Full-year results landed in line with guidance, with revenue up 5.9% to £713mn. Like-for-like growth was 2.1%. Australian sales were up over 50% to £79.1mn, helped by acquisitions.
Underlying cash profit (EBITDA) rose broadly in line with sales to £142mn. Free cash flow fell slightly to £69mn.
Acquisition spending increased 48% to £45mn, contributing to a £67mn rise in net debt to £196mn. The £20mn share buyback has now been completed, and the final dividend was raised from 8.5p to 9.0p.
Like-for-like sales this year remain in positive territory, and the Group expects to meet market forecasts which currently point to sales of £747mn and underlying cash profit of £150mn.
The shares fell 5.2% in early trading.
Our view
CVS Group delivered a decent set of full-year results, but not one that moved the story on. The market reaction suggests investors are focusing on modest like-for-like growth, lower clinical visits, and guidance pointing to steady rather than faster progress toward medium-term targets.
Australia remains the standout growth opportunity, with around £50mn set aside annually for deals. The market has similarities with the UK, which should help integration, while larger average practice sizes are supportive for margins. CVS also has a track record of previous deals performing in line with expectations and generating attractive returns.
The wider service offering is also helping. Labs are seeing more external sales, while online retail is benefiting from earlier improvements in platform and customer experience. On the veterinary side, CVS is investing in clinics, digital tools and the customer proposition, while encouraging vets to offer more advanced treatment options. We’re supportive of the direction of travel, but it could take time before these investments show clearly in the numbers.
We see attractions in the veterinary sector. Pet owners will usually prioritise healthcare, and an ageing pet population should support demand for more treatment over time. But economic conditions still matter, and inflation has put pressure on both customers and operators, so resilience shouldn’t be confused with immunity.
The CMA investigation has been a brake on UK consolidation and a cloud over the wider sector. With the final outcome less punitive than feared, attention should now shift back to CVS’s ability to improve competitiveness and deliver better results. That means rebuilding visit growth, making the most of the investment in the customer proposition, and proving it can continue to deploy capital well.
While net debt has been rising, it remains within target levels. Combined with healthy cash flows, that’s given management the confidence to plough ahead with a further £50mn worth of share buybacks. There’s also a small dividend on offer, although no payouts are guaranteed. But higher debt levels mean we’ll be keeping a close eye on discipline around investment returns and shareholder payouts.
We see CVS as a high-quality business in an attractive market. The shift in focus to Australia looks like a good move, and with the overhang of regulatory intervention now effectively removed, we think there’s scope for sentiment to recover. But with household budgets still under pressure, delivering clear value for customers will be key to remaining competitive. Investors will also want clarity on CEO succession, especially as investment and the use of shareholder funds become increasingly important parts of the story.
Environmental, social and governance (ESG) risk
The healthcare industry is largely medium-risk in terms of ESG, with companies in Europe and the US trending toward the lower end of the spectrum due to more stringent regulations. Risk also varies by subindustry, with Pharmaceuticals categorised as medium/high risk due to higher exposure and weaker management. Across the board, product governance is the most acute risk, with business ethics, labour relations and data privacy also contributing. Providing reasonable access to healthcare as a basic service is also a growing issue, with greater concerns surrounding the social implications of for-profit healthcare companies.
According to Sustainalytics, CVS Group’s management of ESG risks is strong.
Issues of note include poor disclosures, resulting in substandard accountability to investors and the public. The CMA investigation highlighted business ethics as a key ESG risk to monitor with reform of the Veterinary Services Act the next important change to keep an eye on. Given the group’s reliance on highly skilled veterinary practitioners, labour relations and with it talent retention and attraction are also areas to watch.
CVS Group key facts
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This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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