CVS Group Regulatory News (CVSG)

For Immediate Release 21 September 2023

CVS GROUP plc

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

Final results for the year ended 30 June 2023

Strong results reflect continued customer demand for high-quality clinical care and investment in growth

CVS, the UK listed veterinary group and a leading provider of veterinary services, is pleased to announce its final results for the year ended 30 June 2023 ("2023").

Financial Highlights

· Revenue increased by 9.8%, to £608.3m (2022: £554.2m), with Group like-for-like1 sales growth of 7.3% in line with the Group's stated organic revenue growth target of between 4% and 8%, reflecting continued demand for the Group's high-quality clinical care

· Adjusted EBITDA2 growth of 13.0%, to £121.4m (2022: £107.4m), underpinned by strong revenue performance and the continued investment in our facilities, equipment, technology and colleagues in addition to the recognition of research and development expenditure tax credit

· Profit before tax increased by 49.7%, to £53.9m (2022: £36.0m) benefitting from the increase in adjusted EBITDA partially offset by an increase in finance expense, depreciation and costs relating to business combinations. The prior year was impacted by the one-off impairment of investment relating to the acquisition of Quality Pet Care Ltd

· Leverage6 increased to 0.73x (2022: 0.40x) as a result of the above investment and acquisitions

· Operating cash conversion improved 4.9ppts to 70.0%

· In light of the continued growth of the Group and its positive operating cash generation, the Board is recommending the payment of a final dividend of 7.5p per Ordinary share (2022: 7.0p)

· In February 2023, we successfully refinanced our debt facilities increasing available funds to £350m from £170m. The interest margin and covenants for the facility remain unchanged

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 2021, revenue is included from September 2022 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.

Significant operational and strategic progress

· 6.5% increase in the average number of vets employed in the year against a continued backdrop of constrained availability of vets across the industry

· We have continued to increase investment in our people, facilities and equipment, investing £45.7m in 2023 (2022: £24.5m), including completing 21 refurbishment and relocation projects in the year (2022: 23) in accordance with our plans outlined at our capital markets day in 2022

· We have published our second standalone Sustainability Report, describing the goals and activities of our ESG working groups and introduced targets across our work groups

· We have invested £54.6m in 11 acquisitions comprising 16 practice sites in line with our inorganic growth strategy

· Our client Net Promoter Score (NPS) increased to 73.0 (2022: 71.9) reflecting our continued focus on delivering high-quality clinical care

· Our employee NPS increased to 14.6 (2022: 4.8) reflecting our focus in supporting and developing our colleagues

Competition and Markets Authority (CMA)

On 7 September 2023, the CMA announced a Market Review of the Veterinary sector for household pets in the UK. The review is carried out under the CMA's general review function which allows it to obtain, compile and keep under review information relating to the CMA's functions. The Market Review is voluntary and we will work closely with the CMA in support. The CMA have stated they will provide a further update in early 2024.

Current trading in line with expectations

· The new financial year has started well, we are pleased with the momentum in the business and continue to trade in line with market expectations

· Continued growth in our Healthy Pet Club to 494,000 members (+4% compared to 31 August 2022); representing roughly 40% of the companion animal active client base.

· Following our announcement in July 2023 of our entry into the Australian veterinary services market, we have now completed total acquisitions of five first-opinion small animal practices (comprising five sites) for initial consideration of £23.8m and exchanged contracts of a further two comprising of four practice sites

· We have acquired a further two Veterinary practices in the UK, following submission of briefing papers to the Competition and Markets Authority (CMA), for consideration of £6.6m

· We have a strong pipeline of additional acquisition opportunities in both the UK and Australia

· 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 are on track to continue to deliver against the KPIs set out at the Capital Markets Day in November 2022

Richard Fairman, Chief Executive Officer, commented:

"I'm pleased that we have delivered another strong set of results, with good growth against all of our six strategic targets announced at our Capital Markets Day in November 2022. Our continued focus on providing the best possible care to animals, led by our passionate and caring colleagues who are committed to high-quality veterinary care, has contributed to the strength of our performance.

"I am delighted to announce we have now completed five acquisitions in Australia (comprising five sites) and a further two acquisitions in the UK (comprising two sites). We are excited by the opportunity Australia presents and delighted to welcome the teams from these Australian and UK practices into the Group.

"CVS remains committed to providing high-quality care to our clients and their animals. With the continued support of our outstanding colleagues and our planned investment in people, practice facilities and technology, I look forward to sharing further successes in 2024 and beyond."

Results webcastManagement will host a live webcast and Q&A for analysts at 9am GMT this morning. Those wishing to join should email CVSG@camarco.co.uk for access. For those unable to join, there will be a playback facility available on the CVS website later.

Contacts

CVS Group plc via CamarcoRichard Fairman, CEOBen Jacklin, Deputy CEORobin 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 / James Thompson / Milo Bonser

Camarco (Financial PR) Geoffrey Pelham-Lane +44 (0)7733 124 226

Ginny Pulbrook +44 (0)7961 315 138

About CVS Group plc (www.cvsukltd.co.uk)CVS Group is an AIM-listed provider of veterinary services in the UK, Australia, the Netherlands and the Republic of Ireland. CVS is focused on providing high quality clinical services to its clients 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 four markets, including nine specialist referral hospitals and 39 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 employs c.8,800 personnel, including c.2,300 veterinary surgeons and c.3,300 nurses.

Chair's statement

Building on our strong foundations to deliver continued high-quality clinical care and investment in growth

Introduction

I am delighted to report on another successful year in which we have increased investment in future growth, as well as announcing our entry into the Australian veterinary services market post the year end.

We have previously set out our clear strategy for growth underpinned by our purpose to give the best possible care to animals and our vision to be the veterinary company people most want to work for. In November 2022, we outlined our updated five-year plan in support of this strategy with continued focus on organic growth and through investment in people, practice facilities, clinical equipment and technology and further acquisitions in the UK and overseas.

Whilst we are in the early stages of this five-year plan, we have made a positive start with increased investment and eleven practice acquisitions completed in the financial year.

I would like to take this opportunity to thank all CVS colleagues for their continued professionalism and commitment in providing great care for our clients and their animals.

Improved financial performance

We have delivered another strong set of financial results with increased revenue and earnings, strong operating cash conversion and improved balance sheet strength. This positions CVS well to deliver investment in future growth.

Revenue for the financial year increased by 9.8% to £608.3m (2022: £554.2m) reflecting our continued focus on providing the best possible clinical care to animals. We continue to see robust client demand for our high- quality services with long term drivers of a growing pet population, improvements in animal healthcare and the humanisation of pets.

Adjusted EBITDA increased by 13.0% to £121.4m (2022: £107.4m) through revenue growth, our continued discipline in managing costs and recognition of net Research and Development Expenditure Tax Credit of £9.6m. Profit before tax increased by 49.7% to £53.9m (2022: £36.0m) with adjusted EPS increasing by 11.9% to 96.0p (2022: 85.8p) and basic EPS increasing by 62.4% to 58.8p (2022: 36.2p).

CVS continues to be highly cash generative with the improved revenue and earnings resulting in cash generated from operations increasing by 15.9% to £107.9m (2022: £93.1m). In accordance with our strategy, we have increased our investment in our people, our facilities and our equipment to further aid growth and, as a result, net debt increased to £70.7m (2022: £35.3m) and leverage increased to 0.73x, from 0.40x.

We successfully refinanced our bank debt facilities in February 2023, with £350.0m of total facilities now available comprising a term loan of £87.5m and a £262.5m revolving credit facility. The margin under these facilities remained unchanged. Financial covenants also remained unchanged with considerable headroom at 30 June 2023 under both financial covenants. We also have access to a £5.0m overdraft, renewable annually.

Strategic progress

Our strategy, 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.

As outlined at our Capital Markets Day in November 2022, we have increased investment in practice facilities, clinical equipment and technology to drive growth with capital expenditure of £45.7m in the financial year (2022: £24.5m). We completed 21 property relocation and refurbishment projects in the year.

We acquired 11 veterinary practices (comprising 16 practice sites) in the year for initial cash consideration of £54.6m.

In July 2023 we announced our entry into the Australian veterinary services market with our first acquisitions of veterinary practices. Having explored a number of new potential markets we identified Australia as a particularly attractive market given the relatively low levels of corporate consolidation, favourable market dynamics and strong similarities with the UK, including highly trained veterinary surgeons, shared language and culture, and the Group's experience with UK vets working between Australia and the UK.

At the heart of our growth ambitions is our vision to be the veterinary company people most want to work for. We have taken further positive steps in the year to provide additional support to our colleagues with a number of new and enhanced employee benefits introduced. These include a health care cash plan enabling colleagues to cover the cost of a range of medical services and support available to colleagues across a variety of health-related life events, including fertility, pregnancy loss, major surgery and hospitalisation.

CVS introduced a new Equity, Diversity and Inclusion (EDI) strategy in 2022 and we have developed this in the past financial year. New policies have been introduced covering bullying, harassment and incivility and we introduced an EDI training course for all CVS colleagues. We have also introduced a regular survey question measure of whether our colleagues feel equally included at work, and in June 2023 83.6% of colleagues responded positively. Nearly 625 learners have enrolled in our Equity, Diversity and Inclusion training course which raises awareness of bias and prejudice in the workplace and recommends actions to consciously improve.

Governance and the Board

We remain committed to the highest levels of corporate governance and, as an AIM-listed 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. Joanne Shaw was appointed as a new Non-Executive Director with effect from 1 July 2023. Joanne brings a wealth of healthcare experience from her current roles as Trustee and Audit Committee Chair at Cancer Research UK and Chair at the Royal College of Paediatrics and Child Health, in addition to her previous roles as Non-Executive Director at NHS England, Chair of NHS Direct, Non-Executive Director at Kensington and Chelsea Primary Care Trust and Chair of the British Equestrian Association.

Ben Jacklin was promoted to a newly created role of Deputy Chief Executive Officer on 1 July 2023 reflecting Ben's significant contribution over the past few years in his Chief Operating Officer role. Ben retains responsibility for overseeing the Group's operations in this new role.

Dividends

In light of the continued growth of the Group and its positive operating cash generation, the Board is recommending a continuation of our progressive dividend policy, with the payment of a final dividend of 7.5p per Ordinary share (2022: 7.0p). The ex-dividend date is 2 November 2023 and the dividend payment date is 8 December 2023.

Shareholder engagement

The Board continues to engage actively with existing and potential new shareholders. Our Capital Markets Day in November 2022 was well attended in person and through a live stream of the event. We outlined our growth ambitions over the next five years and investors and analysts attending in person had the opportunity to tour two of our veterinary practices and experience practical demonstrations.

The Executive Directors attended a number of investor conferences in the UK, the US and Europe during the financial year and all Directors make themselves available to meet with investors on request.

We continue to host a sell-side analysts and institutional investors' webcast at our interim and full-year results, including a question and answer session, with a replay facility provided on our investor website.

Outlook

The financial performance achieved in the past financial year, and our clear strategy for future growth, positions CVS well to benefit from the sizeable and growing veterinary services market and continued humanisation of pets.

I look forward to reporting on further success in the future.

Richard Connell

Chair

21 September 2023

Chief Executive Officer's review

Continuing our focus of providing the best possible care to our clients and their animals

Introduction

As a business whose purpose is to provide the best possible care to animals, the passion and care of our colleagues are at the heart of our success. I would like to begin by thanking each and every one of our colleagues for their hard work and support over the past year in delivering great care to our clients and their animals.

In November 2022, we hosted a Capital Markets Day which included tours of two of our small animal veterinary practices. At this event, we announced our five year plan and the six strategic targets underpinning this plan:

• organic revenue growth of 4%-8% per annum;

• adjusted EBITDA1 margins of between 19% and 23% through investment in our facilities;

• investment in practice facilities, clinical equipment and technology to deliver additional organic growth;

• acquisitions subject to disciplined criteria for returns and earnings accretion;

• operating cash conversion of more than 70%; and

• leverage on a bank test basis remaining below 2.0x.

A clear capital allocation strategy

We have a clear strategic focus to provide high-quality clinical care to animals, and key to the delivery of this is investment in our existing practice facilities, clinical equipment and technology, and expanding our Group through strategically aligned acquisitions subject to disciplined criteria.

In support of this planned increase in investment, we successfully refinanced our debt facilities in February 2023, increasing the available funds to £350.0m, comprising:

• a £87.5m term loan, repayable via bullet payment in February 2027; and

• a £262.5m revolving credit facility

The interest margin and covenants for the facility remain unchanged, with maximum leverage of 3.25x and interest cover no less than 4.5x. We obtained commercial terms with increased flexibility to support our growth ambitions, and welcomed Barclays, JP Morgan, Lloyds Bank, Virgin Money and Danske Bank to our banking syndicate, alongside long-term partners HSBC, NatWest and AIB.

In the financial year to June 2023, we invested £45.7m and completed 21 practice refurbishments and relocation projects. We are pleased with the returns to date from this investment, with higher-quality facilities and enhanced technology allowing us to provide high-quality care to our clients and their animals.

This investment included a brand new greenfield site, Southport Vets, which opened in December 2022. This 3,000 sq ft building comprises four consulting rooms together with an operating theatre and specialist dental suite, plus an in-house laboratory and digital x-ray facilities.

Alongside this investment, we invested initial cash consideration of £54.6m in acquiring 11 practices (16 practice sites) in the financial year, and it has been a pleasure to welcome our new colleagues to CVS.

Financial performance

In terms of financial performance during the full year ended 30 June 2023 we have delivered:

· continued organic revenue growth with a 7.3% increase in like-for-like sales (2022: 8.0%), consistent with the Group's organic revenue growth ambition of between 4% and 8%.

· adjusted EBITDA margin expansion of 60bps to 20.0%, within our stated ambition of margins between 19% and 23%.

· continued investment in our facilities and equipment to support growth, with total capital expenditure of £45.7m (2022: £24.5m), within the Group's capital expenditure ambition of £30m to £50m investment per annum.

· investment of £54.6m in 11 practice acquisitions (comprising 16 practice sites) (2022: £8.4m in three practice acquisitions (comprising four practice sites)), in line with the guidance of £50m+ investment per annum; and .

· operating cash conversion of 70%, broadly in line with our stated ambition of 70%. In light of the increased investment made in the financial year, leverage increased to 0.73x at 30 June 2023 (30 June 2022: 0.40x), but remained well below our stated target of less than 2.0x leverage as set out in our Capital Markets Day ambitions.

Strategy

Our purpose is to give the best possible care to animals and our vision is to be the veterinary company people most want to work for and these are underpinned by our 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 recommend and provide the best clinical care every time we continue to invest in research and development towards improved clinical standards. In 2022 we launched our Clinical Research Awards and to date we are supporting 16 research projects, with more funds to be made available in the coming year. These awards facilitate colleagues to be able to undertake high-quality and impactful research, as well as work collaboratively with universities and research institutions to continue to break new ground in veterinary care.

Our vision to be the veterinary company people most want to work for is underpinned by our strategic pillar to be a great place to work and have a career. During the year, we launched a range of new benefits and policies. Among these is a zero-tolerance policy towards abusive clients to put colleague safety in practices at the forefront and this can result in veterinary services being terminated for abusive clients. The BVA published data in 2021 which showed six out of ten vets had reported feeling intimidated by clients' language or behaviour in the previous year. We hope this policy helps our colleagues in handling difficult situations with the confidence that the Group is in support of their welfare.

We have increased investment in our practice facilities, equipment and technology in the past year so that we can achieve a minimum practice facility standard. This standard includes optimal layout of clinical spaces, increasing the number of consult rooms and operating theatres, installing improved technology such as dental x-ray and advanced imaging facilities, and improving colleague areas such as kitchens and office spaces.

As a veterinary business, taking our responsibilities seriously is in our DNA. We work closely with industry bodies to ensure we are improving standards of care and we fully embrace the RCVS Practice Standards Scheme (PSS). In June 2023, the RCVS added a Sustainability Award to its PSS whose requirements range from having a written environmental sustainability policy, to demonstration of techniques to minimise anaesthetic gas usage and annual waste surveys being undertaken with demonstrable action as a result. We are encouraging our practices to participate in this new award.

Focus on our people

To enable us to provide great care we have invested in employing an additional 6.5% vets and 8.4% nurses on average in the financial year to 30 June 2023 in comparison to the previous financial year. We continue to increase the number of clinical colleagues we employ at a significantly faster rate than the growth of the population of practicing vets in the UK.

We are pleased that the RCVS has seen a rise in the number of EU vets registering to work in the UK for the first year post Brexit, with a 30% increase in 2022. Meanwhile, the arrangements that allow graduates from European Association of Establishments for Veterinary Education (EAEVE)-accredited schools to be recognised by the RCVS have been extended for another year.

Although these structural improvements are positive, our ability to attract and retain colleagues is significantly enhanced by our focus on our people and on being a great place to work and have a career. We measure employee Net Promoter Score (eNPS) monthly, and this score has increased consistently each year since we first began to measure it. At June 2023 our eNPS was 14.6 (2022: 4.8) with the increase a reflection of our efforts in improving the satisfaction of our colleagues.

We continue to focus on the wellbeing of our colleagues with over 300 first aiders for mental health trained, considerable awareness built across CVS and regular initiatives to promote positive wellbeing. 100 practice teams have utilised our new "What matters to us?" framework, which helps colleagues feel empowered to make local changes to improve their wellbeing. Some 400 managers across CVS have undertaken a new course developed on supporting the wellbeing of their teams.

Developing a culture where everybody can contribute

Our values are customer focus, commitment to excellence, success through our people, and honesty and integrity. In our 2022 Annual Report, we introduced our Group-wide culture survey, in which we sought feedback from colleagues across the business on their experiences of inclusion, support and fairness within CVS.

During 2023, we have developed actions in response to the results of this survey, with our main focus being on developing an Equity, Diversity and Inclusion programme that enables all our colleagues to feel included and psychologically safe. We developed a psychological safety course to give leaders practical knowledge and skills for creating a psychologically safe team environment. By the end of June 2023, 372 leaders had completed the course, with positive feedback on its impact in the workplace.

Sustainability

We published our first Sustainability Report in 2022 and we have concentrated our focus in the past year on six key areas, namely Energy and Carbon, Waste, One Health, People Development, Wellbeing and EDI.

During the year, we introduced our new network of Environment Champions. These are volunteers from across the business supporting us to reduce our impact on the environment, improve the way we deal with our waste and cut our carbon footprint. Our aim is for each practice or building to have an Environment Champion, forming a network of CVS Group colleagues who volunteer to help raise energy and environmental awareness.

Australia market entry

Since the year end, in July 2023 we announced our entry into the Australian veterinary services market and we have now completed five first-opinion small animal practices (comprising five sites) with a strong pipeline of additional opportunities.

We identified Australia as an attractive market and I am delighted to welcome our new colleagues in Australia to CVS.

Competition and Markets Authority (CMA)

On 7 September 2023, the CMA announced a Market Review of the Veterinary sector for household pets in the UK. The review is carried out under the CMA's general review function which allows it to obtain, compile and keep under review information relating to the CMA's functions. The Market Review is voluntary and we will work closely with the CMA in support. The CMA have stated they will provide a further update in early 2024.

Outlook

I am proud of the achievements of our team of colleagues over the past year, as reflected in another set of strong financial results.

We set out a clear five-year plan at our Capital Markets Day in November 2022 and the achievements in the past year, the refinancing of our bank facilities and balance sheet all position us well to deliver against this ambition. Whilst we continue to be mindful of inflationary pressures on household incomes, we are confident that our strategy for growth focused on high-quality clinical care and investment in facilities and technology positions us well to deliver further growth over the coming years.

With the continued support of our outstanding colleagues, I look forward to sharing further success in 2024 and beyond.

Richard Fairman

Chief Executive Officer

21 September 2023

Operational review

Continuing to attract great talent to deliver the best possible care for our patients and their owners

I am once again proud to present a review of our operations, on behalf of all our dedicated colleagues across each of our divisions. In an inflationary environment which has been challenging for consumers and businesses across many other industries, we have seen another successful year characterised by investment in our core businesses. These investments further our pursuit of the best possible care for our patients and working environments that attract the very best veterinary talent. They are a testament to the continued resilience of clients in the veterinary sector and, particularly for CVS, their ongoing desire to give their pets the very best care they can.

We launched our strategy back in 2019: a purpose to give the best possible care to animals, which we will deliver through our vision to be the veterinary company people most want to work for. Underlying 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.

We continue to demonstrate that through delivery of this strategy we achieve strong and sustainable growth.

Our clinical leadership teams continue to work with our colleagues and practices delivering clinical development and quality improvement. During the year we executed a number of clinical improvement projects, developed by our clinical leadership teams. In 105 of our first-opinion companion animal practices we launched a project to increase screening for hypertension (high blood pressure) in older cats. Up to 40% of cats over seven years old will have hypertension, many of which are undiagnosed. Undiagnosed hypertension can lead to serious disorders affecting the brain, heart and kidneys, including weight loss, retinal disease and renal failure amongst other serious complications. However, early diagnosis can lead to significantly better outcomes for each patient. This project led to 5,984 additional blood pressure measurements to screen cats for hypertension, and 444 more cats being diagnosed and treated in the participating sites. This is just one example of the difference we can make to all stakeholders with clinical projects such as these. First and foremost we can improve outcomes for patients, while improving the experience and outcome for clients and ultimately generating revenues from the accurate diagnosis and treatment of clinical cases.

Being a great place to work and have a career is our ambition for all of our colleagues, not just vets. Our veterinary nurses perform a vital role in practice and during the year we took time to understand why nurses leave their roles and the sector, and what factors predict those who will leave. The study used multivariable logistic regression analysis to identify that higher quality property facilities were predictive of nurses choosing not to leave, underlining the importance and benefit of investment in our facilities.

The data used for the study was from 2021, and since then we have seen a continued reduction in attrition within our nursing population and across the Company, probably in part due to the investments we have made in facilities across CVS. During the year we completed 21 major property projects, including 15 major relocations, 5 refurbishments and a new greenfield site in Southport. Alongside those facilities investments we have continued to invest in developing career pathways and new employee benefits, and improving wellbeing and engagement, all of which move us towards our vision.

We have opened a second nurse training school, based in Norfolk, which is in addition to our existing school at Chestergates. This enables us to train more of our own student veterinary nurses and help them to qualify as Registered Veterinary Nurses, as well as offering training to some external students. Such career development opportunities are critical to those colleagues aspiring to become veterinary nurses, and being able to train nurses in house is a significant benefit.

The research into nurse attrition was led by our Group Director of Clinical Research, and recognised by publication in the "Vet Record", a leading peer-reviewed scientific journal in the profession.

Alongside the continued opportunities to invest in and grow our organic business, we continue to see significant opportunity for acquisitions in the UK and further afield. We continue to follow the guidance issued by the Competition and Markets Authority and have successfully completed 11 acquisitions of 16 practice sites in the year. Continuing the discipline of acquisition applied over the last few years these are high-quality practices that fit with our provision of the best possible care, and I warmly welcome these new colleagues to CVS.

Sustainability remains at the heart of what we do, and I am pleased that we continue to focus on a wide variety of initiatives that we feel are material to CVS and its stakeholders. Outlined in our 2022 Quality Improvement report, published during the year, we shared that our data driven approach reduced the use of Highest Priority Critically Important Antibiotics (HCPIA) by 20% in twelve months.

Veterinary Practices division

Supporting our colleagues to deliver the best possible clinical care

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 performed well during the financial year with like-for-like sales growth of 7.3%, contributing to total revenue growth of 10.1%. Adjusted EBITDA increased 7.2%. We made 11 acquisitions during the financial year, adding 16 practice sites to the Group.

Since the year end, a further seven practice sites have been acquired, including five in Australia following CVS's entry into that market.

Companion Animal

Our Companion Animal division forms the majority of our Veterinary Practices division. The focus of our Companion Animal division on delivering the best possible care for our patients continues, and benefits from a growing market as customers continue to seek out veterinary care for their pets.

We have placed particular emphasis on research and development to support the progression of the profession. A series of clinical excellence projects has been launched to provide a greater range of clinical services with each project designed to help practices identify where they may be able to improve the standard of clinical care.

We continue to focus on the recruitment, retention and development of our highly skilled and dedicated colleagues. We employed an average of 6.5% more vets in 2023 vs 2022 reflecting a further reduction in attrition, a record graduate vet intake and the ongoing recruitment of some of the best talent in the profession.

Referrals

Our Referrals operations have continued to grow, benefiting from the leadership of a new management team. We continue to support our colleagues with their careers, supporting them through their specialist exams. We have also integrated our advance clinical services network into our Referrals division, to aid collaboration across our teams.

Equine

Our Equine operations have seen good top-line revenue growth, despite being the one area of our Veterinary Practices division more susceptible to macroeconomic pressures. During the year we have expanded our Equicall dedicated out-of-hours service, which benefits both CVS and third-party practices. This not only provides vital specialist out-of-hours care to our patients but removes the need for onerous out-of-hours rotas in practices, providing a better work-life balance for colleagues.

Due to the ambulatory nature of this division, we are trialling a diary optimisation tool, to help efficiently meet our clients' needs, and improve collaboration between our practice sites.

Farm

Our Farm operations consists of 14 farm animal practice locations and a large specialist poultry veterinary business. During the year we have introduced the procurement of drugs for all of our Farm division through our Pharmsure practice, to deliver best price and secure supply.

We have continued our investment in advanced breeding work, with Castle Farm Vets expanding its advanced breeding programme. In addition, we have introduced recruiting Approved Tuberculin Testers to undertake tuberculosis testing across England, allowing vets to focus on clinical work.

International

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

During the year we continued to focus on our people and their careers. We have supported our colleagues through further training with eight veterinary nurses from CVS Netherlands successfully completing their training to become Supervisory Radiation Protection colleagues, the first veterinary nurses in the Netherlands with this qualification. In addition, we have focused on attracting further clinical colleagues to ensure we can continue to service client demand across our practices.

As we continue to review and ensure we are able to meet the high standards of service and clinical care across our practices, during the year we made the difficult decision to close our Gilabbey site in Cork, Republic of Ireland. The existing facilities required major investment and a protracted renovation to meet both our high clinical standards and the very highest standards of health and safety that we set ourselves. Accordingly the best course of action was to close the site and in the interests of our patients and clients, transition client services to neighbouring competitor practices.

Since the year end, the Group has entered the Australian veterinary services market. Having explored a number of new potential markets, the Board has identified Australia as particularly attractive given the relatively low levels of corporate consolidation, favourable market dynamics and strong similarities with the UK, including highly trained veterinary surgeons, shared language and culture, and the Group's experience with UK vets working between Australia and the UK. The practices that have joined us are of the highest quality, and with a long pipeline of accepted offers we expect to grow our Australian business strongly over the coming years.

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 4.0% over the past year to around 489,000 members, representing roughly 40% of our companion animal active client base.

MiPet products

We continue to enhance our own brand range, MiPet, with a further four products planned to be added in the new financial year. Our own-brand spend consistently makes up c.39% of the UK practices' pharmaceutical spending in 2023 and 2022.

Vet Direct

We continue to see strong growth in Vet Direct, our equipment and consumables business, both from CVS and third-party practices. We introduced a dedicated marketing team to promote Vet Direct to third-party customers.

Outlook

As we continue to focus on delivery of high-quality clinical care alongside our people-focused strategy, we are optimistic that our Veterinary Practices division will continue to deliver year-on-year growth despite the economic uncertainties ahead. We operate in a resilient market and are comforted that the results we are publishing for 2023 demonstrate spend on high-quality veterinary care continues to be a priority for pet owners.

Our colleagues have always been and remain our biggest asset and I continue to admire the hard work and dedication across our clinical teams. We have seen attrition fall to its lowest level since we began recording it, and employee net promoter score peaked at its highest level during the year, ending strongly at 14.6.

Since the financial year end, the announcement of our entry into the Australia market represents more good news for CVS. As a company dedicated to giving the best possible care to animals, we see a fantastic opportunity for us to enter this growing market, with low levels of corporate consolidation, and execute our vision of being the veterinary company people most want to work for. Having spent time in Australia over the last twelve months, including meeting some fantastic veterinary practices, it is clear we have a significant opportunity. We are excited to build a significant CVS business in Australia with the same culture and values that have brought us success in the UK.

Laboratories division

Supporting clinical care through in-house analysers and nationwide coverage of diagnostic testing

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 and introduced further tests in the year.

Revenue has increased 7.7% compared to the prior year and adjusted EBITDA increasing 10.8%, with strong case numbers contributing towards the rise. We saw approximately a 3% increase in case volume, with approximately 45% of diagnostic laboratory tests performed for CVS practices.

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, along with providing great client service, we are optimistic for growth in the years to come.

Crematoria

Supporting clients to achieve a compassionate goodbye

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 revenue and adjusted EBITDA growth in the division was driven by the Direct Pet Cremation service we introduced in 2021 and rolled out across all our sites during the year. Putting customers directly in contact with crematoria to make pet aftercare arrangements, and giving them more time to consider their range of options, has resulted in significant changes to customers' choices and generated improved customer care. We relocated our Valley Pet Crematoria to a new site and incorporated temperature and oxygen-controlled systems, which to date have only been used in human cremators, to minimise our environmental impact by delivering optimal combustion efficiency.

Outlook

The outlook for our Crematoria division remains strong, as owners continue to value the opportunity to remember their beloved pet and utilise the offering the Crematoria division provides in the experience of losing their pet, through our range of more premium offerings. Whilst Direct Pet Cremation has now been rolled out to all our CVS clinics, there are opportunities to broaden our premium range of services in due course.

Online Retail Business

A trusted provider of your pets' food and pharmacy needs

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 5.4% and adjusted EBITDA growth of 11.4% and an increase in visits to our website to 8.1m from 7.6m in 2022.

We have invested in two new pharmacy robots to bring efficiencies in warehouse space, increasing dispatch productivity along with improving quality control.

Outlook

During the year we continued the design and implementation of a new website. We continue to work on this and expect the new site to go live during 2024. Our improved website and warehouse systems will enable us to increase capacity, delivering future growth in online sales and improving customer satisfaction.

Central administration

Central administration costs include those of the central finance, IT, human resources, purchasing, legal, Board and property functions. Total costs were £11.9m (2022: £16.6m), representing 2.0% of revenue (2022: 3.0%). The decrease in central administration costs primarily relates to increase Research and development claims recognised centrally partially offset by increased spend on support functions.

Ben Jacklin

Deputy Chief Executive Officer

21 September 2023

Financial review

Our continued opportunities for investment in growth underpin our strategy

Financial highlights

As highlighted at our Capital Markets Day, we continue to focus on our strategy to invest in the growth of our business with a record investment of £45.7m in our facilities and equipment and £54.6m invested in acquisitions in the UK during the year.

With operating cash conversion of 70.0%, leverage remained low at 0.73x (2022: 0.40x).

We were also delighted to announce our entry into the Australian veterinary services market in July 2023. Our expansion into the Australian market is in line with our growth objectives outlined in our five-year plan and since entering the market in July we have successfully completed five acquisitions.

The Group continues to deliver its strategy, which translates and is supported by the financial highlights below.

Statutory financial highlights are shown below:

Adjusted financial highlights

Revenue

Total revenue increased 9.8% to £608.3m from £554.2m with CVS continuing to deliver high-quality clinical invention for an increasing pet population. There was good growth across each of our four divisions notwithstanding a challenging economic climate and cost of living crisis.

The Group continues to deliver against its strategy for sustainable growth. There was strong like-for-like revenue growth of 7.3% (2022: 8.0%), with the remaining revenue growth coming from acquisitions.

Our preventative Healthy Pet Club scheme saw membership continue to grow with membership at June 2023 of 489,000, a 4.0% increase year on year (2022: 470,000) and we are pleased to be able to highlight a 6.5% increase in the average number of vets employed in 2023 versus 2022.

We continue to invest in our practice facilities, clinical equipment and technology with total capital expenditure of £45.7m (2022: £24.5m). We are confident the investment creates an opportunity for us to further increase organic growth and like-for-like sales by facilitating better clinical care and providing our colleagues with a better working environment, which we believe will support attracting and retaining talent.

Gross profit/gross profit margin

Gross profit of £262.3m increased by 9.7% from £239.1m benefiting from revenue growth with gross profit margin flat at 43.1%. During the year, there was an improvement in gross margin before clinical staff costs to 77.7% from 76.9%; offset by an increase in clinical staff costs as we continue to invest in people. We continue to focus on ensuring we purchase drugs at the best possible price whilst maintaining the highest quality to enable us to focus on great clinical care.

Adjusted EBITDA and adjusted earnings per share

Adjusted EBITDA increased by 13.0% to £121.4m from £107.4m benefiting from an increase in gross profit and includes £9.6m (2022: £2.0m) of net Research and Development Expenditure Tax Credits; offsetting utility inflation, investment in people and to a lesser extent wage inflation.

Adjusted EBITDA margin increased to 20.0% from 19.4%, in line with our ambition from the Capital Markets Day for organic expansion of our margin from 19.0% to 23.0%.

Adjusted EPS (as defined in note 1 to the FY23 Annual Report) increased 11.9%, to 96.0p from 85.8p. Adjusted EPS exclude the impact of amortisation of intangible assets, costs relating to business combinations and exceptional items.

Operating profit, profit before tax and basic earnings per share

Operating profit increased by 45.6% to £62.3m from £42.8m benefiting from the improvement in adjusted EBITDA and a reduction in exceptional items.

Profit before tax increased by 49.7% to £53.9m from £36.0m. Finance expense increased to £8.4m from £6.8m following an increase in SONIA rates and increased bank borrowings to support investment. Consequently, basic EPS increased 62.4%, to 58.8p from 36.2p.

A reconciliation between statutory operating profit and adjusted EBITDA is shown below:

* Exceptional items relate to the closure of Gilabbey Veterinary Hospital and include a trading loss for the year of £1.3m, loss of disposal of patient data records of £0.8m and impairment of right-of-use asset, net of reduction in lease liability, of £0.2m.

We believe the Group is well placed to continue to deliver further growth underpinned by our strategy and integrated business model. Our balance sheet further supports investment opportunities to deliver on our growth ambitions.

Taxation

The Group's tax charge for the year is £12.0m (2022: £10.3m), an increase of £1.7m at an effective tax rate of 22.2% (2022: 28.6%).

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 and depreciation on fixed assets that do not qualify for tax relief. Tax relief for some expenditure, mainly fixed assets, is received over a longer period than that for which the costs are charged in the financial statements.

Financial position

Intangible assets

The Group's intangible assets consist of goodwill, patient data records and computer software. The increase during the year is mainly from business combinations of £59.6m, partially offset by amortisation of £22.6m. In addition, £0.8m was impaired and treated as an exceptional item in respect of the closure of Gilabbey. The Group reviews goodwill for impairment and as at 30 June 2023 maintains significant headroom with no indications of impairment.

Plant, property and equipment

The Group's continued focus and commitment to investing in our facilities and equipment resulted in additions of £44.5m, (including business combinations) (2022: £23.7m), offset by a depreciation charge in the year of £12.6m (2022: £11.3m).

Other non-current assets

The Group maintains a cash flow hedge for the purpose of hedging interest rates; as at 30 June 2023 the fair value of this hedge was £2.1m which is now included within current assets as the hedge expires in February 2024 (2022: £2.3m). In addition, during the year available for sale investments with a carrying value of £0.1m were disposed.

Current assets

The net decrease in current assets of £16.1m to £111.8m from £127.9m is driven from the reduction in cash held to £21.5m from £49.0m; partially offset by an increase in working capital balances, including stock and debtors following the growth in revenue.

Equity

The net increase in equity of £39.2m is mainly attributable to profit for the year of £41.9m (2022: £25.7m), transactions related to share-based payments taken to reserves of £3.0m (2022: £3.3m), partially offset by annual dividends of £5.0m (2022: £4.6m).

Cash flow and movement in net debt

Net debt increased by £35.4m during the year from £35.3m to £70.7m following an increase in investment in our facilities and equipment of £45.7m from £24.5m and an increase in investment in acquisitions in the UK of £54.6m from £8.4m.

The movement in net debt is explained as follows:

The Group continues to remain highly cash generative with operating cash flow of £85.0m (2022: £69.9m). Negative working capital movements of £10.9m was mainly driven by an increase in stock and other receivables.

Operating cash conversion of 70.0% (2022: 65.1%) was in line with our capital markets day ambition of 70%.

Interest paid of £7.2m (2022: £6.4m) reflects the increasing SONIA rates from 1.1874% on 30 June 2022 to 4.9286% on 30 June 2023, together with increased bank borrowings following enhanced investment in capital expenditure and strategic acquisitions.

Maintenance capital expenditure of £11.4m (2022: £10.8m) reflects expenditure required in order to maintain the quality of our facilities and services.

Investment capital expenditure of £34.3m (2022: £13.7m) includes new sites, relocations, significant refurbishments and extensions and new equipment. We are pleased with the additional investment we have made in the year and continue to see further opportunities to grow organic revenue in line with our growth ambitions and commitment to spend between £30.0m and £50.0m per annum.

Business combinations of £54.6m (2022: £8.4m) consisted of 11 practices (comprising 16 practice sites). This investment in the year is again in line with our growth ambition set out at the Capital Markets Day in November 2022.

A dividend of £5.0m (2022: £4.6m) was paid in the year reflecting a final dividend for the prior year of 7.0p per share.

Other financing activities includes £3.6m of costs in respect of refinancing our facilities which were capitalised on the balance sheet.

Net debt and borrowing costs

The Group's net debt comprises the following:

In February 2023, the Group successfully increased its loan facilities from £170.0m to £350.0m which comprises a £87.5m term loan and £262.5m revolving credit facility. This facility is supported by eight banks and for a four-year term. The facility has two key financial covenants:

• net debt to bank test EBITDA of no more than 3.25x; and

• bank-test EBITDA to interest ratio of no less than 4.5x.

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 adoption of IFRS 16.

The increase in loan facilities supports the Group's ambition to continue to invest via both organic growth and acquisition opportunities in the future in line with our Capital Markets Day ambitions.

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, which end on 31 January 2024. In the prior year the two hedge arrangements were transitioned from LIBOR to the SONIA benchmark rate.

The Group has a strong balance sheet with a leverage at 30 June 2023 of 0.73x, an increase from 0.40x at 30 June 2022. The Group has the ability to generate cash which enables it to effectively manage working capital. The Group targets a long-term net debt to EBITDA ratio of less than 2.0x and closely monitors this in line with acquisition investment opportunities.

Going concern and viability

At the 30 June 2023, the Group had cash balances of £21.5m and an unutilised overdraft facility of £5.0m. Total facilities of £350.0m, of which £254.5m were undrawn at 30 June 2023, are available to support the Group's organic and acquisitive growth initiatives over the coming years, comprising a term loan of £87.5m and an RCF of £262.5m. The Group is fully compliant with all covenants in respect of these facilities.

The Directors consider that the £5.0m overdraft and the £350.0m facility enable them to meet all current liabilities when they fall due. Since the year end, the Group has continued to trade profitably and to generate cash.

After consideration of market conditions, the Group's financial position (including the level of headroom available within the bank facilities), financial forecasts for the five years to 30 June 2028, 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 its liabilities as they fall due over the period. For this reason, the going concern basis continues to be adopted in preparing the financial statements.

Share price performance

At the year end the Company's market capitalisation was £1.4bn (1,970p per share), compared to £1.2bn (1,656p per share) at the previous year end.

Key contractual arrangements

The Directors consider that the Group has only two significant third-party supplier contracts which are for the supply of veterinary drugs. In the event that these suppliers ceased trading, the Group would be able to continue in business without significant disruption in trading by purchasing from alternative suppliers.

Forward-looking arrangements

Certain statements and arrangements described in the Annual Report and 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

21 September 2023

The Group's principal risks and uncertainties are available on pages 60 to 68 of the Group's FY23 Annual Report and the Group's key performance indicators are available on pages 24 to 27 of the Group's FY23 Annual Report.

Consolidated income statement

for the year ended 30 June 2023

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 KPls. 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 respect of the Gilabbey Veterinary practice closure in the current year and the impairment of Quality Pet Care Ltd in the prior year. Further information is available in note 6 of the FY23 Annual report. 

Consolidated statement of financial position

as at 30 June 2023

Company registration number: 06312831

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 21 September 2023 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 2023

Consolidated statement of cash flow

for the year ended 30 June 2023

Notes to the consolidated financial statements

for the year ended 30 June 2023

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, Norfolk 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 2023 or 2022, for the purpose of the Companies Act 2006, but is derived from those financial statements. Statutory financial statements for 2023, 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 2022 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 with United Kingdom

adopted international accounting standards as applied in accordance with the provisions of the Companies Act 2006 and

applicable law. The consolidated financial statements have been prepared on a going concern basis and under the historical cost convention, except for certain financial instruments that have been measured at fair value.

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 FY23 financial statements. Further details are provided in the Directors' Report of the Group's FY23 Annual Report.

The accounting policies set out in the FY23 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 KPls. 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 PBT, 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 and trading losses in respect of the Gilabbey Veterinary Hospital closure in the current year and the impairment of Quality Pet Care Ltd in the prior year. Further information is available in note 6 of the FY23 Annual report.

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.

For bank covenant reporting, an alternative calculation for net debt in used. This definition can be found in note 3 of the FY23 Annual report.

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 2021, revenue is included from September 2022 in the like‑for‑like calculations.

Critical accounting estimates and judgements

Accounting estimate: Research and Development Expenditure Tax Credit (RDEC)

Certain companies within the Group may be entitled to claim tax credits in relation to the Research and Development Expenditure Tax Credit (RDEC) scheme in the UK. Tax credits receivable under this scheme are determined to have the substance of a government grant and accordingly these tax credits are accounted for under IAS 20. Further information can be found in the Government grants accounting policy.

The Group has recognised £1.8m in respect of their estimated claim for the current year, being 2023, which is after applying a discount of £5.2m to reflect uncertainty. The Group has also recorded £5.7m in respect of claims submitted for 2022 and 2021, after applying a discount of £5.7m, and a further £4.0m in respect of earlier years following the expiry of the enquiry windows for those claims.

The total RDEC in the consolidated income statement is therefore £11.5m (2022: £2.0m).

The Group has recognised £15.5m to date for claims already filed, or as estimates for claims yet to be made for qualifying expenditure that has already been incurred. Of this amount, £7.5m has an open enquiry window, and this would therefore be the maximum amount that could be disallowed in the event of challenge from HMRC. Alternatively, the maximum income that will be recorded in future periods in relation to R&D expenditure that has already taken place is estimated to be £11.0m, which would arise if all previously submitted claims were paid in full, and the estimate for 2023, which is yet to be submitted, was also recovered in full.

Management's policy remains to recognise the remainder of submitted claims when the uncertainty has been removed either via formal acceptance of the claims, or the expiry of the enquiry windows.

The net benefit of the RDEC scheme in the year was £9.6m after associated costs (2022: £2.0m).

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 Chief Operating Decision Maker.

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 £441.7m of fees and £166.6m of goods (2022: £398.1m and £156.1m respectively).

Operating segments

The Group is split into four operating segments (Veterinary Practices, Laboratories, Crematoria and Online Retail Business) and a centralised support function (Central administration) 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 Central administration segment. Central administration 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.

* Amortisation of intangibles in the prior year of £7.5m has been re-allocated from Central administration to Veterinary practices to better reflect the nature of the charge.

Geographical segments

The business operates predominantly in the UK. As at 30 June 2023, it has 27 veterinary practices in the Netherlands and three 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

UK corporation tax rate is calculated using the blended standard rate of tax for the year of 20.5% (2022: 19.0%). Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. The total taxation charge for the year differs from the theoretical amount that would arise using the blended standard rate of UK corporation tax of 20.5% (2022: 19.0%) as explained below:

Factors affecting the current tax charge

UK corporation tax is calculated at 20.5% (2022: 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 22.2% (2022: 28.6%) and has decreased from the prior year mainly due to the non-recurring impact in the prior year of the impairment and subsequent disposal of an investment, which resulted in tax losses of £13.4m.

Changes in tax rates

The UK corporation tax rate for the period up to 31 March 2023 was 19.0% and increased to 25% from 1 April 2023 (2022: 19.0%).

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 2023 or 30 June 2022.

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 both share option schemes, 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 2023 are set out below. The reason for each acquisition was to expand the CVS Group business through acquisitions aligned to our strategic goals.

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 2023:

The total consideration of £57.3m is prior to the agreement of the completion accounts. The amounts recognised are subject to adjustment in line with IFRS 3 for up to twelve months from acquisition, with goodwill being adjusted accordingly.

Contingent consideration payable relates to a business combination made in the year where consideration is payable over a 3 year period based on the practice reaching certain adjusted EBITDA targets. This is held at fair value and it is expected that this will be payable.

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 £10.7m and £2.4m respectively. The post-acquisition period is from the date of acquisition to 30 June 2023. Post-acquisition EBITDA represents the direct operating result of practices from the date of acquisition to 30 June 2023 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 £4.4m (2022: £4.9m) are included within other expenses in note 6 of the financial statements.

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 2022. During the year £nil (2022: £0.4m) was paid to settle deferred consideration payable from the prior year.

Business combinations subsequent to the year end

Details of business combinations made subsequent to the year end are set out below. The reason for each acquisition was to expand the CVS Group business through acquisitions aligned to our strategic goals.

The table below summarises the total assets acquired through business combinations subsequent to the year end: