 30 June 2019
SAYE11
Number of
share awards
SAYE10
Number of
share awards
SAYE9
Number of
share awards
SAYE8
Number of
share awards
-
272,383
167,514
176,071
423,494
(37,821)
-
-
-
-
(92,470)
(31,593)
(62,193)
-
-
(113,878)
385,673
179,913
135,921
-
-
-
-
-
* The weighted average share price at the date of exercise was £9.39.
CVS GROUP PLC
Annual Report and Financial Statements 2019
90
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Annual Report and Financial Statements 2019
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Financial statements continued
Financial statements continued
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
12. Intangible assets
Note
Goodwill
£m
Trade
names
£m
Patient data
records
£m
Computer
software
£m
Total
£m
Cost
At 1 July 2017
Additions arising through business
combinations
Other additions
At 30 June 2018
Additions arising through business
combinations
Fair value adjustments in respect of
prior periods
14
14
Other additions
At 30 June 2019
Accumulated amortisation
At 1 July 2017
Amortisation for the year*
At 30 June 2018
Amortisation for the year
At 30 June 2019
Net book amount
At 30 June 2019
At 30 June 2018
At 1 July 2017
46.8
21.0
-
67.8
26.3
0.6
-
94.7
-
(0.6)
(0.6)
-
(0.6)
95.3
68.4
46.8
1.5
-
-
1.5
-
-
-
1.5
1.0
0.2
1.2
0.2
1.4
0.1
0.3
0.5
192.2
33.2
-
225.4
35.3
-
-
260.7
73.1
18.4
91.5
21.4
112.9
147.8
133.9
119.1
2.7
-
0.5
3.2
-
-
1.0
4.2
1.9
0.4
2.3
0.6
2.9
1.3
0.9
0.8
243.2
54.2
0.5
297.9
61.6
0.6
1.0
361.1
76.0
18.4
94.4
22.2
116.6
244.5
203.5
167.2
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. 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 ended 30 June 2018 includes a credit of £0.6m in respect of negative goodwill arising on the bargain
purchase of acquisitions.
Goodwill per operating segment
Veterinary Practices
Laboratories
Crematoria
CVS GROUP PLC
Annual Report and Financial Statements 2019
92
2019
£m
90.2
2.1
2.6
94.9
2018
£m
63.7
2.1
2.6
68.4
Impairment tests
The pre-tax discount rate applied to the cash flow projections is derived from the Group’s pre-tax weighted average cost of
capital before 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 1.0% 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
1.0%). The pre-tax discount rate used to calculate value in use is 11.3% at 30 June 2019 (2018: 13.4%). These discount rates are
derived from the Group’s pre-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 2019 (2018: £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 2019. The 1% growth rate is
considered the worst case scenario given growth rates experienced in the veterinary market and therefore further sensitivity
analysis is not required.
13. Property, plant and equipment
Freehold land
and buildings
£m
Leasehold
improvements
£m
Note
Fixtures,
fittings and
equipment
£m
Motor
vehicles
£m
Group
Cost
At 1 July 2017
Additions arising through business
combinations
Additions
Disposals
At 30 June 2018
Additions arising through business
combinations
Fair value adjustments in respect of
prior periods
14
14
Additions
Disposals
At 30 June 2019
Accumulated depreciation
At 1 July 2017
Charge for the year
Disposals
At 30 June 2018
Fair value adjustment in respect of prior
periods
Charge for the year
Disposals
At 30 June 2019
Net book amount
At 30 June 2019
At 30 June 2018
At 1 July 2017
13.5
-
0.9
-
14.4
-
-
1.1
(0.1)
15.4
0.9
0.3
-
1.2
-
0.3
-
1.5
13.9
13.2
12.6
23.1
0.5
4.0
(0.1)
27.5
0.1
-
1.4
(0.2)
28.8
8.1
2.2
-
10.3
0.1
2.9
-
13.3
15.5
17.2
15.0
33.2
2.2
5.0
-
40.4
1.8
(0.2)
8.8
(0.7)
50.1
18.6
5.3
-
23.9
0.2
5.6
(0.3)
29.4
20.7
16.5
14.6
2.0
0.1
0.3
(0.2)
2.2
0.1
-
0.6
(0.2)
2.7
1.2
0.2
(0.2)
1.2
-
0.4
(0.2)
1.4
1.3
1.0
0.8
Freehold land amounting to £0.2m (2018: £0.2m) has not been depreciated.
Included within the above classes of asset is £7.1m of assets under construction.
CVS GROUP PLC
Annual Report and Financial Statements 2019
Total
£m
71.8
2.8
10.2
(0.3)
84.5
2.0
(0.2)
11.9
(1.2)
97.0
28.8
8.0
(0.2)
36.6
0.3
9.2
(0.5)
45.6
51.4
47.9
43.0
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Financial statements continued
Financial statements continued
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
14. Business combinations
The table below summarises the total assets acquired in the year ended 30 June 2019:
Details of business combinations in the year ended 30 June 2019 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 in meeting our goals outlined on pages 16 and 17.
Name of business combination
Gilabbey Veterinary Hospital (trade and assets)
Slate Hall Veterinary Group
Corner House Equine Clinic Limited
Endell Veterinary Group Limited
Beechwood Animalcare Limited
Vet Direct Holdings Limited
Artemis Veterinary Limited
Dierenkliniek Fischer (trade and assets)
Arbury Road Vets Limited
Briar Dawn Veterinary Centre Limited
Gurka Animal Care Limited
Camlas Petcare Vets Limited
Campsie Veterinary Centre Limited
Spires Vet Clinic (trade and assets)
Harrier Veterinary Surgery (trade and assets)
St Elmo Veterinary Clinic Limited
Pinfold House Veterinary Clinic Limited
Bond Street (trade and assets)
Boundary Veterinary Clinic Limited
Ashfield Veterinary Surgery (trade and assets)
Yew Tree Veterinary Centre (trade and assets)
Dierenkliniek Schalekamp B.V.
Silverton Veterinary Practice Limited
Alcock Veterinary Services Limited
Coen Dierenarts B.V.
Cinder Hill Equine Clinic Limited
Date of acquisition
26 July 2018
27 July 2018
31 July 2018
9 August 2018
23 August 2018
30 August 2018
4 September 2018
6 September 2018
19 September 2018
26 September 2018
11 October 2018
23 October 2018
26 October 2018
29 October 2018
5 November 2018
8 November 2018
12 November 2018
13 November 2018
14 November 2018
16 November 2018
29 November 2018
3 December 2018
5 December 2018
6 December 2018
2 April 2019
24 June 2019
All businesses were acquired via 100% share purchase agreement unless indicated as such in the table above.
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.
Property, plant and equipment
Patient data records and customer lists
Inventory
Deferred tax liability
Trade and other receivables
Trade and other payables
Loans
Total identifiable assets
Goodwill
Total initial consideration paid (net of cash acquired £5.4m)
Book value of
acquired
assets
£m
Note
Adjustments
£m
Fair value
£m
22
2.0
-
2.9
(0.2)
9.0
(10.8)
(1.5)
1.4
-
35.3
(0.3)
(6.1)
-
-
-
28.9
26.3
2.0
35.3
2.6
(6.3)
9.0
(10.8)
(1.5)
30.3
26.3
56.6
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 adjusted EBITDA were £47.0m and £5.5m respectively. The post-acquisition
period is from the date of acquisition to 30 June 2019. Post-acquisition EBITDA represents the direct operating result of
practices from the date of acquisition to 30 June 2019 prior to the allocation of central overheads, on the basis that it is not
practicable to allocate these.
Goodwill and intangible assets recognised in the year relating to business combinations are not expected to be deductible for
tax purposes.
The acquisition costs incurred in relation to the above business combinations amounted to £2.8m for the year and are included
within other expenses in note 6 of the financial statements.
The director’s consider the following acquisitions to be material to the group and are therefore separately disclosed.
Slate Hall Veterinary Group
Property, plant and equipment
Patient data records
Inventory
Deferred tax liability
Trade and other receivables
Trade and other payables
Total identifiable assets
Goodwill
Total consideration paid
Book value of
acquired
assets
£m
Adjustments
£m
Fair value
£m
0.3
-
1.0
(0.1)
5.0
(7.6)
(1.4)
-
9.9
-
(1.7)
-
-
8.2
4.1
0.3
9.9
1.0
(1.8)
5.0
(7.6)
6.8
4.1
10.9
Post-acquisition revenue and post-acquisition adjusted EBITDA for Slate Hall were £21.5m and £2.4m respectively. The post-
acquisition period is from the date of acquisition to 30 June 2019.
CVS GROUP PLC
Annual Report and Financial Statements 2019
94
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Financial statements continued
Financial statements continued
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
14. Business combinations continued
15. Investments
Vet Direct Holdings Limited
Property, plant and equipment
Patient data records
Inventory
Deferred tax liability
Trade and other receivables
Trade and other payables
Total identifiable assets
Goodwill
Total consideration paid
Book value of
acquired
assets
£m
Adjustments
£m
Fair value
£m
0.1
-
1.1
-
1.5
(0.9)
1.8
-
2.8
-
(0.5)
-
-
2.3
1.2
0.1
2.8
1.1
(0.5)
1.5
(0.9)
4.1
1.2
5.3
Post-acquisition revenue and post-acquisition adjusted EBITDA for Vet Direct Holdings Limited were £6.0m and £0.4m
respectively. The post-acquisition period is from the date of acquisition to 30 June 2019.
Endell Veterinary 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
0.3
-
0.2
-
0.8
(0.8)
(0.4)
0.1
-
2.8
-
(0.5)
-
-
-
2.3
2.4
0.3
2.8
0.2
(0.5)
0.8
(0.8)
(0.4)
2.4
2.4
4.8
Post-acquisition revenue and post-acquisition adjusted EBITDA for Endell Veterinary Group Limited were £3.9m and £0.2m
respectively. The post-acquisition period is from the date of acquisition to 30 June 2019.
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 2018.
Business combinations subsequent to the year end
Subsequent to the year end, the Group has made two acquisitions which are summarised as follows:
• the trade and assets of Lissenhall Veterinary Hospital, a three-site practice based in Dublin, Ireland, on 8 August 2019.
• the trade and assets of Dierenkliniek Gooiland, a single-site practice based in Weesp, Netherlands on 19 September 2019.
These acquisitions were purchased for a total cash consideration of £2.7m. Assets acquired comprised principally goodwill and
intangible patient data records with a provisional fair value of £2.7m.
CVS GROUP PLC
Annual Report and Financial Statements 2019
96
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 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.
b) Shares in subsidiary undertakings
Company
Cost and net book amount
At 1 July 2017
Options granted to employees of subsidiary undertakings
At 30 June 2018
Options granted to employees of subsidiary undertakings
At 30 June 2019
Note
£m
11
11
67.1
1.3
68.4
0.1
68.5
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 was no ineffective portion of cash flow hedges in 2019 (2018: £nil).
Cash flow hedges
On 1 March 2017, the Group entered into an interest rate swap arrangement limiting the Group’s exposure to interest rate
increases. At 30 June 2019 £35.0m of debt was hedged (2018: £40.0m); 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.
The fair values of derivative financial instruments have been disclosed in the Group Consolidated and Company statement of
financial position as follows:
Group
Non-current
2019
2018
Assets
£m
Liabilities
£m
Assets
£m
Liabilities
£m
Interest rate swap arrangements – cash flow hedges
0.1
-
0.2
-
Movements in fair values
Group
Fair value at 1 July 2017
Fair value gain through reserves – hedged
At 30 June 2018
Fair value loss through reserves – hedged
At 30 June 2019
Interest
rate swap
arrangements
£m
0.1
0.1
0.2
(0.1)
0.1
CVS GROUP PLC
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Financial statements continued
Financial statements continued
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
17. Financial instruments
19. Trade and other receivables
2019
2018
Group - assets as per
Consolidated and
Company statement
of financial position
Available-for-sale
financial assets
Trade and other
receivables (excluding
prepayments)
Cash and cash
equivalents
Derivative financial
instruments
Note
Derivative
instruments
in designated
hedge
accounting
relationships
£m
19
26
16
-
-
-
0.1
0.1
Loans and
receivables
£m
Available
for sale
£m
Total
£m
-
0.1
0.1
42.3
12.5
-
-
-
-
42.3
12.5
0.1
54.8
0.1
55.0
Derivative
instruments
in designated
hedge
accounting
relationships
£m
-
-
-
0.2
0.2
Loans and
receivables
£m
Available
for sale
£m
Total
£m
-
0.1
0.1
28.3
15.0
-
-
-
-
28.3
15.0
0.2
43.3
0.1
43.6
Company - assets as per
Consolidated and Company
statement of financial position
Trade and other receivables
(excluding prepayments)
Note
31
Loans and
receivables
£m
85.8
85.8
2019
Available
for sale
£m
-
-
Total
£m
85.8
85.8
Loans and
receivables
£m
89.1
89.1
2018
Available
for sale
£m
-
-
Total
£m
89.1
89.1
Group - liabilities as per
Consolidated and Company
statement of financial position
Borrowings
Trade and other payables (excluding
social security and other taxes)
Note
21
20
2019
2018
Derivative
instruments
in designated
hedge
accounting
relationships
£m
-
-
-
Other
financial
liabilities
£m
Total
£m
(114.5)
(114.5)
(60.5)
(60.5)
(175.0)
(175.0)
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)
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.
Group
2019
£m
Group
2018
£m
Company
2019
£m
Company
2018
£m
Note
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
31
Other receivables
Prepayments
Accrued income
19.3
10.8
7.5
5.0
31.8
(5.0)
26.8
-
7.0
9.3
8.5
51.6
6.3
5.2
22.3
(5.2)
17.1
-
4.6
9.9
6.6
38.2
-
-
-
-
-
-
-
-
-
-
-
-
85.8
89.1
-
-
-
-
-
-
85.8
89.1
At 30 June 2019 there is a contract asset, recorded in accrued income relating to the “HPC” contract of £8.6m (2018: £6.6m)
This contract is for a maximum term of 12 months therefore the entire asset brought forward has been recorded as revenue in
the year.
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 credit risk. The amount of the provision was £5.0m (2018: £5.2m).
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
Utilisation of the provision during the year
At the end of the year
Other receivables do not contain impaired assets.
Company
Amounts owed by Group undertakings are unsecured, interest free and repayable on demand.
2019
£m
5.2
(0.8)
0.6
5.0
2018
£m
3.2
(1.4)
3.4
5.2
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Financial statements continued
Financial statements continued
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
20. Trade and other payables
Current
Trade payables
Social security and other taxes
Other payables
Accruals
21. Borrowings
Group
2019
£m
Group
2018
£m
Company
2019
£m
Company
2018
£m
42.2
13.2
2.5
15.8
73.7
31.3
10.8
2.8
9.0
53.9
-
-
-
-
-
-
-
-
-
-
22. Deferred income tax
Deferred income tax assets comprised:
Group
Tax effect of temporary differences:
Share-based payments
Losses
2019
£m
0.2
-
0.2
Borrowings comprise bank loans and hire purchase agreements and are denominated in Sterling. The repayment profile is as
follows:
Group
Within one year or on demand
Between one and two years
After more than two years
2019
£m
0.3
-
114.2
114.5
2018
£m
0.5
0.1
83.4
84.0
The balances above are shown net of issue costs of £0.8m (2018: £1.0m), 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.
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 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 3.25. 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 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 Consolidated and Company statement of financial position date £35.0m 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 2019 the Group has a committed overdraft facility of £5.0m (2018: £5.0m) and an RCF of £95.0m (2018: £85.0m).
The overdraft facility was undrawn at 30 June 2019 and 30 June 2018. £75.0m of the RCF was undrawn at 30 June 2019 (2018:
£68.0m).
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 carrying value over the tax base.
Group
Tax effect of temporary differences:
Excess of qualifying depreciation and amortisation
The movement in the net deferred income tax liabilities is explained as follows:
2019
£m
21.2
21.2
Group
Share-based payments
Unutilised tax losses carried forward
Excess of qualifying depreciation and
amortisation over capital allowances
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.
At 1 July
2018
£m
0.5
0.1
(19.8)
(19.2)
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
(0.2)
(0.1)
4.9
4.6
-
-
(6.3)
(6.3)
At 30 June
2019
£m
0.2
-
(21.2)
(0.1)
-
-
(0.1)
(21.0)
(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)
2018
£m
0.5
0.1
0.6
2018
£m
19.8
19.8
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Financial statements continued
Financial statements continued
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
23. Share capital
Issued and fully paid
2019
£m
2018
£m
70,635,940 (2018: 70,334,204) Ordinary shares of 0.2p each
0.1
0.1
During the year, 146,000 shares were issued for consideration of £292 in respect of the vesting of LTIP9, 19,475 shares were
issued for consideration of £39 in respect of the vesting of LTIP10, and 113,878 shares were issued for consideration of £610,386
in respect of SAYE8, SAYE9 and SAYE10.
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 5.5p (2018: 5.0p) per share, total: £3.9m (2018: £3.5m), payable on 6 December
2019 to shareholders on the register at the close of business on 22 November 2019. The dividend has not been included as a
liability as at 30 June 2019. During the year a dividend of 5.0p per share amounting to £3.5m was paid (2018: £2.9m).
EBT own shares
The group operates an EBT which holds 195,000 shares. These were bought at open market value for £2.1m in 2017.
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.
27. Cash flow generated from operations
Profit/(loss) for the year
Taxation
Total finance costs
Amortisation of intangible assets
Depreciation of property, plant and equipment
(Decrease)/increase in inventories
(Increase)/decrease in trade and other receivables
Increase in trade and other payables
Share option expense
Total net cash flow generated from operations
Group
2019
£m
Group
2018
£m
Company
2019
£m
Company
2018
£m
8.2
3.5
3.9
22.2
9.2
(1.0)
(3.6)
9.6
0.1
52.1
10.7
3.4
3.6
18.4
8.0
0.3
(4.9)
5.9
1.3
46.7
(0.4)
(0.2)
-
-
-
-
-
3.3
-
-
2.9
-
-
-
-
-
(59.1)
-
1.3
(58.0)
28. Guarantees and other financial commitments
Capital commitments
The Group had no capital commitments as at 30 June 2019 (2018: £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 £190.0m at 30 June 2019. The Directors do not expect any
material loss to the Company to arise in respect of the guarantees.
25. Share premium
In the 2017 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.
29. Operating lease commitments
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
26. Analysis of movement in net debt
Group
Cash and cash equivalents
Borrowings – current
Borrowings – non-current
Net debt
At 1 July
2018
£m
15.0
(0.5)
(83.5)
(69.0)
Cash flow
£m
Non-cash
movement
£m
At 30 June
2019
£m
(2.5)
1.7
(30.5)
(31.3)
-
(1.5)
(0.2)
(1.7)
12.5
(0.3)
(114.2)
(102.0)
Not later than one year
Later than one year and not later than five years
Later than five years
Total
2019
Plant and
machinery
£m
1.3
2.1
0.1
3.5
Property
£m
12.3
27.8
14.3
54.4
Total
£m
Property
£m
13.6
29.9
14.4
57.9
11.0
27.6
14.0
52.6
2018
Plant and
machinery
£m
0.8
1.3
0.2
2.3
Total
£m
11.8
28.9
14.2
54.9
Operating lease commitments primarily represent rentals payable by the Group in respect of its veterinary practices and office
premises.
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.
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 £3.3m (2018:
£1.8m). The amount outstanding at the end of the year included in trade and other payables was £0.8m (2018: £0.5m).
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Financial statements continued
Notes to the consolidated financial statements continued
for the year ended 30 June 2019
Five-year history - unaudited
for the year ended 30 June 2019
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
The following balances were owed by related companies:
2019
£m
(0.4)
(3.5)
2018
£m
(0.2)
(2.9)
CVS (UK) Limited
2019
2018
Receivable
£m
Payable
£m
Receivable
£m
Payable
£m
85.8
-
89.1
-
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 (2018: £0.1m), of which
£0.1m (2018: £0.1m) was paid in the year.
During the year the following dividends were paid to the Directors: R Connell £3,594, D Kemp £328, M McCollum £1,934; S Innes
£12,324; and N Perrin £14. Dividends were also paid to the spouse of S Innes of £152.
Ultimate controlling party
The Directors consider there is no ultimate controlling party.
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
(Increase)/reduction in net debt
Year-end net debt
Basic earnings per share
Adjusted basic earnings per share
2019
£m
406.5
168.9
15.6
(3.9)
11.7
(3.5)
8.2
54.5
41.4
52.1
(12.9)
(56.6)
(1.5)
(7.3)
(3.4)
(0.5)
0.6
-
(3.5)
(33.0)
102.0
Pence
11.6
46.7
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
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Contact details and advisors
Bankers
Independent auditors
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
D Harris
NatWest Bank Plc
Gentleman’s Walk
Norwich
NR2 1NA
Royal Bank of Scotland Plc
36 St Andrew Square
Edinburgh
EH2 2YB
HSBC Bank Plc
8 Canada Square
London
E14 5HQ
Rabobank
Willemskade 1
8011 AC Zwolle
Netherlands
Ulster Bank Limited
33 Eyre Square
Galway
H91 HY96
Republic of Ireland
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
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CVS
CVS
CVS
CVS
GROUP PLC
GROUP
Passionate about animal care
Passionate about animal care
GROUP PLC
Passionate about animal care
CVS Group PLC
1 Owen Rd, Diss
IP22 4ER
01379 644288
Company No. 06312831