CVS Group (LSE:CVSG) Q4 2026 Earnings Call

0:01 Welcome to this live stream of the CBS Group analyst presentation following the release of our full year financial results earlier this morning. I'm Richard Fairman, CEA, and alongside me are Robin Alfonso, our CFA, and Paul Higgs, our Chief Veterinary Officer. The results we've announced this morning demonstrate another year of growth and strategic progress. We deliver results in line with market expectations, with Improved like-to-like revenue growth versus the prior year, further strengthened the business and we enhanced our platform for future growth. Revenue increased by 5.9% to 712.8 million, reflecting positive momentum across the business with all three divisions driving growth.

0:51 and that was despite softer market conditions in the final quarter as a result of continued softer consumer confidence in the UK and the exceptionally hot spells of weather at the end of May and again at the end of June. Adjusted EBITDA increased by 5.1% to £141.5 million with margins being maintained despite continued inflationary pressures in the financial year. Adjusted earnings per share increased by 6.9% to 85.6 pence benefiting from the improved financial performance and also from the reduction in our average number of shares following shares which were cancelled as a result of our share buyback program.

1:37 We further increased our presence in Australia completing six acquisitions in the financial year comprising 14 sites for consideration of 43.3 million pounds and in the new financial year we've completed a further two acquisitions in Australia. We've signed a further two contracts for acquisitions in Australia and I'm delighted to announce that we've signed a contract for our first acquisition in the UK for some time. We will continue to be selective in our acquisition approach. We now have certainty following the conclusion of the CMA process with a number of remedies implemented and others in hand.

2:22 We've seen a solid start to the new financial year and expect to perform in line with market consensus and we remain confident in our ability to drive growth in shareholder value over the coming years. I would now like to open the call and invite analyst questions. As this event is being live streamed, as you ask your questions it will be helpful if you can state your name and firm. Pace

2:49 Good morning, Cain Slatsky in Deutsche. Just quickly on the sort of start to FY27, you sort of say it's positive. Could you give us a little bit more than that, given we're three months, nearly three months in, Robin? Maybe just sort of some view as to what the exit rate could be by the end of the half. That would be the first one.

3:12 I think for what we said at the back end of last year, we delivered light flight growth of 2.1%. We saw a stronger first half than we did second half and the second half was mainly impacted in the final quarter by extreme weather that we experienced particularly in the UK. The extreme weather continued into July so there was some impact from weather in July but pleasingly we saw August's performance back in line with what we were seeing in the first half of last year. The first half. So closer to 3.7.

3:57 Just a little bit about the R&D release, the tax credit release. If I kind of look at it on my pulse, it looks like that incremental was about 3 million or so year on year and might sort of explain nearly half of the EBITDA growth. So just want to get a sense, what should we be expecting sort of going forward for both the income and the sort of provision release?

4:19 Yeah, so the RDEC recognition for last year was 15.1 million for the prior year. The RDEC recognition for this year is 15.7, so it's a consistent RDEC number year on year. Moving forward, we'd expect that RDEC income to be similar, slightly less, but similar actually in the region of 15 million. So we recognise 15 million in 24 25, 15 million in 26 we expect a further 15 million ish in 27 so it's consistent in terms of the provision release it's just I think the we are we take quite prudent approach to our RIDAC claims so we do provide for uncertainty each year we make a claim each year we go to HMRC that uncertainty unwinds because we are more confident that we will have that money come in from HMRC and therefore it was right that we reduced that provision.

5:20 I expect that provision to reduce further next year. But I suppose the critical thing is in terms of run rate, you know, 15 million, 15 million, close to 15 million again. Hi, thanks. It's Andrew from Investec. Two questions, if I may, please. I see you're appointing a chief client officer. Do you mind just describing what their role might be and how that might work going forward? And then I'll come back to this.

5:51 I guess we recognise that now we have a joint brand and The investment we've made in technology improving the client journey, there's more we can now do in terms of central marketing and CRM activity. Clearly the economic backdrop has been challenging the last couple of years, the CMA process has had an impact. but yeah there are things within our gift to drive client footfall and through enhanced marketing CRM activity we believe we can drive improved football and improve the client service generally across the business so that new role will be part of our executive committee and will be very much focused on that activity. and then UK acquisitions I see you've not completed but exchange contracts it's a relatively material number it's sort of 15 million quid for that acquisition and I think you've got 50 sort of earmarked for acquisitions across the geographies and there's loads to go after in Australia as well I know it's a value creation or capital allocation consideration that you're doing but that 15 million quid is quite a big chunk of your future spend is that a comment on just the opportunity are we expecting more of that in the future and you know I'm just curious on the balance sheet and where that sort of leverage can get to

7:18 Yeah I mean we've made it clear that we were keen to return to UK acquisitions where we saw accretive opportunities and this is a very good quality practice over two sites. The 50 million I think will be well spent. The multiple we haven't disclosed but we've said the multiple is accretive to the group in terms of value. We are still very keen on Australia. We see a strong pipeline of opportunity. So I'm hoping we can do more acquisitions in Australia alongside UK acquisitions. But we will continue to be selective as we always have been. And Andrew, if that means spending more than 50 million, provided we've got the capital to do so, then absolutely. And you said previously you might nip over that too. Yeah I mean we've said that investor appetite for leverage is mixed but obviously we've said two times is our kind of stated ceiling but we have said that if we have accretive acquisition opportunities given that we generate cash and we know we do lever quite quickly we may temporarily go above two times if we see the right opportunities so that's an option.

8:21 Brilliant if I could just ask a little one at the end just related to what you're seeing maybe in the industry from your peers just post CMA are you feeling a more sort of constructive environment are you seeing sort of like on price maybe something like that how is that industry bit moving is that being more supportive now that CMA's finished?

8:43 Yeah Paul maybe you'll pick that I think for me having certainty there were obviously no surprises in the CMA announcement this week as we knew there wouldn't be but now that we've got the absolute clarity of the how the remedies have to be implemented that's super helpful.

8:59 I think the clarity has been great and I think for the profession it's a moment in time where now we know what we're going to be dealing with but I think for most practices and ourselves we've been pretty aware of what was going to happen next and been preparing for that for the last six months since we've seen the final remedies come out. It's just the detail that was within this week. I do think that there is work to be done as a profession together to rebuild trust to make sure that we are creating that best environment to be seen as the providers of you know great veterinary care. I think there's work to be done for that and I think we're really well positioned as a really respected veterinary provider to do that and in response to partly to your question earlier on about the CTO role you know we have a really really strong internal identity of what it means to be under the care of CVS and actually part of that role is going to be helping us to show Now for the first time ever with a national facing brand, what does it mean to be under the care of CVS as a client rather than under the care of CVS as a, partly as a client of CVS but also as a local brand we had previously. Now it's what does it mean to be under the care of CVS as a client. It's a really, really important opportunity for us.

10:14 Thank you very much. First question is just on like for likes and just trying to understand what the components of like for like might be as we go into 27 so getting a sense of how much that might be coming from pricing, how much might be coming from footfall and by that I mean kind of you know new clients effectively coming in the door and how much is from the efforts you've got to capture more value from your existing clients?

10:44 So an element of all three I think will contribute to like to like. Pricing, we put prices up in the summer as we said we would and the price increases this year were slightly above the levels we've seen in recent years. Football is still a challenge across the profession but it's mixed, mixed across our practices but also mixed in terms of what we've said previously which continues to be the case is where animals get ill or injured, clients invariably bring them in for treatment and that's reflected in the strong growth we saw in our laboratory business last year reflected in the strong growth we saw in our referral business and also some of our first opinion practices that provide that more advanced level of care where we've seen footfall challenges is in the more routine preventative treatments and that's where I think again the appointment of a chief client officer can help help us drive that kind of that footfall further Hopefully the economy improves and consumer confidence improves and that will undoubtedly help with that aspect.

11:49 and then in terms of the value per client we've seen good growth in ATVs over recent years and that reflects I guess for the level of care we can now provide which continues to I guess get enhanced clearly we can do more now for animals than we could 20 years ago but we invest in facilities and technology and clinical capability but most importantly in people because we're a people business Clearly having a highly skilled team of vets and nurses and support colleagues is critical to our growth and we've seen good progress there as well. The supply of vets has obviously improved in recent years and we spend a lot of time focusing on training and developing our vets and colleagues and supporting them.

12:42 Second question is just on healthy pet club numbers. So I saw the numbers have gone down. I just want to first of all understand whether that includes healthy kind of pet advance or whatever it is you're calling it. And really whether you can see any trends in terms of the people who are cancelling the kind of subscriptions. Is it a particular kind of cohort of people or is it just kind of, you know, across the board?

13:05 So Healthy Pet Club Advance we launched on the 1st of July and we've seen good growth in that scheme. So we have a Healthy Pet Club core offering which we've had for a number of years and that is a preventative health scheme as you know and for a monthly fee clients get the benefit of regular check-ups with a vet or a nurse, an annual vaccination is part of that scheme and also regular flea and worming treatments. and the advanced version comes with an additional monthly fee but for that there are unlimited consultations and that's been very popular with clients. We trialled that offering across a handful of a number of practices before we launched it across the board but we've seen really good take-up of Healthy Pet Club Advanced since we launched it. in terms of the numbers last year we've seen I guess a slight reduction in the overall volume of HPC clients but in terms of retention rates they're pretty sticky some of the growth we saw leading up to this year has been through the kind of acquisitions we've made in the UK in past years and we've migrated clients on to our core HPC offer over recent years so that migration of previous acquisitions probably drove the growth that we saw so I think underlying performance for Robin is pretty similar in terms of retention rates.

14:27 Yeah and I suppose that small reduction has stabilized and and in answer to your question it does include Healthy Pet Club advanced members as well.

14:44 Charles Weston from RBC so first question I love taking an initiative chart and trying to put numbers on it so on page 10 you showed the sort of longer-term expectation of like-for-like growth rates you showed the history and then the potential dotted line future and that 2027 bar pretty much was at the bottom of the four to eight percent medium term target range but historically you said that 2027 probably wouldn't quite get there just wondered if you had any further thoughts on like-for-like growth and how it might look for 2027 as a whole

15:21 I guess we don't know what the outcome will obviously be we're only two months into the year but we were encouraged by the improvement we saw in August as Robin said and we are very confident in our ability to get back to the four to eight percent range I think we've said in the past the kind of building blocks to that are clearly price, volumes, stabilising and then continue to do a great job in treating clients when they bring their pets in so and that's obviously across the grid we've seen good growth in our labs, the referral hospitals, we've seen good growth in the second half of last year in Animed Direct and you recall that first half earnings were flat Second half we return to EBITDA growth as well as revenue growth, so we're confident in our ability to get back to that level, we just can't put a date to when we'll get back to that 4% level.

16:10 OK, thank you. Second question, just picking up on both of those points. So Lab was amazing growth last year. Does that signify a new trend or would that present tougher comps? And to some extent, Animed similarly, but the other way around. We've got a recovery perhaps in the underlying performance. underline growth and easier comps next year just if you could just help us think about that from a modeling perspective.

16:37 Yeah maybe Robin can pick up on that. In terms of labs we provide our services to our own practices and also to a number of third-party practices in the UK and we've seen good growth in case volume across both CVS practices and third parties and also average transaction values and most lab tests are obviously performed in support of ill or injured animals and that goes back to my earlier comment that where clients have sick or injured animals they invariably bring them in for treatment and are willing to spend on their care so the growth in the lab business I guess reflects what we've seen elsewhere and we're confident that that will continue. In terms of the percentage growth rates performing in line with EBITDA in labs last year went up by 25% I think that's probably more challenging to repeat this year but certainly we are confident in further growth and we're expecting further growth in labs this year.

17:33 And then on Alameda, we saw good growth, we've re-platformed the website, we've launched kind of new customer enablement in terms of online payment, or pay as you go, sorry, subscribe and go, Apple Pay, Google Pay, we now have next day delivery, so we've seen some good development within our website and good kind of improvements to the customer experience. In terms of the softer comps, I'd say the first half we saw adverse EBITDA performance or we broke even in the main that was off the back of some price elasticity tests where we reduced price and actually eroded margin so actually revenue was strong in the first half but EBITDA less strong because of margin erosion so I think we're not facing into softer revenue comps for Anamed but potentially we are facing into softer EBITDA comps for Anamed because I'm not expecting that first half performance to continue, if that makes sense.

18:35 Thank you. If I could just finish up with one more. Any view from the board on timing of a new CEO appointment announcement?

18:42 Yeah, so I've made it clear to the board I'm retiring, but I've also made it clear that I'm very keen and committed to continue to lead the business until we're ready to appoint a successor. We're making good progress, but the board is undertaking a thorough search, and we will announce my replacement in due course. But for now, I'm very keen and committed to continue to drive performance. Thank you. Thanks, Charles. Charles?

19:09 Charles Hall from Peel Hunt. Could you just comment a bit about the trends in vacancy rate for vets and nurses and also what you're seeing on the cost side both in people costs and other costs?

19:22 Paul maybe can talk about the trends in terms of the costs. We have seen significant inflation pressures as you know in recent years, a combination increased national insurance costs for employers and we said at the time of that increase that that was an annualised £8 million impact to our business. We've also seen increases in national minimum wage and national living wage in recent years. I guess our forecasts are for no further national insurance surprises and and a return to kind of more central levels of wage inflation so not seeing any kind of signs of further impact there. Obviously we have higher utility costs and other costs we continue to face into but I think the inflationary pressures there are kind of easing somewhat.

20:12 But in terms of the supply of

20:16 over the past couple of years we've been identifying that we're seeing an improvement in the availability of vets in the profession I think we're definitely seeing that now plus we've been working very hard around our ability to retain great vets to ensure that they have good working environments that we find the places to work where they want to stay and they want to live so actually what we're seeing is I think an accumulation of both Great supply in the market for vets and also our ability to retain and so the result of that is that we are seeing you know we are seeing a consistent reduction in our vacancy rates for vets and I think that just really demonstrates for our teams from you know something I'm really proud of for our teams that they're working really really hard to create a great working environment for our vets and I think we remain you know an employer of choice in the market

21:09 and just going back to Healthy Pet Club of Vons, strong take-up so far, is that people, new customers or is that people upgrading from core to Vons to

21:22 It's proven popular from both new clients to practices but also we've seen a number of clients upgrade as well and they see the benefits of I guess removing that kind of obvious cost of a consultation every time they see. We have clauses to protect ourselves from unfair usage but we actually don't see that and we didn't see that in the trial. I think Paul also I know the client has paid for the visit through the higher monthly fee but I think when they do then visit we also see that maybe clients are willing to spend slightly more because they don't have the obvious cost of the consultation there and then.

22:03 That's right and also what we do know is that a large number of pet owners don't recognize some of the symptoms of early disease that we will recognize when we see them when we take a good clinical history when we do a good physical examination we can't do that unless they come in the building it's a really good opportunity for us to do that it's great for animal welfare we pick up disease early it's great for our colleagues because they like the fact they pick up disease early and can intervene early and clients like that as well because actually we're increasing longevity of life longevity of health and actually they get their pets to live with them for longer so and our colleagues really like this scheme because it enables them to have that conversation, which is the most important conversation that we can have. So I think it's a really fantastic scheme for us.

22:50 And how has it been marketed to the customer base?

22:55 Robin, you might want to cover the marketing side, but in practice, through the team's because the teams love it they will talk about it very significantly and then we have our external marketing which Robin's probably better off to cover.

23:07 So in terms of our existing basic early when clients come in often they have annual vaccinations there'll be the healthy pet club advanced scheme will be discussed with them so that's one opportunity. We've currently built an online digital journey sign up journey and we're just we're just finessing that because we because once that's once we believe that's efficient and the opportunity for us is every year, because there's an annual scheme, as we write to clients, we can give them their annual renewal for Healthy Pet Club, but also provide them a very simple link to if you'd like Healthy Pet Club advance for X amount of money per month extra, then we can push them online and through the digital journey. So we're not currently writing to our existing clients, but that will come.

23:55 Thanks, Charles. Thanks. Okay, crazy one passing off.

24:04 Morning all, James Bayliss from Berenberg 2 if I may. On Australia you make comments about performance of acquired practices being slightly ahead of expectations at the time of acquisition. Just wondering is that better performance as a result of them being part of the CVS network or is that perhaps indicative of a more supportive backdrop than you imagined?

24:25 I think we've been very selective in Australia we are deliberately acquiring very good quality practices and the business cases assumed very few synergies and modest revenue growth so we were quite conservative in our business cases so I think the performance reflects a combination of factors really good quality practices very engaged teams of vets and nurses doing great work I'd like to think we've supported them in improving but equally the economic backdrop in Australia is also that bit stronger than the UK as well so I think it's a combination of factors.

25:00 My second question, on the client and employee NPS scores, do you have enough data points now to take a steer on what the difference is in terms of absolute numbers or trends between the UK and Australia?

25:12 increasing number of data points and we see good client feedback across our group whether it's the UK or Australia and the fact we've improved further in the year I think is great and I think as the CMA found from their consumer surveys clients tend to trust their vet practices in our case we work hard to build trust with our clients and we focus very much on providing great care value and service to those clients so I think the fact we've improved Client NPS, and we survey all of our clients post a consultation, save where it's a euthanasia for obvious reasons, we're obviously sensitive to those clients. So the fact we see the further improvement there I think is really positive. In terms of employee net promoter score, I think literally anything above zero is considered positive because I think employers are probably a bit more honest in their feedback sometimes, but the fact we've seen a further improvement there I think is encouraging as well.

26:10 I think really importantly for EMPS in particular the absolute number is less important than the trend so we're really really clear that we we look carefully at what the trend is the trend is improving and then then we try to understand what it is that we've we've been doing that has improved that where the trend is is downwards we try to understand that and we look at different different individual groups of our employees as well to understand here we have vets, nurses etc, leaders, non-clinical teams and the trends can be different and it's really important we understand those so we have enough data points to help us understand that.

26:46 Thanks James. We've got I think actually Charles

26:54 Thanks Charles, and again a couple of follow-ups please. On the multiples that you're paying, you talked about six times in Australia, you talked about less than group in the UK. I think in Australia historically you haven't included any synergies within that multiple. Historically you used to include synergies in the UK multiple, so are you still including UK synergies, cost synergies in that?

27:18 So the multiples we quote are year one multiples and both in Australia and the UK we expect synergies to improve with time. So in the UK we will get synergies in due course above improving this multiple from our laboratory offering, hopefully increased referrals and obviously benefits from the scale buying that we can achieve so this is a consistently quoted multiple and I hope that improves over time with synergies.

27:49 Thanks and then just in terms of deal structure again I think in Australia it's more common to have deferreds in the UK I think historically you didn't really have as much but you've talked about an initial 15 million pounds so is there a change in structure in the UK now?

28:04 yes yes so that deal is slightly different from historic structures but yeah incentivizing vendors to stay with us and deliver performance is obviously important in both markets it's one deal so we'll have to see a series of these before we understand what the market is looking for but we have historically done upfront and defers in the UK it's just in Australia it's a very consistent whereas in the UK typically Some would have deferred, others wouldn't, but this one does have a deferred element to it.

28:38 Is there an idea of the total potential, well I'm sure you have an idea, but what is the total potential cost of that UK acquisition?

28:47 Well it will be similar to what we're seeing in Australia. I think in Australia we said it was roughly 80-20 upfront deferred.

28:54 Thank you. Thanks Sol. Sol, I think we have a question from the call. Yeah, thank you. So Robin, we note that disciplined investment IR of greater than 10% statement has been dropped from the investor presentation. Can you confirm whether this minimum return target still applies or have there been any changes to your IRR expectations?

29:16 Yes, it still applies. We have a minimum hurdle rate of 10% returns. and no there's been no changes to how we view the returns from investments that we make.

29:33 And I think we went into quite considerable detail in July in terms of our capital allocation framework and approach and the returns we were both achieving but also targeting and there's been absolutely no change to that since. Thank you. So I think that concludes the questions. So I'd like to thank you all for joining today's presentation and also for all of our shareholders and banks for their continued support. It's much appreciated. I'd also like to close by thanking our team of CVS colleagues for their continued dedication and professionalism in providing outstanding care, value and service to our clients and their animals. and we look forward to reporting on further growth and success in the future.

30:20 Thank you.