CVSGF (CVSGF) Q4 2026 Earnings Report, Transcript and Summary

Welcome to this live stream of the CVS Group analyst presentation following the release of our full year financial results earlier this morning. I'm Richard Fairman, CEO; and alongside me are Robin Alfonso, our CFO; and Paul Higgs, our Chief Veterinary Officer. The results we've announced this morning demonstrate another year of growth and strategic progress. We delivered results in line with market expectations with improved like-for-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 GBP 712.8 million, reflecting positive momentum across the business, with all 3 divisions driving growth. And that was despite softer market conditions in the final quarter as a result of continued softer consumer confidence in the U.K. 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 GBP 141.5 million, with margins being maintained despite continued inflationary pressures in the financial year. Adjusted earnings per share increased by 6.9% to 85.6p, benefiting from the improved financial performance and also from the reduction in our average number of shares following shares which were canceled as a result of our share buyback program. We further increased our presence in Australia, completing 6 acquisitions in the financial year, comprising 14 sites, for consideration of GBP 43.3 million. And in the new financial year, we've completed a further 2 acquisitions in Australia. We've signed a further 2 contracts for acquisitions in Australia. And I'm delighted to announce that we signed a contract for our first acquisition in the U.K. 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. 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.

Kane Slutzkin, Deutsche. Just quickly on the sort of start to FY '27, you sort of say it's positive. Could you give us a little bit more than that, given we have nearly 3 months in, Robin? Maybe just sort of some view as to what the exit rate could be by the end of the half. That will be the first one.

I think what we said at the back end of last year, we delivered like-for-like 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 the extreme weather that we experienced, particularly in the U.K. That extreme weather continued into July, and there was some impact from weather in July. But pleasingly, we saw August performance back in line with what we were seeing in the first half of last year.

Closer to the first half, so closer to 3%?

Yes, 3% to 4%.

Yes. Perfect. And can you just talk a little bit about the [ R&D ] release, the tax credit release. If I kind of look at my calcs, it looks like that incremental was about GBP 3 million or so year-on-year and might sort of explain maybe 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 at a sort of provision release?

Yes. So the RDEC recognition for last year was GBP 15.1 million, for the prior year. The RDEC recognition for this year is GBP 15.7 million. 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 GBP 15 million. So we recognized GBP 15 million in '25, GBP 15 million in '26. We expect a further GBP 15 million-ish in '27. So it's consistent. In terms of the provision release, I think we take quite a prudent approach to RDEC claims. So we do provide for uncertainty. Each year, we make a claim. Each year, we raise 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. I expect that provision to reduce further next year. But I suppose the critical thing is in terms of run rate, GBP 15 million, GBP 15 million, close to GBP 15 million again.

Andrew?

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 the second.

Yes. I guess we recognize that now that we have a joint brand and the investment we've made in technology and 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 in the last couple of years. The CMA process has had an impact. But yes, there are things within our gift to drive client footfall. And through enhanced marketing and CRM activity, we believe we can drive improved footfall and improve the client service generally across the business. So that new role will be part of our Executive Committee, and we'll be very much focused on that activity.

And then U.K. acquisitions, I see you've not completed, but exchanged contracts. It's a relatively material number. It's sort of GBP 15 million for that acquisition. And I think you've got GBP 50 million 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 GBP 15 million 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 I'm just curious on the balance sheet and where that sort of leverage can get to.

Yes. I mean we've made it clear that we were keen to return to U.K. acquisitions where we saw accretive opportunities. And this is a very good quality practice over 2 sites. Yes, the GBP 50 million, I think, will be well spent. The multiple we haven't disclosed, but we 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 opportunities. So I'm hoping we can do more acquisitions in Australia alongside U.K. acquisitions. But we will continue to be selective, as we always have been. And Andrew, if that means spending more than GBP 50 million, provided we've got the capital to do so, then absolutely.

And you said previously, you might nip over that to balance sheet.

Yes. I mean, we've said that -- investor appetite for leverage is mixed, but obviously, we've said 2x 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 delever quite quickly, we may temporarily go above 2x if we see the right opportunities. So that's an option.

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 the CMA is finished?

Yes, Paul, maybe I'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 how the remedies have to be implemented, that's super helpful.

Yes. I think that 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 have been pretty aware of what was going to happen next and been preparing for that for the last 6 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 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 partly to your question earlier on about the CCO role, 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 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.

Seb has got his hand up.

Seb Jantet with Panmure Liberum. So first question just on like-for-likes. I'm 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 of that might be coming from pricing, how much might be coming from footfall. And by that, I mean, kind of 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?

Yes. So an element of all 3, I think, will contribute to like-for-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. Footfall is still a challenge across the profession, but it's 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 us drive that kind of that footfall further. Hopefully, the economy improves and consumer confidence improves, and that will undoubtedly help with that aspect. And then in terms of the value per client, we've seen good growth in ATVs over recent years. And that reflects, I guess, Paul, 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, in technology, in 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.

Second question is just on Healthy Pet Club numbers. So I saw the numbers have gone down. I just wonder, a, first of all, understand whether that includes [ Healthy Pet Club Advanced ] or whatever you're calling it. And really whether you can see any trends in terms of the people who are canceling the kind of subscriptions? Is it a particular kind of cohort of people? Or is it just kind of across the board?

So Healthy Pet Club Advanced, 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 checkups with a vet or a nurse, an annual vaccination as part of that scheme, and also regular flea and worming treatments. 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 trialed that offering across 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 U.K. in past years, and we've migrated clients onto 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, Robin, is pretty similar in terms of retention rates.

And I suppose that small reduction has stabilized. And in answer to your question, it does include Healthy Pet Club Advanced members as well.

Charles? Sorry, Charles, we'll come to you. You'll need to be very patient, Charles.

Charles Weston from RBC. So first question, I love taking an illustrative 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 4% to 8% 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? Yes.

I guess we don't know what the outcome will obviously be. We're only 2 and a bit 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 4% to 8% range. I think we've said in the past, the kind of building blocks to that are clearly price, volumes stabilizing, and then continue to do a great job in treating clients when they bring their pets in. And that's obviously across the group. We've seen good growth in our labs and 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 returned 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 kind of a date to when we'll get back to that 4% level.

Okay. 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, underlying growth and easier comps next year. Just if you could just help us think about that from a modeling perspective, that would be helpful.

Yes. Maybe Robin can pick up Animed. In terms of labs, we provide our services to our own practices and also to a number of third-party practices in the U.K. 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 are expecting further growth in labs this year.

And then on Animed, we saw good growth. We've re-platformed the website. We've launched a kind of new customer enablement in terms of online payment or pay-as-you-go, sorry, Subscribe & 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 there was a margin erosion. So I think we're not facing into softer revenue comps for Animed, but potentially, we are facing into softer EBITDA comps for Animed because I'm not expecting that first half performance to continue, if that makes sense.

Yes. If I could just finish off with one more. Any view from the Board on timing of a new CEO appointment announcement?

Yes. 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. Thanks, Charles. Charles?

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?

Yes. Paul maybe can talk about the trends. In terms of the costs, we have seen significant inflationary pressures, as you know, in recent years, a combination of increased national insurance costs for employers. And we said at the time of that increase that, that was an annualized GBP 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, no further national insurance surprises and a return to kind of more sensible levels of wage inflation. So not seeing any kind of signs of further impact there. Obviously, we have higher utilities costs and other costs we continue to face into. But I think the inflationary pressures there are kind of easing somewhat. But in terms of the supply of...

I think, over the past couple of years, we've been identifying actually 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 the way they want to stay and they want to live. And 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 a consistent reduction in our vacancy rates for vets. And I think that just really demonstrates for our teams, 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 an employer of choice in the market.

And just going back to Healthy Pet Club Advanced. Strong take-up so far. Is that new customers? Or is that people upgrading from Core to Advanced?

Both actually. So 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 clients have 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.

Yes, 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. 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.

And how is it being marketed to the customer base?

Robin, you might want to cover the marketing side. But in practice, because the teams love it, they will talk about it very significantly. And then we have our external marketing, which Robin is probably better off to cover.

So in terms of our existing base, clearly, when clients come in, often they have annual vaccinations, the Healthy Pet Club Advanced scheme will be discussed with them. So that's one opportunity. We've currently built an online digital sign-up journey. And we're just finessing that, because once we believe that's efficient, then the opportunity for us is every year, because it'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 Advanced 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.

Thanks, Charles. James?

James Bayliss from Berenberg. Two, if I may. On Australia, you made 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?

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 U.K. as well. So I think it's a combination of factors.

And then 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 U.K. and Australia?

Increasing number of data points, and we see good client feedback across our group, whether it's the U.K. 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've seen a further improvement there, I think, is really positive. In terms of employee Net Promoter Score, I think literally anything above 0 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.

I think really importantly, for ENPS in particular, the absolute number is less important than the trend. So we're really, really clear that we look carefully at what the trend is. If the trend is improving, then we try to understand what it is that we've been doing that has improved that. Where the trend is downwards, we try to understand that. And we look at different individual groups of our employees as well to understand, we have vets, nurses, et cetera, leaders, nonclinical 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.

Thanks, James. We've got, I think actually, Charles?

Charles Weston again. A couple of follow-ups, please. On the multiples that you're paying, you talked about 6x in Australia. You talked about less than group in the U.K. I think in Australia, historically, you haven't included any synergies within that multiple. Historically, you used to include synergies in the U.K. multiple. So are you still including U.K. synergies, cost synergies in that, so 8x?

The multiples we quote are year 1 multiples. And both in Australia and the U.K., we expect synergies to improve with time. So in the U.K. 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.

And then just in terms of deal structure, again, I think in Australia, it's more common to have deferred in the U.K. I think historically, you didn't really have as much, but you've talked about an initial GBP 15 million. So is there a change in structure in the U.K. now?

Yes, yes. So that deal is slightly different from historic structures. But yes, 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 deferred in the U.K. It's just in Australia, it's very consistent, whereas in the U.K., typically, some would have deferred others wouldn't. But this one does have a deferred element to it.

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 U.K. acquisition?

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.

Thanks, Charles. So I think we have a question from the call.

Yes. So Robin, we note that disciplined investment IRR of greater than 10% statement has been dropped from this investor presentation. Can you confirm whether this minimum return target still applies? Or have there been any changes to your IRR expectations?

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.

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. Okay. 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. So thank you.