REG - CVS Group plc - Preliminary Results - the year ended 30 June 2012

Tue Sep 25, 2012 2:00am EDT

* Reuters is not responsible for the content in this press release.

RNS Number : 0342N
CVS Group plc
25 September 2012
 



For Immediate Release

25 September 2012

 

CVS GROUP plc

("CVS", the "Company" or the "Group")

 

Preliminary Results for the year ended 30 June 2012

 

CVS, one of the UK's leading providers of veterinary services, is pleased to announce its preliminary results for the year ended 30 June 2012.

Financial highlights


Year ended  30 June  2012

Year ended

30 June 2011

Movement

 %





Adjusted results:




Adjusted EBITDA1

£15.7m

£14.5m

+7.9

Profit before income tax, before exceptional finance expense

£5.3m

£4.3m

+25.6

Adjusted earnings per share

15.8p

14.0p

+12.9





Reported results:




Revenue

£108.7m

£101.5m

+7.1

Operating profit

£6.8m

£6.4m

+6.7

Profit before income tax (including exceptional finance expense)

£3.8m

£4.3m

-11.3

Basic earnings per share (including exceptional finance expense)

5.1p

6.2p

-17.7

-    Increase in Group revenue of 7.1%, leading to 7.9% increase in adjusted EBITDA to £15.7m

 

-    Proposed dividend of 1.5p per share, representing a 50% increase on prior year

 

-    Like-for-like sales3 growth of 2.9%

 

-    Profit before income tax and Basic earnings per share are reported after an exceptional finance expense of £1.6m incurred as part of the successful and strategically important refinancing secured in December 2011

 

-    Increase in loyalty scheme members from 28,000 to 65,000 during the year

 

-    Acquired and successfully integrated 8 surgeries, bringing the total number of sites at the year end to 231 surgeries

 

-    Significant growth of e-commerce activities with revenue of £3.0m for the year (2011: £0.9m)

 

-    Net debt reduced by £2.6m to £30.9m, after spending £3.8m on acquisitions.

 

1See page 10 of the financial information for a reconciliation of profit before income tax for the year to adjusted earnings before income tax, net finance expense, depreciation, amortisation, costs relating to business combinations and share option expense ("adjusted EBITDA").

2 See note 5 of the financial information for a reconciliation of basic and diluted earnings per share to "adjusted earnings per share".

3 See note 1 of the financial information for definition of like-for-like sales.

 

Chief Executive Comment

"I am pleased to report that we have delivered a good performance in the year, despite difficult economic conditions.  The progress made in growing the membership of our loyalty schemes and the expansion of our e-commerce activities have been notable achievements in the year.  We continue to focus on organic growth whilst also developing new revenue streams and continuing to grow through selective strategic acquisitions."

                                                                                                                       

Contacts:

CVS Group plc

Simon Innes, Chief Executive

Paul Coxon, Financial Director

 

 

01379 644 288

Buchanan

Richard Oldworth/ Louise Hadcocks

 

020 7466 5000

N+1 Brewin - Nominated Adviser & Broker

Aubrey Powell/ Luke Boyce

020 3201 3710



Chairman's statement

Introduction and review of operations for the year

I am pleased to announce the results of CVS Group plc ("CVS", "the Group", or "the Company") for the year ended 30 June 2012.  The Group has delivered a strong performance in the year.

I am also pleased to confirm that new banking facilities were completed in December 2011. 

The Group has grown revenue by 7.1% to £108.7m (2011: £101.5m) and like-for-like sales have increased by 2.9%.  Adjusted EBITDA has increased by 7.9% to £15.7m (2011: £14.5m), and as a percentage of sales has increased marginally from 14.3% to 14.4%. Cash generated from operations amounted to £15.5m (2011: £17.6m); the prior year reflects the benefit of a one-off improvement in supplier payment terms of approximately £2.0m.  Operating profit increased by 6.7% to £6.8m (2011: £6.4m), and Adjusted EPS grew by 12.9% to 15.8p (2011: 14.0p).

Adjusted profit before tax increased to £5.3m (2011: £4.3m) after adding back the exceptional finance expense of £1.6m.  This charge resulted from the termination of the hedging arrangement attached to the debt financing replaced during the year, and reflects the acceleration of future interest charges that would have been incurred over the instrument's term.  Interest expense savings are expected to be achieved over the 5 year duration of the replacement facilities, with average interest payable of around 3.5% under the hedged element of the new facilities compared to 5.5% under the hedged element of the previous arrangement.

The Group has progressed several initiatives to counter the trends we all face given the uncertainty in the general economy.  These initiatives include significant growth in the Group's customer loyalty schemes; rapid expansion of the on-line dispensary (Animed Direct); roll-out of on-line pet shops under the branding of our existing practices; and the launch of our in-house locum agency. 

The Group's customer loyalty programmes comprise the Healthy Pet Club for adult dogs and cats; the Healthy Horse Club (launched in the prior year); the Healthy Puppy and Kitten Club (launched in the latter part of the prior year) and the Healthy Rabbit Club (launched in this financial year). These schemes have been established to bond clients to the practice; to improve loyalty; to increase compliance (particularly with respect to vaccinations, worming and flea treatment); and protect loss of drug sales revenue from surgeries to on-line retailers. The significant increase in client membership is detailed in the business and financial review on page 4.

The Group acquired and integrated 8 surgeries in the year for a combined consideration of £3.8m.  These enhance the Group's presence in the UK veterinary profession and I am pleased to report that these surgeries have performed in line with expectations post acquisition.

The Group has also continued to drive increased sales in the laboratory division as a result of the successful introduction of an expanded sales team.

 

Cash flow and funding position

Cash flow generated from operations was £15.5m, after funding acquisitions of £3.8m.  The Board remains satisfied that the Group is successfully converting profit into cash.

Overall net debt decreased in the year to £31m from £34m, with a corresponding decrease in the gearing of the Group with EBITDA to net debt ratio reducing from 2.31 to 1.98.

The Group made scheduled loan repayments of £1.0m during the first half year in relation to the replaced facilities.  In accordance with the new facilities negotiated in December 2011, no loan repayments are due until December 2013.

The Group has complied with all bank covenants throughout the year, and is projected to continue to do so.

Internally generated cash will be used to fund organic growth, the increased on-line initiatives, and other growth opportunities including future acquisition activity.

 

 



Chairman's statement (continued)

 

Dividends

A maiden dividend of 1.0p per share was paid in December 2011, a payment that was covered 6.2 times by basic earnings per share and 14.0 times by adjusted earnings per share.

Owing to the solid performance and positive outlook of the Group, the Board recommends a further dividend of 1.5p per share, at a cost of £0.9m this is covered 3.4 times by basic earnings per share and 10.5 times by adjusted earnings per share. The Group will continue to review its dividend policy on an ongoing basis with particular regard to the Group's profitability, cash generation and prospects.

If approved at the Annual General Meeting, the dividend will be paid on 21 December 2012 to shareholders on the register on 7 December 2012. The ex-dividend date will be 5 December 2012.

 

Our people

The Group continues to be the largest employer in the UK veterinary profession with approximately 2,300 staff today, including around 550 vets. Our people are our best asset and enable the Group to deliver its strategy.  I would like to thank them all, including those new to CVS in the year, for their expertise and professionalism in providing the best possible veterinary care and service.

Paul Coxon has informed the Board of his desire to step down from his role as Finance Director by the end of the calendar year; a replacement is being sought.  The Board would like to thank Paul for his contribution over the last 9 years and wish him well in the future.

 

Further business development

We estimate that CVS has around 11% of the UK small animal veterinary market measured by wholesaler spend, which demonstrates the opportunity for further growth and consolidation.

 

Outlook

We continue to focus on developing the business profitably by furthering ways to extract operational efficiency, improve business performance, grow through selective acquisitions and generate new revenue streams.

The Board remains cautiously optimistic about the Group's future and sees further growth opportunities supported by strong cash generation and a return to more favourable economic conditions.

 

Richard Connell

Chairman

24 September 2012

 

 

Business and financial review

CVS has continued to deliver growth in terms of revenues and pre-exceptional profits over the prior year.  Group revenue increased to £108.7m (2011: £101.5m), and Adjusted EBITDA increased to £15.7m (2011: £14.5m). Operating profit was ahead of the prior year at £6.8m (2011: £6.4m), however reported Profit before tax at £3.8m showed a decline against the prior year (£4.3m) primarily due to the £1.6m exceptional finance expense recognised as a result of terminating existing hedging arrangements during the year.

Management uses Adjusted EBITDA and Adjusted earnings per share ("EPS") financial measures as the basis for assessing the underlying financial performance of the Group.  These terms are not defined by International Financial Reporting Standards and therefore may not be directly comparable with other companies' adjusted profit measures. 

Factors that have influenced the improvement in the Adjusted EBITDA figure compared with the prior year include the full year effect of previous year acquisitions, augmented by acquisitions made during the year, and growth of e-commerce activities. 

Following the decline in Adjusted EBITDA margin in the prior year, it is pleasing to report that a slight improvement has been achieved in the current year at 14.4% (2011: 14.3%), particularly in light of the dilutive margin effect of the growing revenues from the e-commerce activities.  These activities are strategically important to expand the Group's operations into a growing market where CVS buying power provides opportunity to price aggressively and provide a greater product range.  This is resulting in a rapid expansion, however these activities do, by their nature, have a lower margin rate of return than the rest of the business operations.

Adjusted earnings per share (as defined in note 5 to the financial information) was 15.8p (2011: 14.0p).  Basic earnings per share was below prior year at 5.1p (2011: 6.2p) as a result of the exceptional finance expense incurred in the year.

 

Divisional performance

Practice

The Group is the leading national veterinary surgery operator and consolidator, and is primarily focused on the small animal market. Revenue amounted to £101.8m, an increase of 7.5% on the prior year.

The Practice division's activities are carried on under a number of well established local brands and it is the Group's policy to retain these following acquisition.

In the year, CVS acquired 6 practices, operating from 8 locations.  These practices contributed £1.8m of revenue in the year, which corresponds to around £5m in a full year.

The practice division is led by our Director of Practice Operations who is supported by our Director of Clinical Services and a divisional management structure underpinned by a combination of local practice and regional area managers. These provide a combination of clinical and retail management experience.

A number of ongoing initiatives have been implemented to improve the operational effectiveness of the division, including:

-    Regional practice performance benchmarking.

-    Identifying and agreeing priority measures to support poorer performing sites.

-    Further developing the client membership of the Group's customer loyalty schemes.

-    Enhanced e-commerce activity with the re-launch of the website for the Group's on-line dispensary during the year and establishment of 5 on-line shops to complement the practice websites.

Business and financial review (continued)

The Healthy Pet Club loyalty scheme has continued to grow in the year with 37,000 pets being added to the scheme, of which 25,000 relate to pets on the Puppy and Kitten scheme launched in the prior year. This benefits the division by driving customer loyalty, encouraging clinical compliance, protecting revenue from drug sales, and bringing more customers into the surgery.  At the year end total pet members stood at more than 65,000 (2011: 28,000), an increase of 132% over the previous year. Monthly subscription revenue generated in the year more than doubled to £5.2m (2011: £2.4m).

Benefits from increasing economies of scale continue to be enjoyed by the Practice division in terms of drug buying, overheads and infrastructure.  However, these improvements were offset slightly by the impact of lower margin sales in respect of on-line trading.

Animed Direct, our on-line trading platform, has continued to trade ahead of expectations, delivering sales of £3.0m during the year (2011: £0.9m).

The Adjusted EBITDA for the Practice division grew by £1.0m to £18.7m and the Profit before tax by £0.6m to £12.1m, primarily due to the impact of acquisition activity in the current and prior year together with the growth of the on-line activities.

As the Practice division grows it will continue to complement the growth in the Laboratory and Crematorium divisions.

 

Laboratory

The Group operates 6 laboratories in the UK which provide diagnostic services to third party veterinary surgeries (68% of revenues) as well as CVS owned veterinary surgeries (32% of revenues). Services are generally provided via courier and postal services allowing complete coverage of the UK.

The laboratory division delivered an encouraging performance in spite of the economic factors already mentioned, whilst operating within a landscape that continues to be competitive.  Revenue rose by £0.5m and Adjusted EBITDA rose by £0.2m, despite the competitive trading environment within the veterinary diagnostic market. 

The Director of Laboratory Operations continues to focus on growth and has enhanced the sales team in order to retain existing customers and help broaden the client base.  It is pleasing to note that the growth in the division has largely been achieved through the enhancements made to the sales team during the year.

 

Crematorium

The Rossendale crematorium delivered revenue of £0.9m (2011: £0.8m) and an Adjusted EBITDA of £0.4m (2011: £0.3m), being 40.8% of sales (2011: 39.9%).

In addition to services provided to non group practices and the general public, the division also serves CVS practices in the North and Midlands which account for 36% of its revenues.

 

Central administration

The Group's approach to centralising the administrative and management functions continues to be an integral part of the strategy of the business which enables the other divisions to focus on clinical and operational matters and enjoy the benefits of a centralised support function.

 

On an adjusted basis, the total costs for the central administration segment remained at £4.5m, representing 4.2% of revenue (2011: 4.4%), illustrating management's ability to control central costs.

 

The Loss before tax for the central administration segment increased from £8.1m to £9.3m, being 8.6% of revenue (2011: 8.0%), due to the £1.6m exceptional finance charge arising on the termination of the previous hedging arrangement during the year, as referred to above.  On a pre-exceptional basis, central administration costs were down year on year.

 

 

 

 

Other financial highlights

 

Net finance expenses of £3.0m represent an increase of £0.9m (43.1%) compared to the previous year, reflecting the exceptional finance expense of £1.6m and interest expense savings of £0.7m due to lower debt and better financing arrangements.

 

The Group recorded a decrease in reported Profit before tax for the year of £0.5m to £3.0m representing a decrease of 13.5% on the previous year.  This decrease was primarily due to the exceptional finance expense incurred on termination of existing hedge arrangements during the year; adjusted profit before exceptional finance increased by 31.5% to £4.6m.

 

Cash generated from operations amounted to £15.5m, which has allowed the Group to self-fund acquisitions with a consideration of £3.8m made during the year whilst significantly reducing net debt by £2.6m to £30.9m.

 

 

Business and financial review (continued)

Key performance indicators ('KPIs')

The Directors monitor progress against the Group strategy by reference to the following financial KPIs.  Performance during the year is set out in the table below:

 


2012

2011

Definition, method of calculation and analysis

Revenue

£108.7m

£101.5m

Total Revenue of the Group.

Positives - Acquisitions, growth in the Group's customer loyalty scheme membership, and the e-commerce activities of the Group.

Negatives - Prevailing economic conditions.

Adjusted EBITDA

£15.7m

£14.5m

Adjusted EBITDA represents earnings before income tax, net finance expense, depreciation, amortisation, costs relating to business combinations and share option expense.

Positives - Acquisitions, improved buying terms, cost control, and growth of e-commerce activities.

Negatives - Lower margin rates of return from e-commerce activities.

Adjusted EPS

15.8p

14.0p

Earnings, adjusted for amortisation, share option expense, costs relating to business combinations, non-recurring tax credits and fair value adjustments, net of the notional tax impact of the above, divided by the number of issued shares.  The increase reflects the above effects to adjusted EBITDA augmented by reductions in finance costs and the effective tax rate.

Cash generated from operations

£15.5m

£17.6m

Cash generated from operations has decreased due to the benefit of a one-off improvement in supplier payment terms during the prior year.

Like-for-like sales performance

2.9%

0.4%

Revenue generated from all operations compared to prior year (on a pro-forma basis, i.e. including pre-acquisition revenues in respect of acquisitions in the current and comparative periods), after adjusting for sites under refurbishment and discontinued operating activities.

Positives - On-going initiatives with on-line activities, including the re-launch of Animed Direct website during the year.

Negatives - Prevailing economic conditions.

Return on investment on acquisitions made during the year

22.8%

31.9%

Annualised EBITDA relating to business and subsidiaries acquired during the year compared to the consideration paid.

Positives - Acquisitions trading well.

Negatives - Second half weighting of acquisition activity.

 Business and financial review (continued)

Funding and treasury management

As at 30 June 2012, the Group had net debt of £30.9m (2011: £33.5m) comprising debt of £35.8m (net of issue costs) and cash of £4.9 m.  

The Group secured new bank funding during the year, comprising a £36.0m 5 year term loan with a 2 year capital repayment holiday, and £4.0m overdraft facility.

The Board considers that maintaining a reasonably leveraged balance sheet is appropriate for the Group, given the strong and stable nature of its cash flows.

The Group has a centralised treasury function to manage interest rate risk. Derivative instruments are used solely to mitigate these risks. Interest rate swap arrangements are used to manage exposure to interest rate fluctuations, whilst allowing some benefit of reductions in interest rates. At the year end, the Group had interest hedging arrangements in place covering £21.6m (60%) of bank debt. The Group sweeps funds daily from its various bank accounts into deposit accounts to optimise interest generation.

 

Business environment

The Group generated a like-for-like sales increase of 2.9% in the current year.  This achievement of growth is regarded by the Board as being an indicator of the resilience of the business and the veterinary market.

 

The Board is focused on a number of initiatives as outlined previously to combat prevailing economic conditions.

 

Principal risks and uncertainties

The Group's operations are subject to a number of risks that include the impact of competition, continued employment and recruitment of key personnel and the maintenance of clinical standards.

Competition

The Group is exposed to a degree of risk through the actions of competitors. However, the geographic spread of the Group's businesses and the fragmented nature of the market mean that the Directors do not consider this to be a significant risk.   Furthermore, the expansion of the Group's customer loyalty schemes and the growth of Animed Direct, our on-line dispensary and pet shop, provide further mitigation against the risk of competition.

Key personnel

The Group has limited risk in relation to the ability to attract and retain appropriately qualified veterinary surgeons. The Group is committed to the development of its employees and will continue to recruit specialist and qualified professionals to promote its services. The involvement of senior personnel is encouraged through the operation of the Group's LTIP scheme which has been offered more widely to senior management in the year.  A further SAYE scheme, available to all staff, was set up in the year.

Clinical standards

It is of the utmost importance to the Group that the clinical care delivered to our patients is at the standard expected by customers, industry forums and regulatory authorities.  The Group has established a formal organisation structure that allows clinical policies and procedures to be developed and ensure day-to-day compliance monitoring.  The Group has further mitigated any risk by ensuring that suitable insurance policies are taken out at both an individual and corporate level.

Economic environment

The current economic environment potentially poses a risk to the Group through reduced consumer spending on veterinary, laboratory and crematorium services. In the year under review, the Group has shown some resilience to the challenging economic conditions.

 

Business and financial review (continued)

The Practice division has continued to grow its payment plan based customer loyalty schemes during the year as a way of mitigating this risk.  The plans have significant benefits in terms of stimulating customer loyalty, ensuring clinical compliance for the pet, protecting revenue from drug sales, and bringing customers into the surgery. 

 

Adverse weather

In common with many businesses the Group's revenue is adversely affected during sustained periods of severe winter weather.

 

As the Group continues to widen its geographical presence the exposure to this risk will be mitigated to some extent.

 

Key contractual arrangements

The directors consider that the Group has only one significant third party supplier contract which is for the supply of veterinary drugs. In the event that this supplier ceased trading the Group would be able to continue in business without any disruption in trading by purchasing from alternative suppliers.

 

Future developments

The Group will focus its activities on developing its organic business in all three operating divisions.  In addition, selective acquisitions may continue.

 

 

 

 

Simon Innes

Chief Executive

24 September 2012

Forward looking statements

Certain statements in these preliminary results 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 have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.

 

Consolidated income statement for the year ended 30 June 2012


Note

   2012
£'000

 

   2011
£'000

 

Revenue

2

108,745

101,491

Cost of sales


(69,584)

(64,817)

Gross profit


39,161

36,674

Administrative expenses


(32,376)

(30,316)

Operating profit


6,785

6,358

Fair value adjustments in respect of financial assets and liabilities


26

(183)

Exceptional finance expense in relation to hedge termination


(1,569)

-

Other finance expense


(1,515)

(1,945)

 

 

Other finance income


47

24

Net finance expense


(3,011)

(2,104)

Profit before income tax

2

3,774

4,254

Income tax expense

4

(886)

(767)

Profit for the year attributable to owners of the Parent


2,888

3,487





Earnings per ordinary share for profit attributable to owners of the Parent (expressed in pence per share) ("EPS")

Basic

5

5.1p

6.2p

Diluted

5

5.0p

6.1p

 

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 share option expense.

 

Non-GAAP measure: Adjusted EBITDA

Note

£'000

£'000

Profit before income tax

2

3,774

4,254

Adjustments for:




Net finance expense


3,011

2,104

Depreciation


2,305

2,233

Amortisation


5,655

5,348

Costs relating to business combinations

3

280

139

Share option expense


628

435

Adjusted EBITDA

2

15,653

14,513



 

Statement of consolidated comprehensive income for the year ended 30 June 2012

 

 

Note

2012

£'000

2011
£'000

Profit for the year

 

2,888

3,487

Other comprehensive income

 

 

 

Revaluation of available for sale investments

 

(1)

3

Cash flow hedges:

 

 

 

Fair value (losses)/ gains

 

(448)

715

Deferred tax on fair value (losses)/ gains

 

108

(185)

Recycled and adjusted against interest

 

1,614

83

Deferred tax on items recycled against interest

 

(468)

(22)

Other comprehensive income for the year, net of tax

 

805

594

 

Total comprehensive income for the year attributable to owners of the Parent

 

3,693

4,081

 

Consolidated balance sheet as at 30 June 2012




Note


2012
£'000

 
2011
£'000

Non-current assets




Intangible assets


52,538

54,486

Property, plant and equipment


9,570

8,465

Investments


53

77

Deferred income tax assets


459

697



62,620

63,725

Current assets




Inventories


3,177

2,633

Trade and other receivables


9,147

8,049

Cash and cash equivalents


4,865

3,193



17,189

13,875

Total assets

2

79,809

77,600

Current liabilities




Trade and other payables


(17,543)

(15,894)

Current income tax liabilities


(923)

(932)

Borrowings

8

(11)

(3,962)



(18,477)

(20,788)

Non-current liabilities




Borrowings

8

(35,772)

(32,777)

Deferred income tax liabilities


(4,759)

(5,795)

Derivative financial instruments


(448)

(1,669)



(40,979)

(40,241)

Total liabilities

2

(59,456)

(61,029)

 

Net assets


20,353

16,571

 



Consolidated balance sheet as at 30 June 2012 (continued)




Note


2012
£'000


2011
£'000

Shareholders' equity




Share capital


113

113

Share premium


8,640

8,640

Capital redemption reserve


592

592

Revaluation reserve


125

125

Merger reserve


(61,420)

(61,420)

Retained earnings


72,303

68,521

Total equity


20,353

16,571

 

 

The financial information comprising the consolidated income statement, the statement of consolidated comprehensive income, the consolidated balance sheet, the consolidated statement of changes in shareholders' equity, the consolidated cash flow statement and the related notes, were authorised for issue by the Board of Directors on 24 September 2012 and were signed on its behalf by:

 

 

 

 

P Coxon

Director

S Innes

Director

 

Consolidated statement of changes in equity for the year ended 30 June 2012

 




 Share  capital

Share premium

Capital redemption reserve

Revaluation reserve

Merger reserve

Retained earnings

     Total equity


£'000

£'000

£'000

£'000

£'000

£'000

£'000

At 1 July 2010

113

8,640

592

125

(61,420)

63,999

12,049

Profit for the year

-

-

-

-

-

3,487

3,487

Other comprehensive income








Revaluation of available for sale investments

-

-

-

-

-

3

3

Cash flow hedges:








Fair value gains

-

-

-

-

-

715

715

Deferred tax on fair value gains

-

-

-

-

-

(185)

(185)

Recycled and adjusted against interest

-

-

-

-

-

83

83

Deferred tax on items recycled against interest

-

-

-

-

-

(22)

(22)

Total other comprehensive income

-

-

-

-

-

594

594

Total comprehensive income

-

-

-

-

-

4,081

4,081

Transactions with owners








Credit to reserves for share-based payments

-

-

-

-

-

435

435

Deferred tax relating to share-based payments

-

-

-

-

-

6

6

Transactions with owners

-

-

-

-

-

441

441

At 30 June 2011

113

8,640

125

(61,420)

68,521

16,571

 




 Share  capital

Share premium

Capital redemption reserve

Revaluation reserve

Merger reserve

Retained earnings

     Total equity


£'000

£'000

£'000

£'000

£'000

£'000

£'000

At 1 July 2011

113

8,640

592

125

(61,420)

68,521

16,571

Profit for the year

-

-

-

-

-

2,888

2,888

Other comprehensive income








Revaluation of available for sale investments

-

-

-

-

-

(1)

(1)

Cash flow hedges:








Fair value (losses)

-

-

-

-

-

(448)

(448)

Deferred tax on fair value gains

-

-

-

-

-

108

108

Recycled and adjusted against interest

-

-

-

-

-

1,614

1,614

Deferred tax on items recycled against interest

-

-

-

-

-

(468)

(468)

Total other comprehensive income

-

-

-

-

-

805

805

Total comprehensive income

-

-

-

-

-

3,693

3,693

Transactions with owners








Credit to reserves for share-based payments

-

-

-

-

-

628

628

Deferred tax relating to share-based payments

-

-

-

-

-

28

28

Dividends to equity holders of the Company

-

-

-

-

-

(567)

(567)

Transactions with owners

-

-

-

-

-

89

89

At 30 June 2012

113

8,640

125

(61,420)

72,303

20,353

Consolidated cash flow statement for the year ended 30 June 2012



Note


2012
£'000


2011
£'000

Cash flows from operating activities




Cash generated from operations

9

15,546

17,639

Taxation paid


(2,025)

(1,267)

Interest received


47

24

Interest paid


(1,261)

(1,840)

Exceptional finance expense in relation to hedge termination


(1,598)

-

Net cash generated from operating activities


10,709

14,556

Cash flows from investing activities




Acquisition of businesses

6

(3,765)

(4,040)

Acquisition of subsidiaries (net of cash acquired)

6

-

(152)

Purchase of property, plant and equipment


(3,205)

(1,803)

Purchase of intangible assets


(368)

(141)

Proceeds from sale of property, plant and equipment


57

111

Proceeds from sale of investments


23

-

Net cash used in investing activities


(7,258)

(6,025)

Cash flows from financing activities




Dividends paid


(567)

-

Finance lease principal payments


(11)

(7)

Repayment of bank loan


(1,012)

(5,175)

Drawdown of new loan


100

-

Debt issuance costs


(289)

-

Net cash used in financing activities


(1,779)

(5,182)

Net increase in cash and cash equivalents


1,672

3,349

Cash and cash equivalents at beginning of year


3,193

(156)

Cash and cash equivalents at end of year


4,865

3,193





 



Notes to the consolidated financial information for the year ended 30 June 2012

 

1.  Summary of significant accounting policies

 

Statement under s498 - publication of non-statutory accounts

The financial information set out in this preliminary announcement does not constitute statutory financial statements for the years ended 30 June 2012 or 2011, for the purpose of the Companies Act 2006, but is derived from those financial statements. Statutory financial statements for 2012, on which the Group's auditors have given an unqualified report which does not contain statements under Section 498(2) or (3) of the Companies Act 2006, will be filed with the Registrar of Companies subsequent to the Group's next annual general meeting. Statutory financial statements for 2011 have been filed with the Registrar of Companies. The Group's auditors have reported on those accounts; their reports were unqualified and did not contain statements under Section 498(2) or (3) of the Companies Act 2006.

Basis of preparation

The consolidated financial statements, from which this preliminary announcement is derived, have been prepared on a going concern basis and under the historical cost convention, except for certain financial instruments that have been measured at fair value. The Group has operated within the levels of its current debt facility and complied with both the financial and non-financial covenants contained in the facility agreement therein throughout the year under review and to the date of the approval of the financial statements. The Group is forecasting that it will continue to operate within the levels of its current facility and comply with the financial and non-financial covenants contained in the facility agreement. On this basis the Directors consider it appropriate to prepare the consolidated financial statements on the going concern basis.

Whilst the financial information included in this preliminary announcement has been prepared in accordance with the International Financial Reporting Standards (IFRSs) as adopted for use in the European Union and as issued by the International Accounting Standards Board, this announcement does not itself contain sufficient information to comply with IFRS. Other than as stated below, the accounting policies applied in preparing this financial information are consistent with the Group's financial statements for the year ended 30 June 2012.

Changes in accounting policy and disclosure

Standards, amendments and interpretations effective in the year ended 30 June 2012

The following amendments to existing standards and interpretations were effective for the current period, but the adoption of these amendments to existing standards and interpretations did not have a material impact on these financial statements:

·      Annual improvements to IFRSs (2010).

·      Amendment to IFRS 1, 'First time adoption', on fixed dates and hyperinflation.

·      Amendments to IFRS 7, 'Financial instruments: Disclosures' on derecognition.

·      IAS 24 (Revised), 'Related Party Disclosures.'

·      Amendment to IFRIC 14, 'IAS 19 - The limit on a defined benefit assets, minimum funding requirements and their interaction', effective for annual periods beginning on or after 1 January 2011.

1.   Summary of significant accounting policies (continued)

 

Use of non-GAAP measures

 

Adjusted EBITDA

The Directors believe that adjusted EBITDA provides additional useful information for shareholders on underlying trends and performance. These measures are used for internal performance analysis. Adjusted EBITDA is not defined by IFRS and therefore may not be directly comparable with other companies' adjusted profit measures. It is not intended to be a substitute for, or superior to, IFRS measurements of profit.  Adjusted EBITDA is calculated by reference to profit/(loss) before income tax, adjusted for interest (net finance expense), depreciation, amortisation, share option expense and costs relating to business combinations.

 

Like-for-like sales

Like-for-like sales comprise the revenue generated from all operations compared to the prior year (on a pro forma basis, i.e. including pre acquisition revenues in respect of acquisitions in the current and comparative periods), after adjusting for sites under refurbishment and discontinued operating activities.

2.    Segmental reporting

Segment information is presented in respect of the Group's business and geographical segments. The primary format, operating segments, is based on the Group's management and internal reporting structure. Inter-segment pricing is determined on an arm's length basis.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly interest-bearing borrowings and associated costs, taxation related assets/liabilities, costs relating to business combinations and head office salary and premises costs. 

Geographical segments

The business operates predominantly in the UK. It performs a small amount of laboratory work for European based clients. 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.

Operating segments

The Group is split into three operating segments; veterinary practices, laboratories, crematorium and a centralised support function for business segment analysis:

Year ended 30 June 2012

 

Veterinary practices
£'000

Laboratories
£'000

Crematorium        £'000

Head     office
£'000

Group
£'000

Revenue1

101,828

9,088

893

 (3,064)1

108,745

Profit/(loss) before income tax

12,094

703

314

(9,337)

3,774

Adjusted EBITDA

18,666

1,146

364

(4,523)

15,653

Total assets

70,909

6,372

1,330

1,198

79,809

Total liabilities

(15,743)

(2,578)

(184)

(40,951)

(59,456)







Reconciliation of adjusted EBITDA






Profit/(loss) before income tax

12,094

703

314

(9,337)

3,774

Net finance expense

3

(9)

-

3,017

3,011

Amortisation

4,601

266

-

788

5,655

Depreciation

1,968

186

50

101

2,305

Share option expense

-

-

-

628

628

Costs relating to business combinations

                   -

                      -

                     -

 

280

         

280

Adjusted EBITDA

18,666

1,146

364

(4,523)

15,653

1Inter-segment revenues representing laboratory sales and crematorium fees to veterinary practices eliminated on consolidation.

 

2.    Segmental reporting (continued)

 

Year ended 30 June 2011

 

Veterinary practices
£'000

Laboratories
£'000

Crematorium
£'000

Head     office
£'000

Group
£'000

Revenue1

94,704

8,584

835

(2,632)1

101,491

Profit/(loss) before income tax

11,456

585

294

(8,081)

4,254

Adjusted EBITDA

17,696

994

333

(4,510)

14,513

Total assets

71,316

4,533

1,104

647

77,600

Total liabilities

(14,734)

(1,276)

(64)

(44,955)

(61,029)







Reconciliation of adjusted EBITDA






Profit/(loss) before income tax

11,456

585

294

(8,081)

4,254

Net finance expense

4

(1)

-

2,101

2,104

Amortisation

4,290

261

-

797

5,348

Depreciation

1,946

149

39

99

2,233

Share option expense

-

-

-

435

435

Costs relating to business combinations

                   -

                      -

                     -

           

139

          

139

Adjusted EBITDA

17,696

994

333

(4,510)

14,513

1Inter-segment revenues representing laboratory sales and crematorium fees to veterinary practices eliminated on consolidation.

 

3.    Costs relating to business combinations

       IFRS 3 (revised) requires all costs relating to business combinations to be expensed directly in the income statement. The charge for the year ended 30 June 2012 was £280,000 (2011: £139,000), of which £105,000 (2011: £94,000) related to transaction costs and £175,000 (2011: £45,000) related to contingent deferred consideration in respect of business combinations in the current and prior year which is linked to ongoing employment of the vendor.



 

4.    Income tax expense

(a)        Analysis of income tax expense recognised in the income statement


2012
£'000

2011
£'000

Current tax expense



UK corporation tax

1,984

1,662

Adjustments in respect of previous years

32

(37)

Total current tax charge

2,016

1,625

Deferred tax expense



Origination and reversal of temporary differences

(907)

(593)

Adjustments in respect of previous years

169

146

Effect of tax rate change on opening deferred tax balance

(392)

(411)

Total deferred tax credit

(1,130)

(858)

Total income tax expense

886

767

 

Factors affecting the current tax charge

UK corporation tax is calculated at 25.5% (2011: 27.5%) of the estimated assessable profit for the year.  The standard rate of UK corporation tax changed from 26% to 24% with effect from 1 April 2012.

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:


2012
£'000

2011
£'000

Profit before tax

3,774

4,254

Effective tax charge at 25.5% (2011: 27.5%)

962

1,170

Effects of:



Expenses not deductible for tax purposes

115

51

Effect of tax rate change on opening deferred tax balance

(392)

(411)

Adjustments to deferred tax charge in respect of previous years

169

146

Adjustments to current tax charge in respect of previous years

32

(37)

Utilisation of previously unrecognised deferred tax losses

-

(39)

Recognition of previously unrecognised deferred tax asset

-

(113)

Total income tax expense

886

767

 

 

  

5.    Earnings per ordinary share

 

(a)  Basic

Basic earnings per ordinary share are calculated by dividing the profit after taxation by the weighted average number of shares in issue during the year.


2012

2011

Earnings attributable to ordinary shareholders (£'000)

2,888

3,487

Weighted average number of ordinary shares in issue

56,604,558

56,408,647

Basic earnings per share (pence per share)

5.1

6.2

(b)  Diluted

Diluted earnings per share is calculated by adjusting the weighted average number of Ordinary shares outstanding to assume conversion of all dilutive potential Ordinary shares. The Company has potentially dilutive Ordinary shares being the contingently issuable shares under the Group's long term incentive plan schemes.  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.

 


2012

2011

Earnings attributable to Ordinary shareholders (£'000)

2,888

3,487

Weighted average number of Ordinary shares in issue

56,604,558

56,408,647

Adjusted for contingently issuable shares

 

1,216,392

1,003,090

Weighted average number of Ordinary shares for diluted earnings per share

 

57,820,950

57,411,737

Diluted earnings per share (pence per share)

5.0

6.1

 

 

 

5.    Earnings per ordinary share (continued)

Non-GAAP measure: Adjusted earnings per share

Adjusted earnings per Ordinary share is calculated by dividing the profit after taxation excluding amortisation, share option expense, costs relating to business combinations, non-recurring tax credits and fair value adjustments, and having adjusted for the tax effects of such adjustments, by the weighted average number of shares in issue during the year.

 

 

 
2012
2011
 
£’000
£’000
Earnings attributable to Ordinary shareholders
2,888
3,487
Adjustments for:
 
 
Amortisation
5,655
5,348
Share option expense
628
435
Fair value adjustments in respect of financial assets and liabilities
(26)
183
Exceptional finance expense
1,569
-
Costs relating to business combinations
280
139
Tax effect of the above adjustments at 25.5% (2011: 27.5%)
(2,067)
(1,679)
Adjusted profit after income tax and earnings attributable to ordinary shareholders
8,927
7,913
 
 
 
Weighted average number of Ordinary shares in issue
56,604,558
56,408,647
Weighted average number of Ordinary shares for diluted earnings per share
 
57,820,950
57,411,737
 
Pence
Pence
Adjusted earnings per share
15.8p
14.0p

 

 
Diluted adjusted earnings per share                                                                                                       15.4p             13.8p

 

 

 

 6.    Business combinations

Details of business combinations in the year ending 30 June 2012 are set out below, in addition to an analysis of post acquisition performance of the respective business combinations, where practicable. All business combinations have been accounted for under the acquisition method.  All intangible assets are recognised at their respective fair values. 

Given the nature of the veterinary surgeries acquired (mainly partnerships or sole traders) and the records maintained by such practices it is not practicable to disclose the revenue or profit/loss of the combined entity for the year as though the acquisition date for all business combinations effected during the year had been the beginning of that year. It is not practicable to disclose the impact of the business combinations on the consolidated cash flow statement as full ledgers were not maintained for each business combination in relation to all related assets and liabilities post acquisition.

 

 

 

6.   Business combinations (continued)

Trade and assets acquisitions

The table below summarises the trade and assets acquisitions in the year ended 30 June 2012:

Assets and trade

 

 

 

Date of acquisition

 

Fair value of property plant and equipment acquired

£'000

 

Fair value of inventory acquired

£'000

Fair value of intangible assets acquired1

£'000

 

 

Cash consideration

£'000

A practice in:






Hertfordshire

22/08/2011

16

22

1,062

1,100

Cheshire

10/10/2011

50

7

354

411

Hampshire

23/01/2012

39

11

147

197

Berkshire

17/04/2012

40

11

658

709

Devon

15/05/2012

60

30

662

752

Cornwall

18/06/2012

56

19

456

531



261

100

3,339

3,700

1Intangible assets acquired represents patient data records (£3,339,000).

 

Of the above consideration, £50,000 remains unpaid at the balance sheet date.

 

In addition to the payments detailed above, contingent deferred consideration of £75,000 has been recognised in respect of the above business combinations.  In accordance with IFRS 3 (revised), these costs will be recognised in the income statement based on the crystallisation of the contingent event.

 

£115,000 of deferred consideration payments in relation to the acquisition of practices for the year ended 30 June 2011 has been paid in this period, as shown in the consolidated statement of cash flows.

 

Analysis of post acquisition performance:

 

 

 

 

Post-acquisition revenue1   £'000

Post-acquisition EBITDA2 £'000

A practice in:

 

 

 

 

Hertfordshire

 

 

954

188

Cheshire

 

 

349

44

Hampshire

 

 

170

(11)

Berkshire

 

 

154

31

Devon

 

 

140

20

Cornwall

 

 

36

9

 

 

 

1,803

281

1Post-acquisition revenue represents revenue from the date of acquisition to 30 June 2012.

2Post-acquisition EBITDA represents the direct operating result of practices prior to the allocation of central overheads, on the basis that it is not practicable to allocate these, from the date of acquisition to 30 June 2012.

 



 

7.   Dividends

 


2012

£'000

2011

£'000

Amounts recognised as distributions in the year in respect of:



Ordinary shares - final dividend 2011 - 1.0p per share

567

-

 

The Directors have proposed a final dividend of 1.5p (2011: 1.0p) per share (total £850,000), payable on 21 December 2012 to shareholders on the register at the close of business on 7 December 2012.

The dividend has not been included as a liability as at 30 June 2012.

 

8.    Borrowings

 

 


2012
£'000

2011
£'000

Current



Bank loans

-

3,952

Finance leases

11

10


11

3,962

 

 


2012
£'000


2011
£'000

Non-current



Bank loans

35,744

32,737

Finance leases

28

40


35,772

32,777

 

 

 

 

 

 

9.      Cash flow generated from operations


 2012
£'000

  2011
£'000

Profit for the year

2,888

3,487

Taxation

886

767

Total finance costs

3,058

2,128

Investment income

(47)

(24)

Amortisation of intangible assets

5,655

5,348

Depreciation of property, plant and equipment

2,305

2,233

Contingent deferred consideration expensed in the year

175

45

(Profit)/loss on disposal of property, plant and equipment

(1)

36

Increase in inventories

(444)

(115)

(Increase) in trade and other receivables

(1,198)

(1,127)

Increase in trade and other payables

1,641

4,426

Share option expense

628

435

Total net cash flow generated from operations

15,546

17,639

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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