CVS Group Regulatory News (CVSG)

For Immediate Release 22 September 2022

CVS GROUP plc

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

Final results for the year ended 30 June 2022

Continued strong growth in a resilient veterinary market

CVS, the AIM-quoted veterinary group and one of the UK's leading providers of integrated veterinary services, is pleased to announce its final results for the year ended 30 June 2022 ("2022").

Financial Highlights

Notes 1 Like-for-like sales shows revenue generated from like-for-like operations compared to the prior year, adjusted for the number of working days. For example, for a practice acquired in September 2020, revenue is included from September 2021 in the like-for-like calculations.2 Adjusted EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) is profit before tax adjusted for interest (net finance expense), depreciation, amortisation, costs relating to business combinations, and exceptional items. Adjusted EBITDA provides information on the Group's underlying performance and this measure is aligned to our strategy and KPIs.3 Adjusted profit before tax is calculated as profit before amortisation, taxation, costs relating to business combinations, and exceptional items.4 Adjusted earnings per share is calculated as adjusted profit before tax less applicable taxation divided by the weighted average number of Ordinary shares in issue in the year.5 Net bank borrowings is drawn bank debt less cash and cash equivalents

6 Leverage on a bank test basis is net bank borrowings, divided by adjusted EBITDA annualised for the effect of acquisitions, including costs relating to business combinations and excluding share option costs, prior to the adoption of IFRS 16.

Financial Highlights

· Revenue increased by 8.6%, to £554.2m (2021: £510.1m), with strong Group like-for-like1 sales growth of 8.0% benefitting from favourable market dynamics and the continued focus on delivering against our strategy

· Adjusted EBITDA2 growth of 10.2%, to £107.4m (2021: £97.5m), through strong revenue performance and operational efficiencies

· Profit before tax increased by 8.8%, to £36.0m (2021: £33.1m) benefitting from the increase in adjusted EBITDA, a reduction in costs relating to business combinations partially offset by an impairment of investment relating to the acquisition of the Quality Pet Care Ltd

· Leverage6 fell to 0.40x (2021: 0.68x) as a result of strong EBITDA growth, continued good operating cash generation and reduction in net debt

· Cash generated from operations increased by 15.9% to £93.1m (2021: £80.3m), primarily as a result of the increase in adjusted EBITDA

Operational Highlights

· Increasing demand for our services as the pet population continues to grow, with our colleagues showing commitment and dedication to providing exceptional care to animals

· 6.0% increase in the average number of vets employed in the year

· Introduction of industry-first CVS Clinical Research Awards, providing grants for research projects

· Increased investment in capital projects by £7.9m to £24.5m in 2022 vs 2021, to improve quality of facilities and equipment, including 23 refurbishments and relocations during the financial year (2021: 13)

· Published our first standalone Sustainability Report, describing the goals and activities of our ESG working groups and reporting sustainability data under the Sustainability Accounting Standards Board (SASB) metrics

· Three acquisitions of four practice sites made during the second half of the financial year

Current trading & Outlook

· Strong sales and like-for-like1 growth in the first ten weeks versus the same period in the previous financial year

· We are pleased with the momentum in the business and trade in line with market expectations

· Continued growth in our Healthy Pet Club to 475,000 members (+4.4% compared to 31 August 2021)

· Record number of new graduate vets recruited

· Two new acquisitions made since the year end for consideration of £7.8m, with a healthy pipeline of potential deals

· Further growth opportunity with our strategic partner, Dobbies, to co-locate our practices in their garden centres, with a successful first site opened in August 2022, and more to follow

· Plans to open three further greenfield sites during FY23 in addition to a new state-of-the-art veterinary hospital in Bristol

· Whilst we are mindful of the wider macroeconomic backdrop and inflationary pressures, the Group remains well positioned to continue delivering attractive growth and shareholder value

· We look forward to sharing further insight into these growth opportunities and our capital allocation priorities at our forthcoming Capital Markets Day on 8 November 2022

Richard Fairman, Chief Executive Officer, commented:

"I'm pleased that we have delivered a strong set of results, with good growth against all of our key financial metrics despite a challenging macro-economic backdrop. Our continued focus on providing the best possible clinical standards, led by our fantastic colleagues who are committed to high quality veterinary care, has contributed to the strength of our performance.

"The veterinary market remains resilient, with an increasing pet population providing favourable dynamics and a strong platform for sustainable growth across our integrated services. Continued investment in our facilities, clinical equipment and our people support this growth; significant enhancements to our pay and benefits ensure we remain an attractive employer, and we are recruiting more graduates than ever before. We now employ c.5,000 vets and nurses across the Group.

"Our pipeline for acquisitions also continues to build, supplementing the organic growth opportunities in the business. With a positive start to the new financial year, we remain confident in our ability to deliver value for all our stakeholders."

Results webcastManagement will host a live webcast and Q&A for analysts and investors at 9am GMT this morning. Those wishing to join should email CVSGroup@mhpc.com for the registration details. For those unable to join, there will be a playback facility available on the CVS website later today.

Contacts

CVS Group plc via MHP CommunicationsRichard Fairman, CEOBen Jacklin, COORobin Alfonso, CFO

Peel Hunt LLP (Nominated Adviser & Broker) +44 (0)20 7418 8900Adrian Trimmings / Michael Burke / Andrew Clark / Lalit Bose

Berenberg (Joint Broker) +44 (0)20 3207 7800

Toby Flaux / Ben Wright / Ciaran Walsh / Milo Bonser

MHP Communications (Financial PR) +44 (0)20 3128 8549Andrew Jaques / Simon Hockridge / Rachel Farrington / Charles Hirst

About CVS Group plc (www.cvsukltd.co.uk)CVS Group is an AIM-quoted fully-integrated provider of veterinary services in the UK, with practices in the Netherlands and the Republic of Ireland. CVS is focused on providing high quality clinical services to its customers and their animals, with outstanding and dedicated clinical teams and support colleagues at the core of its strategy.

The Group has c.500 veterinary practices across its three markets, including eight specialist referral hospitals and 35 dedicated out-of-hours sites. Alongside the core Veterinary Practices division, CVS operates Laboratories (providing diagnostic services to CVS and third-parties), Crematoria (providing pet cremation and clinical waste disposal for CVS and third-party practices), Buying Groups and the Group's online retail business ("Animed Direct").

The Group currently employs c.8,100 personnel, including c.2,100 veterinary surgeons and c.3,000 nurses.

Chair's statement

Leveraging favourable market trends to deliver improved financial performance

Introduction

We are committed at CVS to providing the best possible care to our clients and their animals. Key to the delivery of this care is our people and I would like to take this opportunity to thank all our colleagues for their continued dedication and professionalism.

We continue to develop CVS through investment in our people, in the technology we use, in our practice facilities and in new clinical equipment. This is important to both the delivery of first-class clinical care and the recruitment and retention of clinical resource. We have increased capital investment in the past financial year and this has delivered favourable returns. Further increases in capital investment are planned in the current year and we are confident that this will position the Group well for continued growth in the years ahead.

Positive financial performance

I am delighted to share another strong set of financial results with growth in both revenue and earnings, with continued strong operating cash conversion and improved balance sheet strength.

The Group generated revenue growth of 8.6% in the financial year, with like-for-like sales increasing by 8.0%, reflecting our continued focus on delivering organic growth. We completed three acquisitions (comprising four practice sites) in the second half of the financial year (2021: nine acquisitions across the year).

In light of the Competition and Markets Authority's (CMA) phase one investigation into our August 2021 acquisition of Quality Pet Care Ltd, and the CMA's view that the merger may be expected to result in a substantial lessening of competition within a market or markets, we decided to sell this business, and the disposal was completed in June 2022. We recognised an investment impairment ahead of sale and further information is available in note 6. Whilst the CMA's conclusion was disappointing, we now have a clear guideline as to how the CMA assesses local competition in veterinary care which will be useful in informing our approach to future acquisitions in the UK. There are considerable parts of the UK where we do not currently own any practices, and hence where there cannot be competition issues; we are confident that we can acquire further practices in areas of the UK where we already operate, provided that our share of vet full-time equivalent resource in the vicinity is less than 30%.

Adjusted EBITDA increased by 10.2% to £107.4m (2021: £97.5m), through strong revenue growth. Profit before tax correspondingly increased by 8.8% to £36.0m (2021: £33.1m) with adjusted EPS increasing by 14.2% to 85.8p (2021: 75.1p) and basic EPS increasing by 32.6% to 36.2p (2021: 27.3p).

The Group remains highly cash-generative, with the increase in adjusted EBITDA flowing through to cash generated from operations, which increased by 15.9% to £93.1m (2021: £80.3m). Net debt correspondingly decreased by £14.9m to £35.3m (2021: £50.2m) with leverage reducing to 0.40x bank-test EBITDA at 30 June 2022 (2021: 0.68x).

Strategic progress

Our purpose at CVS is to give the best possible care to animals and our vision is to be the veterinary company people most want to work for. This purpose and vision are underpinned by our four strategic pillars: to recommend and provide the best clinical care every time; to be a great place to work and have a career; to provide great facilities and equipment; and to take our responsibilities seriously.

We are committed to the highest standards of clinical care and all of our practices participate in the Royal College of Veterinary Surgeons' voluntary Practice Standards Scheme. We have recently published our annual Quality Improvement Report which outlines our approach to further enhancing clinical standards underpinned by evidence-based medicine.

In addition to our ongoing focus on providing learning, education and development support to our colleagues, we continue to enhance our package of reward and benefits. In the past financial year, we increased the holiday entitlement for all colleagues through an additional day's annual leave for each completed year of service, up to a maximum of five days once colleagues have completed five years' service. In May 2022, we implemented an additional salary review, with a salary increase of 3.0% for all colleagues (save for the Executive Directors, whose salary review will take place under the normal cycle) in advance of our full annual salary review in July 2022. We also announced our commitment to pay a minimum of 3.0% above National Minimum Wage/National Living Wage for all current and future colleagues.

Our continued focus on recruitment, alongside improvements in retention, has resulted in a 6.0% increase in the average number of vets employed during the financial year to 2,079 vets (2021: 1,962 vets). Furthermore, the average number of nurses we employed in the financial year increased to 2,839 nurses (2021: 2,548). We also launched a new Equity, Diversity and Inclusion (EDI) working group to help attract and support colleagues from all backgrounds.

We continue to improve our practice facilities and clinical equipment, with £24.5m invested in capital expenditure during the year (2021: £16.6m). This investment enables us to both enhance the client and colleague experience in our practices and, importantly, to further improve the standards of clinical care which we can provide.

We outlined our overall approach to sustainability and ESG in our 2021 Annual Report and, in August 2022, we published our first Sustainability Report, which sets out the foundations of our approach to ESG. As part of our commitment in this area, we have introduced five new non-financial targets for our Executive Directors as a key element of their annual bonus for the financial year ending 30 June 2023. Our ESG approach has been informed and influenced by globally recognised frameworks and sets of principles, including the Global Reporting Initiative Standards, the United Nations Sustainable Development Goals and the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD). We have also disclosed data against standards developed by the Sustainability Accounting Standards Board. Furthermore, in this Annual Report we have early-adopted the TCFD recommendations for disclosure of climate-related risks and opportunities.

We remain well-placed to deliver further organic growth through the provision of high-quality joined-up care throughout our patients' lives, from our first-opinion veterinary practices, specialist-led multidisciplinary referral hospitals, diagnostic laboratories, dedicated out-of-hours clinics and online retail business, Animed Direct. Our crematoria provide a compassionate cremation service at the end of an animal's life and clinical waste disposal services. We will augment this growth through further acquisitions and the creation of greenfield practices.

Governance and the Board

We are committed to the highest levels of corporate governance and, as an AIM-quoted group, we voluntarily adopt the UK Corporate Governance Code 2018.

We continue to review the composition of the Board, in order to ensure that we have the right balance of skills and experience. Mike McCollum, former Senior Independent Director and Chair of the Audit Committee, resigned from the Board in September 2021 to pursue a full-time opportunity outside the Group. In light of his resignation, Deborah Kemp was appointed as our Senior Independent Director and the Nomination Committee oversaw the appointment of David Wilton as the new Chair of the Audit Committee with effect from 24 September 2021.

Dividends

In light of the further improvement in financial performance and the Group's strong cash generation, the Board is recommending a continuation of our progressive dividend policy, with the payment of a final dividend of 7.0p per Ordinary share (2021: 6.5p).

Shareholder engagement

The Board continues its active engagement with existing and potential new shareholders, with the Executive Directors attending a number of investor conferences and holding individual investor meetings throughout the year. In April 2022, we conducted a US roadshow in light of the increased number of US-based institutions on our share register.

The Executive Directors have held live webcasts for our preliminary and interim results presentations over the past year, including question and answer sessions with analysts, with a replay facility available on our investor website.

We are holding a capital markets day on 8 November 2022 in which we will outline our capital allocation priorities and the opportunities we have to deliver further sustainable growth in shareholder value.

Outlook

The veterinary sector is seeing favourable market and consumer trends with an increased pet population, enhanced life expectancy and the continued humanisation of pets, with owners willing to spend more on their care. Our approach in providing the best possible care through our fully-integrated veterinary services model positions CVS well to benefit from these favourable trends. Whilst we are mindful of the pressures on household incomes through rising inflation, we are confident in the resilience of our business model with our expectation that clients will continue to seek access to high-quality care for their animals.

I look forward to reporting on further successful growth for CVS in the future.

Richard Connell

Chair

22 September 2022

Chief Executive Officer's review

Small actions add up to a big impact

Introduction

I am delighted that CVS has delivered another successful financial year in which we delivered further improvements in financial performance.

Our purpose at CVS is to provide the best possible care to animals and key to the delivery of this care is our fantastic team of colleagues who are passionate and committed to client service and patient care. I would like to thank all CVS colleagues for their contribution over the past year and for their continued support and dedication.

Increased investment to position CVS for further growth

We continue to invest in a number of areas to position CVS well for further growth in the future. Our people are the heart of everything we do and we continue to develop learning, education and development support for all colleagues to help them develop their careers.

We recognise the opportunity to improve our practice facilities and install new clinical equipment and this is important in both attracting and retaining talent, and also in continuing to expand the range of services we can provide to our clients and their animals. We are confident with the financial returns from this investment and, in light of our strengthened balance sheet and continued high level of operating cash conversion, we plan to increase this investment in the new financial year. We have undertaken a number of practice refurbishments and relocations in the past financial year and our new state-of-the-art referral hospital in Bristol will open its doors in early 2023.

Investment in our people, facilities and clinical equipment will position CVS to benefit from the continued favourable market and consumer trends. The population of pets in the UK has increased in the past two years, with an increasing number of puppies and kittens within UK households. Given our focus on high-quality clinical care, we expect to see the benefit of this increase in population steadily increase over the next ten years given that average veterinary spend per pet increases with age. Coupled with this, there is evidence of increased life expectancy in pets with HealthforAnimals1, the global animal health association, recently reporting that life expectancy for dogs has increased by 11.4% between 2002 and 2016.

1. www.healthforanimals.org/reports/pet-care-report/global-trends-in-the-pet-population/

Preventative care is an important part of our offering and I am delighted that we continue to see growth in our Healthy Pet Club and Healthy Horse Programme, with 470,000 members at 30 June 2022, an increase of 4.4% in the year. This scheme provides a helpful way for clients to spread the cost of preventative veterinary care through monthly instalments and provides discounts on other services which may be required. The routine health checks which are provided under this scheme are important as they offer an early opportunity to identify and treat potential issues, avoiding more complex and expensive interventions later.

There are many reported benefits of animal ownership with pets in particular proven to improve their owners' physical and mental health. The trend of humanisation of pets continues and, notwithstanding inflationary pressures in the wider economy, we are confident that our clients will continue to access our services in order to ensure their animals receive the best possible care.

Our integrated model at CVS enables us to provide care to animals at all stages of their life cycle, from puppy and kitten health checks and annual vaccinations through to specialist interventions where required. Our network of first-opinion practices, dedicated out-of-hours clinics, specialist-led referral hospitals and diagnostic laboratories deliver continuity of treatment, thereby ensuring our clients and their animals receive a first-class service. Our crematoria provide compassionate cremation services at the end of an animal's life, as well as a clinical waste disposal services to enable CVS, and third-party practices, to operate to the highest standards. This is a key part of our service offering given that most clients who lose a beloved pet subsequently purchase another and continue to enjoy access to our services.

Animed Direct, our online retail business, attracts a broader range of clients and gives access to a substantial range of pet food, pharmaceutical products and accessories. We continue to see strong growth in pet food sales as customers enjoy the convenience of being able to order bulky and heavy pet food and have it delivered directly to their door.

Robust financial performance

We have delivered continued growth in financial performance, with revenue for the financial year of £554.2m (2021: £510.1m) representing growth of 8.6% over the prior year, and an increase in like-for-like sales of 8.0%. Adjusted EBITDA increased to £107.4m (2021: £97.5m), a £9.9m (10.2%) increase over the prior year.

This strong financial performance, alongside a reduction in net debt, led to a decrease in leverage to 0.40x at 30 June 2022 (30 June 2021: 0.68x).

Strategy

Our purpose to provide the best possible care to animals, and our vision to be the veterinary company people most want to work for, are underpinned by four clear strategic pillars: to recommend and provide the best clinical care every time; to be a great place to work and have a career; to provide great facilities and equipment; and to take our responsibilities seriously.

In order to provide the best possible clinical care, we continue to focus on helping to drive increased standards in the profession and we recently published our latest annual Quality Improvement (QI) report. This sets out our approach to learning from clinical issues and using evidence-based medicine to inform the care we provide. We also launched our CVS Clinical Research Awards programme in the financial year, which provides funds for CVS colleagues and university academics in collaboration with CVS to facilitate the growth of veterinary clinical research.

We are committed to making CVS a great place to work and have a career and we continue to develop our reward and benefits to ensure we remain well positioned in a competitive marketplace. We announced an interim cost-of-living pay review in May 2022, in addition to our annual pay review in July 2021, and we have expanded our reward and benefits package, including the introduction of enhanced holiday entitlement based on length of service. In May 2022, we committed an ongoing pledge to paying a minimum of 3.0% more than the current National Minimum Wage/National Living Wage.

Our focus on improving our practice facilities and clinical equipment is important in both helping us attract and retain clinicians, and enabling them to deliver the best possible clinical care. We completed 23 refurbishments and relocations in the financial year (2021: 13). We have a pipeline of exciting capital expenditure projects to develop our existing facilities and open new greenfield sites, as well as continuing to acquire quality practices where they are aligned with our strategic goals.

We have responsibilities to all our stakeholders, including our patients, our colleagues and our regulatory bodies, and we take all of these responsibilities seriously. We continue to engage with the Royal College of Veterinary Surgeons (RCVS) and aim to ensure all our practices meet the rigorous standards of the RCVS' Practice Standards Scheme.

We remain well-placed to make further practice acquisitions in the UK and in new European markets and we have a strong pipeline of opportunities. I am pleased that we completed three acquisitions in the financial year, adding four practice sites to the Group.

Recruitment and retention of clinicians

To support the Group's continued growth, we employed an average of 117 (6.0%) more vets and an average of 291 (11.4%) more nurses in the financial year to 30 June 2022 in comparison to the previous financial year. The RCVS, in its Workforce Summit report in November 2021, stated that the population of practising vets in the UK had increased by c.1% and hence we are pleased with our overall increase.

There remains a shortage of vets in the UK and we are keen to recruit more vets to enable us to capitalise on the growth opportunity in the market. We are confident that the supply of vets and nurses will increase over the medium term given that there are now eleven vet schools in the UK. Our leading graduate induction programme was enhanced in the year through our summer and winter camp programme which help graduate vets make the transition from university to work in practice. We have continued to expand our investment in Continued Professional Development and enhanced career opportunities within CVS.

We continue to implement initiatives to enhance the wellbeing and job satisfaction for all our colleagues and promoted a wellbeing financial calendar in July 2021, which is now in its second year.

Sustainability and ESG

We published our first annual Sustainability Report in August 2022, which sets out our commitment to reducing our environmental impact and to improving our ESG standards.

We are committed to taking action to ensure our business is as sustainable as it can be, and we will continue to work collaboratively and creatively to ensure we are doing the right thing for all stakeholders.

We have appointed an ESG lead to co-ordinate our efforts across CVS, with our seven dedicated ESG working groups driving progress in the following areas:

• Energy and Carbon;

• Waste;

• One Health (including antimicrobial resistance);

• Wellbeing;

• People Development;

• Equity, Diversity and Inclusion; and

• Community.

Demonstrating our commitment to holding ourselves accountable for our sustainability goals, in our 2022 Sustainability Report we disclosed financial and non-financial data relating to a range of sustainability factors using the Sustainability Accounting Standards Board (SASB) framework. Further, in this Annual Report we have early-adopted the recommendations of the Task Force on Climate Related Financial Disclosures (TCFD). Applying these reporting frameworks has aided us in understanding the impact of our operations on our stakeholders and our environment, and developing targets to improve our sustainability.

I look forward to sharing further progress in due course.

Outlook

We are confident in our ability to deliver further growth. With the improved financial performance in the past financial year, continued operating cash conversion and strengthened balance sheet, we are well-positioned to continue our programme of investment to enable CVS to benefit from the favourable market and consumer trends.

We will continue our focus on organic growth through high quality of care, augmented by investment in further strategically-aligned acquisitions and greenfield practice sites, as well as investment in technology, including launching a new modern intuitive practice management system, Provet Cloud, during 2023.

Our colleagues are key to our success and with their continued professionalism, I look forward to a successful future.

Richard Fairman

Chief Executive Officer

22 September 2022

Operational review

Outstanding people, delivering outstanding care to our patients and clients

The year delivered much to be proud of in CVS, despite the lingering challenges of a global pandemic. COVID-19 infection rates have been an ongoing challenge for both our colleagues and our clients, but our teams continue to demonstrate their unending passion and dedication to achieving our purpose of giving the best possible care to animals. I would like to take this opportunity to thank them once again for everything they do for our patients and each other.

We continue our relentless pursuit of our purpose through our clear vision to be the veterinary company people most want to work for. Beneath our purpose and vision are our four strategic pillars:

• we recommend and provide the best clinical care every time;

• we are a great place to work and have a career;

• we provide great facilities and equipment; and

• we take our responsibilities seriously.

As we have done for a number of years, we have placed significant focus on attracting great clinical talent and providing them with great places to work and have a career. Much of our success has come from the culture we have fostered, putting clinical care at the forefront of what we do. This has meant alignment of all our operational practices to this goal, from KPIs and incentive schemes, to the investments we continue to make in the very best clinical equipment. Our national network of hub clinical leads, who are experienced and inspirational vets, are core to this. They support our companion animal practices across the business by teaching advanced diagnostics and techniques, and by mentoring vets who are developing interests in specific disciplines. This makes best use of expertise by spreading that knowledge across our practices, improving the quality of care we can offer, then supporting teams to deliver this care to their patients. Furthermore, we have added pastoral support roles for recently graduated veterinary clinicians across our practices. This provides new vets with experienced colleagues to support and guide them through their first years in practice and ensure they have a great experience.

One KPI we introduced in 2021 was employee Net Promoter Score, and I am delighted we have seen yet further improvements in this measure during the year. By having live monthly feedback from colleagues, we are able to ensure we are making the right decisions for them, and creating a workplace that is the envy of the veterinary profession. We also reduced attrition rates of clinical colleagues during the year, further to the significant improvements we made in this measure when we facilitated changes to the culture of our Group.

Our quality improvement team is equally important to this culture, providing data-driven feedback to all our clinicians on where we can make improvements and reduce errors. By leading national and international projects, the quality improvement team makes a big difference to the patients they serve and ultimately the profession as a whole.

Our Advanced Clinical Services Network (ACSN) has continued to grow, supporting our colleagues in primary care practices. Our ACSN clinicians hold advanced qualifications in specific disciplines and, by being available across a region of our practices, they make advanced treatments available to clients and patients that would otherwise necessitate referral elsewhere. The goal of our ACSN is to be an accessible service to all CVS colleagues in the UK, offering a unique clinical career pathway for vets and nurses and being advocates of excellent patient care, whilst contributing to the development of general practice, laboratory and specialist services. The number of ACSN clinicians grew to ten during the year, and revenues grew by 22.9%.

We have further developed our vet-to-vet telemedicine service, Vet Oracle™, and we now have five specialisms within this business, offering specialist interpretation of results and practical virtual assistance. This not only has the benefit of creating new direct revenue streams but, more importantly, spreads our expertise across a much wider network, improving the care offered and given to our patients. This includes installations of advanced imaging equipment, such as CT scanning, in practices which would otherwise not have the expertise to interpret the results.

In 2022, Vet Oracle™ considered c.13,000 cases for CVS and non-CVS vets, a growth of 54% year-on-year.

We are equally focused on all the other aspects of being a colleague at CVS that can help us achieve our vision of being the veterinary company people most want to work for. One significant step this year has been to increase the rate of pay for all our colleagues on the National Living Wage/National Minimum Wage, to 3.0% above the standard set by the government both now and in the future. Many of those colleagues are critical to our success and often lead the first and most regular interactions our clients have with their veterinary practice. Ensuring we took the appropriate steps to support these colleagues as costs of living rose was the right way to deliver on our vision.

Looking after the wellbeing of our colleagues is a crucial part of what we do at CVS, and our 280 active Wellbeing Champions continue to do excellent work across the business. These Champions ensure our colleagues are informed of the various resources available to them, including our Employee Assistance Programme and our Wellbeing Zone on the Knowledge Hub, onto which over 1,000 colleagues enrolled in its first year. During the year, COVID-19 isolations impacted a significant number of our veterinary practices, as we made every effort to ensure the safety and wellbeing of our colleagues across the Group. We retained some social distancing, PPE and other restrictions as we continued to follow government guidance and the guidance of our most senior clinicians.

Ensuring our nurses have great places to work and rewarding careers remains a key aim, led by our Chief Veterinary Nursing Officer. We continue to improve the number of procedures undertaken by nurses in our practices. We also continue to see nurses leading our business in a variety of areas, including a number of qualified veterinary nurses across our senior leadership group and Executive Committee.

Despite the challenges that remain in the recruitment of both vets and nurses, I am delighted that we increased the average number of vets employed in the Group by 6.0% during the year, and the number of nurses by 11.4%. We continue to drive forward recruitment across the UK, Europe and further afield, but most encouraging has been the number of vets and nurses joining us on the back of a referral from an existing colleague. We saw 362 colleagues join via a referral from an existing colleague during the year, up 91.5% from the prior year.

Another major area of focus is attracting the very best new graduate vets, and following the hugely popular inaugural "CVS Summer Camp" in 2021 we have repeated and enhanced the event this summer. This gives recent graduates the very best start in their careers, allows us to share all the benefits of the wider CVS from the start of their time with us, and gives us and them the best chance of a long and rewarding career with CVS.

Despite being unable to make acquisitions during much of the financial year due to the Competition and Markets Authority (CMA) investigation into our acquisition of Quality Pet Care Ltd in August 2021, we completed three acquisitions, comprising four practices sites, during Q4. We continue to see significant opportunity for acquisitions in the UK, with the majority of potential targets unaffected by the CMA's determination on Quality Pet Care Limited. To that end, I am delighted we have acquired a further three practice sites since the year end.

In our 2021 Annual Report we introduced our ESG strategy, "Care at our Heart", which underpins our strategic pillars and gives meaning to all that we do, as we aim not only to have a positive impact on our teams, our patients, our customers and our other stakeholders, but also to make a bigger contribution to wider society. Many of our initiatives across our operations in 2022 have been driven by this intention.

Veterinary Practices division

Delivering clinical excellence in an expanding market

Our Veterinary Practices division comprises our companion animal, referrals, farm animal and equine veterinary practices, as well as our buying groups, veterinary wholesaler "Vet Direct", and MiPet Insurance. The division has again performed well during the financial year, against a comparator which included favourable tailwinds from a post-pandemic backlog of non-essential procedures. Like-for-like sales growth in the division was 7.6%, contributing to total revenue growth of 8.5%. This like-for-like growth was also hampered during the final quarter of the financial year where we experienced a significant increase in COVID-19 isolations of our colleagues, which impacted revenues. We made three acquisitions during the financial year, adding four practice sites to the Group. A further three practice sites have been acquired since the year end, and we are pleased to welcome these colleagues to the Group. As we continue our focus on delivering the best client service across our business and being the veterinary company people most want to work for, we continue to review our facilities and have closed a number of small branch sites in the year to consolidate the work to our larger practice sites.

Companion Animal

Our Companion Animal division forms the majority of our Veterinary Practices division. The focus of our Companion Animal division on delivering the very best care continues to fare well in a market that has grown since the pandemic, and where the humanisation of pets continues apace.

Our Patient Care Index (PCI) is a measure of the quality of care we give to patients in our Companion Animal first-opinion practices. High PCI is associated with high-quality clinical diagnostics and the targeted treatment that follows, as opposed to more symptomatic treatments. We have seen improvements in PCI across our practices as we work towards our purpose to give the best possible care to animals. This focus has enabled us to deliver revenue growth of 10.3% in our Companion Animal division.

Referrals

Our Referrals division has grown strongly in recent years. We have continued to invest in our nursing and administration teams within this division, which are essential to support such strong growth. We also continue to expand our network of advanced peripatetic practitioners, who provide advanced clinical services to our first-opinion practices entering new disciplines and geographical locations.

The range of clinical disciplines we offer in our hospitals has expanded, and we are developing opportunities to open new sites. There has been an increase in investment in highest-quality medical equipment and facilities, such as MRI scanners and our cutting-edge Bristol Referral Hospital which is planned to open in 2023.

Equine

Our Equine division has 19 equine locations across the UK. The division has performed well in the financial year; this has partly resulted from growth in client numbers through our focus on attracting new clients, and the introduction of a new greenfield practice in the South of England.

Farm Animal

Our Farm Animal division consists of 14 farm animal locations and a large specialist poultry veterinary business, Slate Hall. During the year we have increased fee revenue in particular, with drug revenue impacted by conscious movement away from antibiotic usage wherever possible.

We have been able to secure our medication supply through one of our Group companies, Pharmsure, which is a specialist wholesale and distribution company supplying veterinary medicines for the pig and poultry industries. This has helped our farm practices to achieve improved margins, secure prices, and be more confident in medication supply.

International

Our International division comprises 27 practices in the Netherlands and four practices in the Republic of Ireland. These include companion animal, equine and farm practices.

Internationally, we have increased investment into our highly valued nurses, to mitigate challenges in vet recruitment and help us to attract and retain colleagues. This includes benchmarking of salaries and increased investment in our colleagues' wellbeing.

Healthy Pet Club

As well as offering first class care to sick or injured animals, we continue to offer preventative healthcare through our Healthy Pet Club scheme, which offers routine flea and worming treatments and vaccinations, as well as twice yearly health checks. These clients can spread the cost of accessing the best preventative healthcare, allowing our clinicians to identify diseases and recommend the best diagnostics and treatments. The scheme membership has grown by 4.4% over the past year to around 470,000 members, representing roughly 40% of our companion animal active client base.

MiPet products/purchasing

Our own-brand spend consistently made up c.34% of the UK practices' pharmaceutical spending in 2022 and 2021. During the year, we have expanded our efforts to increase purchases of our own-brand products rather than third-party branded pharmaceuticals. This provides increased choice for our clients and we hope this will translate to an increase in own-brand spend in our practices.

We have continued to improve our warehouse management system, enhancing efficiency and increasing our permanent staffing, which has enabled us to cope with the increase in online retail order volumes as well as successfully complying with social distancing requirements through effective use of space and adjusted shift patterns within our warehouse.

Consumer insight survey

Our clients value the high quality of our services, and based on our August 2022 consumer insight survey1, will preserve their spend even in the face of economic pressures.

Based on these survey responses, we are further reassured pet spend on veterinary care and food appears highly resilient with only 5.8% of clients feeling they would try and reduce spend on veterinary care in the face of an economic recession. High quality pet healthcare continues to be of great importance to our clients, with 52.1% of clients feeling spend on their pets healthcare would increase over the next 2 years, whilst only 5.2% felt it would decrease.

Spend on pet food is also considered a priority for our clients with 96.5% of clients feeling spend on pet food would either stay the same or increase over the next two years.

1 In August 2022, we issued a consumer insight survey to 2,000 clients and received a 23% response rate.

Outlook

We are optimistic that our Veterinary Practices division will continue to deliver strong revenue growth. This optimism is driven primarily by our continued focus on high-quality clinical care, and we are confident we can continue to deliver significant improvements year on year. Whilst we are mindful of inflationary pressures, we are reassured that based on the responses to our consumer insight survey in August 2022, pet spend on veterinary care and food appears highly resilient. Secondly, we are also in a market of increasing humanisation of pets, with owners willing to spend more and more on the health of their pets, with increasingly high expectations and desire for their pets to have the same quality of care as every other member of the family.

Our colleagues continue to be our biggest focus in our Veterinary Practices division, as they are across the Group. In our 2022 Sustainability Report, we introduced our target to further reduce attrition by 10% which will enable us to bring down our vet and nurse vacancy rates, which have been relatively steady over the past two years despite significant workforce shortages in the industry. More broadly we expect significant improvements in supply of veterinary surgeons into the market over the next ten years, as the number of new graduates in the UK is set to roughly double by 2032.

Laboratories division

Reliable diagnostic testing supporting vets to deliver excellent clinical care

Our Laboratories division provides diagnostic services and in-practice desktop analysers to both CVS and third-party practices, and employs a national courier network to facilitate the collection and timely processing of samples from practices across the UK. We continue to develop our capability to ensure we can support the wider Group focus on growing diagnostic care.

Revenue has decreased 2.9% compared to the prior year which benefitted from one-off COVID-19 testing for CVS and third parties. On an underlying basis, adjusting for the COVID-19 PCR testing revenue in the prior year, revenue increased 1.1% on the back of remarkable non-COVID-19 testing growth in the prior year. Approximately 45% of our diagnostic laboratory tests are for CVS practices, reflecting the importance of our integrated veterinary model. Adjusting for the number of COVID-19 tests performed in 2021, the number of diagnostic tests was broadly consistent between 2021 and 2022, with price rises contributing to underlying revenue growth.

Outlook

The Laboratories division has remained resilient despite increasing consolidation in the veterinary sector. By increasing the speed and range of testing we offer in our laboratories, continuing to ensure field-leading client service, and employing a highly skilled network of sales teams and engineers, we are optimistic of growth in the years to come.

Crematoria

CVS provides compassionate service throughout a pet's life and beyond

Our Crematoria division provides both individual and communal cremation services for companion animal and equine clients, as well as clinical waste disposal services for both CVS and third-party veterinary practices.

The strong growth in the division was driven by the Direct Pet Cremation service we introduced in the previous financial year. Putting customers directly in contact with crematoria to make pet aftercare arrangements, and giving them more time to consider their options, has resulted in significant changes to customers' choices and generated improved customer care alongside financial returns. As a result of the service, the number of individual cremations increased by 5.5% in the year.

Outlook

We are investing in a modern new crematorium to relocate one of our existing crematoria. The new facility will be the first pet crematorium in the UK to incorporate temperature and oxygen control systems, which to date have only been used in human cremators, to minimise our environmental impact by delivering optimal combustion efficiency.

This new facility, due to complete in the 2023 financial year, alongside continued expansion and development of the Direct Pet Cremation project, is expected to continue to deliver revenue growth across the Crematoria division.

Online Retail Business

Shaking up the pet food and pharmacy sales market

Our online pet food and pharmacy retailer, "Animed Direct", focuses on supplying pet food and prescription and non-prescription medication, directly to customers. This is supported by the buying power of the Group as a whole, which ensures the business is able to provide the best value for customers.

During the financial year, our Online Retail Business division delivered revenue growth of 11.8% and adjusted EBITDA growth of 20.7%. We have focused on shifting the marketing and delivery of Animed Direct from low cost to a trusted quality retailer, which is in line with the Group's overall purpose and strategy. This has supported in delivering revenue growth in the division despite the reduction in unique customer numbers to 368,000 (2021: 404,000).

We have also successfully implemented a new logistics and fulfilment system to align with our improved warehouse management processes and ensure increased productivity and quality control.

Outlook

In the second half of the financial year, we began the design and implementation of a new website to enhance the customer journey, expected to launch in the 2023 financial year. Our improved website and warehouse systems will enable us to increase capacity, delivering future growth in online sales, generating revenue growth and improving customer satisfaction.

Head Office

Central administration costs include those of the central finance, IT, human resources, purchasing, legal and property functions. Total costs were £16.6m (2021: £15.7m), representing 3.0% of revenue (2021: 3.1%). The increased spend primarily relates to salary costs for new roles to support the continued growth of the Group and delivery of our strategy; for example, by investing in our human resources team, we are able to implement more initiatives to help reduce clinical role attrition.

As a percentage of revenue, the spend on support functions has remained broadly flat. The Group continues to base support colleagues in regions where possible, so they can easily provide the close support that the operations teams require.

Ben Jacklin

Chief Operating Officer

22 September 2022

Financial review

Well positioned for continued growth despite the more uncertain macro-economic environment

Financial highlights

The Group has continued to deliver against its strategy, with strong performance in both revenue and adjusted EBITDA.

Key financial highlights are shown below:

* Adjusted financial measures (adjusted EBITDA, adjusted profit before tax and adjusted earnings per share) are defined in the financial statements, and reconciled to the financial measures defined by International Financial Reporting Standards (IFRS) on pages 114 and 132 of the Group's FY22 Annual Report. Management uses adjusted EBITDA and adjusted earnings per share ("adjusted EPS") as the basis for assessing the financial performance of the Group. These figures exclude costs relating to business combinations and exceptional items and hence assist in understanding the performance of the Group. These terms are not defined by IFRS and therefore may not be directly comparable with other companies' adjusted profit measures.

A reconciliation of the difference between the reported operating profit figure and adjusted EBITDA is shown below:

1. Impairment of non-current assets, except for impairment of the investment in Quality Pet Care Ltd in 2022.

2. Impairment of the investment in Quality Pet Care Ltd in 2022 is included in exceptional items.

Financial performance

Revenue increased by 8.6% to £554.2m from £510.1m, with strong like-for-like growth of 8.0%. The Group continues to benefit from favourable market trends such as the sustained increase in pet population and the demand for and ability to deliver quality clinical intervention. The focus of delivery against our strategy has underpinned revenue growth and we have seen a 6.0% increase in the average number of vets we employ and a 4.4% increase in our Healthy Pet Club membership, to 470,000. This performance was particularly pleasing given the ongoing operational challenges associated with COVID-19.

We continue to see an opportunity to grow like-for-like sales and have increased our development capital expenditure to £13.7m from £8.4m to support ongoing expansion opportunities including refurbishments and relocations. We also see an opportunity to open Greenfield sites with three planned over the next twelve months.

Adjusted EBITDA increased by 10.2%, to £107.4m from £97.5m. Adjusted EBITDA margin increased to 19.4% from 19.1%, benefitting from operating leverage and strong revenue growth. Adjusted EBITDA also included £2.0m from another year of Research and Development Expenditure Tax Credits, which is the Group's second claim under this scheme.

During the year an impairment of £12.4m was recognised as an exceptional item, outside of adjusted EBITDA, following the Competition and Markets Authority's (CMA) investigation into the acquisition of Quality Pet Care Ltd and the subsequent divestment. This followed the CMA's conclusion that there was a potential substantial lessening of competition in a number of the sites acquired.

Since the conclusion of the investigation, three acquisitions have been completed for an investment totalling £8.4m (net of cash acquired), contributing during the period aggregate revenue of £0.5m and adjusted EBITDA of £0.1m. The pipeline of acquisitions remains strong and we continue to see opportunities for further investment in the future both in the UK, where there is now a clear framework to follow, and also in other territories.

We continue to closely monitor macro-economic trends including the impact of rising inflation. We believe that the Group is well placed to deliver continued growth from our integrated model, strong balance sheet and available investment opportunities.

Adjusted profit before tax increased by 14.0%, to £75.5m from £66.2m, in line with the increase in adjusted EBITDA. Adjusted EPS correspondingly increased by 14.2%, to 85.8p from 75.1p. Adjusted profit before tax and adjusted EPS exclude the impact of amortisation of intangible assets, costs relating to business combinations and exceptional items.

Profit before tax increased by 8.8%, to £36.0m from £33.1m, benefitting from an increase in adjusted EBITDA, a reduction in costs relating to business combinations, which includes business combinations costs in respect of prior periods, partially offset by the impairment in relation to Quality Pet Care Ltd (further information available in note 6). Basic EPS increased by 32.6%, to 36.2p from 27.3p.

Taxation

The total tax expense has reduced by £3.5m to £10.3m from £13.8m, primarily due to the prior year having included a one-off £4.3m expense in respect of the re-measurement of deferred tax balances following the substantive enactment of the increase in the UK corporation tax rate to 25.0% from April 2023. This was partially offset by a £2.3m capital loss, in relation to the divestment of Quality Pet Care Ltd, which could not be utilised in the current year. A deferred tax asset has not been recognised in respect of this loss as presently it is not probable that the Group will utilise this loss in future periods.

The Group's effective tax rate was 28.6% (2021: 41.7%). A reconciliation of the expected tax charge, at the standard rate, to the actual charge is shown below:

* Percentage of profit before tax.

All of the Group's revenues and the majority of its expenses are subject to corporation tax. The main expenses that are not deductible for tax purposes are costs relating to acquisitions, amortisation and depreciation of property, plant and equipment that do not qualify for tax relief. Tax relief for some expenditure, mainly property, plant and equipment, is received over a longer period than that for which the costs are charged in the financial statements.

Financial position

As at 30 June 2022, intangible assets amount to £216.5m (2021: £228.4m), consisting of goodwill, patient data records and computer software. The net reduction of £11.9m primarily relates to amortisation in the year of £22.2m (2021: £23.8m), offset by additions through business combinations of £8.8m (2021: £22.9m). The Group maintains significant headroom between the value-in-use of the group's cash generating units (CGU's) and the carrying amount of the associated assets, resulting in no impairment noted.

Property, plant and equipment of £69.7m (2021: £57.4m) includes freehold land and buildings, leasehold improvements, fixtures fittings and equipment and motor vehicles. The net increase of £12.3m primarily relates to additions (including those arising via business combinations) of £23.7m (2021: £16.7m), reflecting our continuing commitment to investing in our facilities, offset by depreciation of £11.3m (2021: £10.3m).

Right-of-use assets of £101.7m (2021: £97.2m) consists of property leases for our veterinary practices, specialist referral centres and support offices and short term leases for vehicles and equipment. The net increase in the year of £4.5m primarily relates to additions (including those via business combinations) and re-measurement of lease terms of £19.6m (2021: £15.4m), partially offset by depreciation and impairment charge in the year of £14.1m (2021: £14.0m) and net disposals of £1.0m (2021: £1.7m).

Other non-current assets of £2.4m (2021: £0.1m) primarily relates to a cash flow hedge of £2.3m (2021: liability of £0.4m).

Current assets of £127.9m (2021: £101.4m) comprises inventories of £26.2m (2021: £19.5m), trade and other receivables of £52.7m (2021: £48.1m) and cash and cash equivalents of £49.0m (2021: £33.7m). The net increase of £26.5m mainly relates to increased inventories in line with growth in overall revenues and increased cash and cash equivalents arising from strong operating cash flows.

Current liabilities of £101.4m (2021: £98.5m) comprise trade and other payables of £86.6m (2021: £86.0m), provisions of £2.1m (2021: £3.9m), lease liabilities of £9.4m (2021: £8.6m), current tax liabilities of £3.3m (2021: asset of £0.1m). The net increase of £2.9m mainly relates to the increase in liability for corporation tax.

Non-current liabilities of £199.4m (2021: £194.9m) includes borrowings of £84.3m (2021: £83.9m), lease liabilities of £95.1m (2021: £90.2m), and deferred tax liabilities of £20.0m (2021: £20.4m). See below for further details regarding the Group's borrowings.

Equity of £217.4m (2021: £191.1m) increased by £26.3m as a result of total comprehensive income of £27.6m (2021: £19.0m), new shares issued and shares disposed from the Employee Benefit Trust (EBT) of £2.3m (2021: £1.5m) to settle obligations under the Group's Save As You Earn (SAYE) scheme, and transactions in relation to share-based payments and associated deferred tax of £1.0m (2021: £4.0m). A dividend payment of £4.6m was paid in 2022 (2021: £nil).

Cash flow and movement in net debt

Net debt decreased by £14.9m to £35.3m from £50.2m. The movement in net debt is explained as follows:

The Group remains highly cash generative and de-levers quickly post-investment. Cash generated from operations increased by 15.9% to £93.1m from £80.3m benefitting from increased adjusted EBITDA and a reduction contingent consideration payments in respect of acquisition from prior years, partially offset by an increase in inventory. Working capital was also adversely impacted in the year by the commutation of a portion of clinical colleagues' bonus payments to salary in July 2021.

The analysis of capital expenditure between maintenance and development in the table above reflects a broad split between expenditure which we believe will primarily maintain profit, and that which we expect to increase profit. Development capital expenditure includes new sites, relocations, significant extensions and significant new equipment. All other capital expenditure is included as maintenance; maintenance capital expenditure remains less than 2.0% of revenue.

Repayment of lease liabilities of £12.7m (2021: £13.0m) are in respect of property leases for our veterinary practices, specialist referral centres and support offices and short-term leases for vehicles and equipment.

No corporation tax relief is received on the majority of the amortisation and transaction costs which are deducted in arriving at the unadjusted profit before tax figure. Therefore, the tax liability moves broadly in line with the adjusted profit before tax of the Group.

The decrease in tax paid in the year is predominantly as a result of an increase in capital allowances and increase in the year-end corporation tax liability.

Interest payments of £6.4m were lower than the prior year of £7.1m, reflecting the Group's maintenance of low levels of net debt during the financial year. During the year, the Group transitioned its interest benchmark rate in relation to its loan facility from LIBOR to SONIA.

Cash available for discretionary expenditure ("free cash flow") increased to £52.0m from £39.0m, primarily as a result of increased adjusted EBITDA.

Development capital expenditure increased in the year to £13.7m, from £8.4m, to support ongoing expansion opportunities, including a number of relocations and renovations. We continue to see opportunities to grow organic revenue and therefore expect development capital expenditure to increase over the next few years.

For business combinations (net of cash acquired) acquired during the financial year, £8.0m (2021: £19.4m) was paid for three practices (four practice sites), with an additional £0.4m liability on the balance sheet. A further £0.4m (2021: £nil) was paid in relation to prior year acquisitions. In addition, £0.1m (2021: £1.0m) was paid to settle loans transferred as part of the business combinations.

On 19 August 2021, the Group acquired 100% of the share capital of Quality Pet Care Ltd, an eight site companion animal practice spread across the UK, for total consideration of £20.4m, including repayment of loans of £3.4m. On 22 September 2021, the CMA served an initial enforcement order in respect of this acquisition and during the period a further £1.0m loan was provided for working capital. On 30 June 2022, the entire shareholding was divested for proceeds of £9.0m, resulting in an impairment of £12.4m, which has been recognised as an exceptional item.

A dividend of £4.6m was paid in the year (2021: £nil) reflecting the final dividend for the prior year of 6.5p per share.

Sale of property, plant and equipment of £0.2m (2021: £0.6m) primarily related to the sale of motor vehicles.

Proceeds from the sale of Ordinary and Treasury shares of £2.3m (2021: £1.5m) arose on the exercise of options under the Group's approved SAYE scheme, which allows colleagues to save regular amounts each month over a three-year period and benefit from increases in the Group's share price over that time.

Amortisation of debt issuance costs of £0.4m (2021: £0.4m) were in line with our policy.

Net debt and borrowing costs

The Group's net debt comprises the following:

The Group has total facilities of £175.0m to 31 January 2024, provided by a syndicate of four banks: NatWest, HSBC, BOI and AIB, and comprising the following elements:

• a fixed term loan of £85.0m, repayable on 31 January 2024 via a single bullet repayment;

• a four-year Revolving Credit Facility (RCF) of £85.0m, that runs to 31 January 2024;

• an envisaged, but not committed, accordion facility of up to £100.0m, that runs to 31 January 2024; and

• a £5.0m overdraft facility, renewable annually.

The two financial covenants associated with these facilities, described below, remain unchanged and will continue to be calculated based on the Group's accounting policies applicable at 30 June 2019 for the duration of the facilities, i.e. pre-IFRS 16.

At the year-end, the total borrowings principally consist of:

• the £85.0m term loan (gross of unamortised issue costs) (2021: £85.0m); and

• £nil drawn down under the RCF (gross of unamortised issue costs) (2021: £nil).

The two financial covenants associated with the Group's bank facilities are based on the ratios of bank test EBITDA to interest and bank test net debt to bank test EBITDA. Bank test EBITDA is based on adjusted EBITDA, annualised for the effect of acquisitions, including costs relating to business combinations and excluding share option costs, prior to the adoption of IFRS 16. The bank test EBITDA to interest ratio must not be less than 4.5x. At 30 June 2022 it was 41.00x (2021: 24.97x).

The covenants allow a maximum net debt to bank test EBITDA ratio ("gearing") of 3.25x, although it is not the Group's intention to operate at this level. The gearing ratio decreased during the year, to 0.40x at 30 June 2022 from 0.68x at 30 June 2021. This decrease in ratio reflects both the decrease in net debt and increase in EBITDA.

The Group manages its banking arrangements centrally. Funds are swept daily from its various bank accounts into central bank accounts to optimise the Group's net interest payable position.

Interest rate risk is also managed centrally and derivative instruments are used to mitigate this risk. On 28 February 2020, the Group entered into two four-year fixed interest rate swap arrangements to hedge fluctuations in interest rates on £70.0m of its term loan facility. During the year, the loan facility and two hedge arrangements were transitioned from LIBOR to SONIA benchmark rate, further information can be found in note 17 in the Group's FY22 Annual Report.

Going concern and viability

At the year end, the Group had cash and cash equivalents of £49.0m, a drawn term loan of £85.0m, an unutilised revolving credit facility of £85.0m and an unutilised overdraft facility of £5.0m. The Group are fully compliant with all covenants in respect of these facilities.

The Directors consider that the £5.0m overdraft and the £170.0m of debt facilities will be sufficient to enable the Group to meet all liabilities when they fall due. The Group are not reliant on any Government support. Since the year end, the Group has continued to trade profitably and to generate cash.

After consideration of market conditions, the Group's financial position (including the level of headroom available within the bank facilities), financial forecasts for the next 12 months, its profile of cash generation and the timing and amount of bank borrowings repayable, and principal risks, the Directors have a reasonable expectation that both the Company and the Group will be able to continue in operation and meet our liabilities as they fall due over the period. For this reason, the going concern basis continues to be adopted in preparing the financial statements.

More information on the Group's viability statement can be found on pages 95 and 96 of the Group's FY22 Annual Report.

Share price performance

At the year end the Company's market capitalisation was £1.2bn (1,656p per share), compared to £1.7bn (2,415p per share) at the previous year end.

Forward-looking arrangements

Certain statements and arrangements described in the results release are forward-looking. Although the Board is comfortable that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to be correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.

Robin Alfonso

Chief Financial Officer

22 September 2022

The Group's principal risks and uncertainties are available on pages 60 to 68 of the Group's FY22 Annual Report and the Group's key performance indicators are available on pages 28 to 31 of the Group's FY22 Annual Report.

Consolidated income statement

for the year ended 30 June 2022

All activities derive from continuing operations.

Reconciliation of alternative performance measures

The Directors believe that adjusted measures, being adjusted EBITDA, adjusted PBT and adjusted EPS provide additional useful information for shareholders. These measures are used by the Board and management for planning, internal reporting and setting Director and management remuneration. In addition, they are used by the investor analyst community and are aligned to our strategy and KPIs. These measures are not defined by IFRS and therefore may not be directly comparable with other companies' adjusted measures.

Adjusted EBITDA is calculated by reference to profit before tax, adjusted for interest (net finance expense), depreciation, amortisation, costs relating to business combinations and exceptional items. The following table provides the calculation of adjusted EBITDA:

1. Includes amounts paid in respect of acquisitions in prior years expensed to the income statement.

2. Exceptional items relate to impairment in relation to Quality Pet Care Ltd, refer to note 6.

Consolidated statement of comprehensive income

for the year ended 30 June 2022

Consolidated statement of financial position

as at 30 June 2022

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 related notes, were authorised for issue by the Board of Directors on 22 September 2022 and were signed on its behalf by:

Richard Fairman Robin Alfonso

Director Director

Consolidated statement of changes in equity

for the year ended 30 June 2022

Consolidated statement of cash flow

for the year ended 30 June 2022

Notes to the consolidated financial statements

for the year ended 30 June 2022

1. General information

The principal activity of CVS Group plc, together with its subsidiaries ("the Group"), is to operate veterinary practices, complementary veterinary diagnostic businesses, pet crematoria and an online pharmacy and retail business. The principal activity of CVS Group plc ("the Company") is that of a holding company.

CVS Group plc is a public limited company incorporated under the Companies Act 2006 and domiciled in England and Wales and its shares are quoted on AIM of the London Stock Exchange ("CVSG"). Its company registration number is 06312831 and registered office is CVS House, Owen Road, Diss, IP22 4ER.

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 2022 or 2021, for the purpose of the Companies Act 2006, but is derived from those financial statements. Statutory financial statements for 2022, 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 2021 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 and Company financial statements of CVS Group plc have been prepared in accordance international accounting standards and in conformity with the requirements of the Companies Act 2006. The consolidated financial statements have been prepared on a going concern basis and under the historical cost convention, except for certain financial instruments and share-based payments that have been measured at fair value.

After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the FY22 financial statements. Further details are provided in the Directors' Report of the Group's FY22 Annual Report.

The accounting policies set out in the FY22 Annual Report have, unless otherwise stated, been applied consistently to all years presented in the financial statements.

Use of alternative performance measures

Adjusted EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation), adjusted profit before tax (adjusted PBT) and adjusted earnings per share (adjusted EPS)

The Directors believe that adjusted measures, being adjusted EBITDA, adjusted PBT and adjusted EPS provide additional useful information for shareholders. These measures are used by the Board and management for planning, internal reporting and setting Director and management remuneration. In addition, they are used by the investor analyst community and are aligned to our strategy and KPIs. These measures are not defined by International Financial Reporting Standards (IFRS) and therefore may not be directly comparable with other companies' adjusted measures. They are not intended to be a substitute for, or superior to, IFRS measurements of profit or earnings per share.

Adjusted EBITDA is calculated by reference to profit before tax, adjusted for interest (net finance expense), depreciation, amortisation, costs relating to business combinations and exceptional items.

Adjusted PBT is calculated as profit before tax, amortisation, costs relating to business combinations and exceptional items.

Adjusted EPS is calculated as adjusted profit before tax, less applicable tax, divided by the weighted average number of Ordinary shares in issue in the period.

The following table provides the calculation of adjusted EBITDA as defined above:

1. Includes amounts paid in respect of acquisitions in prior years expensed to the income statement.

2. Exceptional items relate to impairment in relation to Quality Pet Care Ltd, refer to note 6.

The reconciliations for adjusted PBT and adjusted EPS can be found in note 4.

Net debt

Net debt is calculated as bank borrowings less gross cash and cash equivalents and unamortised borrowing costs.

Like-for-like sales

Like-for-like sales shows revenue generated from like-for-like operations compared to the prior year, adjusted for the number of working days. For example, for a practice acquired in September 2020, revenue is included from September 2021 in the like-for-like calculations.

2. Segment 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 and monitored by the Group's CODM.

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, tax-related assets and liabilities, costs relating to business combinations, and Head Office salary and premises costs.

Revenue comprises £398.1m of fees and £156.1m of goods (2021: £359.3m and £150.8m respectively).

Operating segments

The Group is split into four operating segments (Veterinary Practices, Laboratories, Crematoria and Online Retail Business) and a centralised support function (Head Office) for business segment analysis. In identifying these operating segments, management generally follows the Group's service lines representing its main products and services.

Each of these operating segments is managed separately as each segment requires different specialisms, marketing approaches and resources. Intra-group sales eliminations are included within the Head Office segment. Head Office includes costs relating to the employees, property and other overhead costs associated with the centralised support function together with finance costs arising on the Group's borrowings.

Geographical segments

The business operates predominantly in the UK. As at 30 June 2022, it has 27 veterinary practices in the Netherlands and four in the Republic of Ireland. It performs a small amount of laboratory work and teleradiology work for Europe-based clients and a small amount of teleradiology work for clients based in the rest of the world. In accordance with IFRS 8, 'Operating Segments', no segment results are presented for trade with clients in Europe or the rest of the world as these are not reported separately for management reporting purposes and are not considered material for separate disclosure.

3. Tax expense

a) Analysis of tax expense recognised in the income statement

b) Reconciliation of effective tax charge

The total tax expense for the year differs from the theoretical amount that would arise using the standard rate of UK corporation tax of 19.0% (2021: 19.0%) as follows:

Factors affecting the current tax charge

UK corporation tax is calculated at 19.0% (2021: 19.0%) of the estimated assessable profit for the year. Tax for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

The effective tax rate on reported profits is 28.6% (2021: 41.7%) and has decreased from the prior year mainly due to the remeasurement of deferred tax in the prior year as a result of the substantive enactment of the increase in the UK corporation tax rate to 25.0% from April 2023, which did not recur in the current year. The effective tax rate for 2022 was adversely influenced by the impairment and subsequent disposal of an investment, which resulted in tax losses of £13.4m. A deferred tax asset has not been recognised on the tax loss as it is not probable the Group will have sufficient future taxable profits against which this loss could be utilised. It was further affected by a decrease in expenses not deductible for tax purposes predominantly in respect of business acquisitions.

Changes in tax rates

The UK corporation tax rate for the year was 19.0% (2021: 19.0%). In March 2021, the UK Government announced an increase in the UK corporation tax rate. The Finance Bill 2021 was substantively enacted on 24 May 2021 increasing the UK corporation rate to 25.0% from 1 April 2023. The impact of this change in tax rate was recognised in 2021 in the income statement, except to the extent that it related to items previously recognised outside of the income statement in which case it was recognised in other comprehensive income and equity accordingly.

Uncertain tax position

The Group recognises taxation based on estimates of whether taxes will be due. No material uncertain tax positions existed at 30 June 2022 or 30 June 2021.

4. Earnings per Ordinary share

a) Basic

b) Diluted

Diluted earnings per share is calculated by adjusting the weighted average number of Ordinary shares outstanding to assume conversion of all dilutive potential Ordinary shares. The Company has potentially dilutive Ordinary shares, being the contingently issuable shares under the Group's LTIP schemes and SAYE schemes. For share options, a calculation is undertaken to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options.

Alternative performance measure: adjusted earnings per share

5. Business combinations

Details of business combinations in the year ended 30 June 2022 are set out below. The reason for each acquisition was to expand the CVS Group business through acquisitions aligned to our strategic goals. The acquisition and subsequent disposal of Quality Pet Care Ltd is not included in the below, and further information can be found in note 6.

All businesses were acquired via 100% share purchase agreement unless indicated otherwise in the table above.

Given the nature of the veterinary practices acquired and the records maintained by such practices, it is not practicable to disclose the revenue or profit or loss of the combined entity for the year as though the acquisition date for all business combinations during the year had been at the beginning of that year.

The table below summarises the total assets acquired through business combinations in the year ended 30 June 2022:

The total consideration of £8.4m is prior to the agreement of the completion accounts. The amounts recognised are subject to adjustment in line with IFRS 3 for up to 12 months from acquisition, with goodwill being adjusted accordingly.

Goodwill recognised represents the excess of purchase consideration over the fair value of the identifiable net assets. Goodwill reflects the synergies arising from the combination of the businesses; this includes cost synergies arising from shared support functions and buying power synergies. Goodwill includes the recognition of an amount equal to the deferred tax that arises on non-qualifying fixed assets acquired under a business combination.

Post-acquisition revenue and post-acquisition adjusted EBITDA were £0.5m and £0.1m respectively. The post-acquisition period is from the date of acquisition to 30 June 2022. Post-acquisition EBITDA represents the direct operating result of practices from the date of acquisition to 30 June 2022 prior to the allocation of central overheads, on the basis that it is not practicable to allocate these.

Goodwill and intangible assets recognised in the year relating to business combinations are not expected to be deductible for tax purposes.

Acquisition costs of £4.9m (2021: £9.3m) are included within Administrative expenses.

The Directors do not consider any individual in-year acquisition to be material to the Group and therefore have not separately disclosed these.

Business combinations in previous years

Details of business combinations in the comparative year are presented in the consolidated financial statements for the year ended 30 June 2021. £0.4m (2021: £nil) was paid in the current year to settle deferred consideration payable from the prior year.

Business combinations subsequent to the year end

Subsequent to the year end, the Group has made two acquisitions

On 27 July 2022, the Group completed the purchase of 100.0% of the share capital of Werrington Vets Limited, a company registered in England and Wales, for initial cash consideration of £4.3m. This is a business comprising one companion animal veterinary practice site in the UK. Assets acquired comprised principally goodwill and intangible patient data records with a provisional fair value of £4.1m.

On 16 September 2022, the Group completed the purchase of 100.0% of the share capital of Woodlands Veterinary Clinic Limited, a company registered in England and Wales, for initial cash consideration of £3.5m. This is a business comprising two companion animal veterinary practice sites in the UK. Assets acquired comprised principally goodwill and intangible patient data records with a provisional fair value of £3.3m.

6. Investments

On 19 August 2021, the Group acquired 100% of the share capital of Quality Pet Care Ltd, a company registered in England and Wales, for total consideration of £20.4m, including repayment of loans of £3.4m. On 22 September 2021, the Competition & Markets Authority (CMA) served an initial enforcement order (IEO) in respect of this acquisition and during the period a further £1.0m loan was provided for working capital. During the investigation, the group did not control Quality Pet Care Ltd due to conditions imposed by the IEO, and as such it is recorded as an investment in a subsidiary held at fair value, and its financial performance and position are not consolidated into those of the Group. Prior to the year-end, an impairment of £12.4m was recorded to the carrying amount of the investment in anticipation of a disposal, based on the estimated fair value, which has been recognised as an exceptional item in the income statement within administrative expenses. On 30 June 2022, the entire shareholding was divested with sales proceeds of £9.0m, with no gain or loss on disposal recorded due to the investment having already been impaired to its recoverable amount. The sales proceeds have been included within cash equivalents.

7. Borrowings

Borrowings comprise bank loans and are denominated in Sterling. The repayment profile is as follows:

The balances above are shown net of issue costs of £0.7m (2021: £1.1m), which are being amortised over the term of the bank loan. The carrying amount of borrowings is deemed to be a reasonable approximation to fair value.

The Group has total facilities of £175.0m. These facilities are provided by a syndicate of four banks: NatWest, HSBC, BOI and AIB, and comprise the following elements:

• a fixed term loan of £85.0m, repayable on 31 January 2024 via a single bullet repayment;

• a four-year Revolving Credit Facility (RCF) of £85.0m that runs to 31 January 2024; and

• in addition, the Group has a £5.0m overdraft facility renewable annually.

The two financial covenants associated with these facilities have remained unchanged, and are based on the ratios of bank-test net debt to bank-test EBITDA and bank-test EBITDA to interest. The bank-test net debt to bank-test EBITDA ratio must not exceed 3.25x. The bank-test EBITDA to interest ratio must not be less than 4.5x. The facilities require cross-guarantees from the most significant of CVS Group's trading subsidiaries but are not secured on the assets of the Group. Bank-test EBITDA is based on the last twelve months' adjusted EBITDA performance annualised for the effect of acquisitions deducting costs relating to business combinations and adding back share option expense, prior to the impact of IFRS 16.

Bank covenants are tested quarterly and the Group has considerable headroom in both financial covenants and in its undrawn but committed facilities as at 30 June 2022.

Interest rate risk is also managed centrally and derivative instruments are used to mitigate this risk. On 28 February 2020, the Group entered into a four-year interest rate fixed swap arrangement to hedge fluctuations in interest rates on £70.0m of its term loan.

At the year end £70.0m of the term loan was hedged using an interest rate swap. The remainder of the debt is not hedged.

Undrawn committed borrowing facilities

At 30 June 2022, the Group has a committed overdraft facility of £5.0m (2021: £5.0m) and an RCF of £85.0m (2021: £85.0m). Both the overdraft facility and the RCF were undrawn at 30 June 2022 and 30 June 2021.

8. Dividends

The Directors have proposed a final dividend of 7.0p (2021: 6.5p) per share, giving a total of £5.0m (2021: £4.6m). During the year, the 2021 final dividend totalling £4.6m was paid (2021: £nil).

9. Cash flow generated from operations

10. Events after the reporting period

On 27 July 2022, the Group completed the purchase of 100.0% of the share capital of Werrington Vets Limited, a company registered in England and Wales, for consideration of £4.3m. This is a business comprising one companion animal veterinary practice site in the UK, aligned with the Group's strategic goals. Further information can be found in note 5.

On 16 September 2022, the Group completed the purchase of 100.0% of the share capital of Woodlands Veterinary Clinic Limited, a company registered in England and Wales, for consideration of £3.5m. This is a business comprising two companion animal veterinary practice sites in the UK, aligned with the Group's strategic goals. Further information can be found in note 5.

11. Related party transactions

Transactions with Directors and key management

During the year, the following dividends were paid to the Directors of the Group: R Connell - £10,693; D Kemp - £426; R Gray - £325; R Fairman - £1,158; and B Jacklin - £306. Dividends were also paid to the spouses of R Fairman and R Alfonso of £709 and £130, respectively (2021: no dividend paid).