Interim results

RNS Number : 1046D

CVS Group plc

17 March 2011

 



For Immediate Release

17 March 2011

CVS GROUP plc

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

Interim Results for the six months ended 31 December 2010

CVS, one of the UK's leading providers of veterinary services, is pleased to announce its interim results for the six months ended 31 December 2010.

Financial highlights

	Six months ended 31 December 2010 (Unaudited)	Six months ended 31 December 2009 (Unaudited)	Change       %
Adjusted EBITDA 1	£7.2m	£7.1m	+0.5
Adjusted earnings per share2	6.3p	7.2p	-12.5
Reported results:
Revenue	£50.5m	£41.5m	+21.7
Operating profit	£3.2m	£3.8m	-14.7
Profit before income tax	£2.2m	£2.8m	-23.4
Cash generated from operations	£8.8m	£6.6m	+32.5
Basic and diluted earnings per share	2.6p	3.9p	-33.3

·      Sales growth of 21.7%

·      Like-for-like sales³ decrease of 2.1%

·      Adjusted EBITDA slightly up at £7.2m as growth from acquisitions was offset by impact of declining like-for-like sales

·      Profit before income tax reduced by £0.6m impacted by increased non-cash charges for amortisation and depreciation (combined £0.8m)

·      Significant increase in cash generated from operations by 32.5% contributing to an overall reduction in net debt during the period of £4.1m after funding acquisitions and debt repayment

·      Following the acquisition of St David's Veterinary Hospital, a three site practice in Devon, CVS operates 214 veterinary surgeries (2009: 170)

·      Our on-line retail platform, Animed Direct, was successfully launched in the period and is trading ahead of expectations

¹See page 5 for a reconciliation of profit before income tax for the period to adjusted earnings before income tax, net finance expense, depreciation, amortisation, transaction costs and share option expense ("adjusted EBITDA")

² See note 6 of the interim financial information, for a reconciliation of basic and diluted earnings per share to adjusted earnings per share

³ See note 2 of the interim financial information for a definition of like-for-like sales

Chief Executive Comment

"I am pleased to report that overall revenue and operating cash flows continue to grow significantly.  Financial performance has been impacted by continued economic uncertainty as well as adverse winter weather that affected the country during November and December.  CVS continues to develop new revenue streams as demonstrated by the successful launch of Animed Direct, an on-line dispensary and pet shop and growing subscriptions to the Healthy Pet Club loyalty scheme.  The Group will maintain its focus on developing the underlying business, maximising potential revenue opportunities, identifying cost reduction opportunities and growing through selective strategic acquisitions."

Simon Innes

Contacts:

CVS Group plc Simon Innes, Chief Executive Paul Coxon, Financial Director	01379 644 288
Buchanan Communications Richard Oldworth/Suzanne Brocks/Christian Goodbody	020 7466 5000

Chairman's statement

Introduction

I am pleased to announce the results of CVS Group plc ("CVS", "the Group", or "the Company") for the six month period ended 31 December 2010.  The Group has delivered further growth in revenue and cash generated from operations although the continued uncertain economic conditions and severe winter weather in November and December have impacted profitability in the period.  In spite of these challenges first half trading has been in line with the Board's expectations as well as what seems to have been the performance of the veterinary profession as a whole.

Acquisition activity in the period comprised our previously announced purchase of St David's Veterinary Hospital based in Exeter for £1.6m which enhances the Practice division in the South West.  I am pleased to report that since ownership the acquisition has performed in line with expectations.

Subsequent to the half year end, we have acquired Campbells, a single site practice in Swansea, which complements the Group's presence in South Wales.  Both of these acquisitions have been funded from internally generated cash resources.

Results

Overall the Group has grown revenue in the period to £50.5m (2009: £41.5m), with this growth arising from acquisitions, most notably £6.7m of sales from the Veterinary Enterprises and Trading Limited group ('Pet Doctors') which was acquired in March 2010 and therefore not included in the comparative period.  Revenue was impacted by the severe winter weather which is estimated to have cost the business £0.4m in lost sales.

Like-for-like sales decreased by 2.1% for the period, which is indicative of the challenging market conditions throughout the period under review.

Adjusted EBITDA rose slightly to £7.2m (2009: £7.1m) albeit adjusted EBITDA margin reduced to 14.2% (2009 full year: 15.3%, 2009 half year: 17.2%).  Again, this reduction in margin is reflective of the tougher operating environment impacting like-for-like sales and the corresponding significant impact on adjusted EBITDA owing to the Group's relatively high operating margins.

Operating profit reduced due to increased non-cash charges over the prior period, specifically amortisation of (£0.6m) and depreciation of (£0.2m), which together contributed to a fall in operating profit from £3.8m to £3.2m.

Against this background it is pleasing to note that cash generated from operations increased to £8.8m (2009: £6.6m) mainly due to working capital reductions despite the increase in revenues.  The strong performance of this key performance measure demonstrates the continued ability of the Group to convert profit into cash.

Divisional performance

Practice

The Group is the leading national veterinary surgery group, operating 214 veterinary surgeries (2009: 170) at the half year across the UK, primarily focused on the small animal market operated under a number of well-established local brands.  We estimate that CVS has a 10% share of the total UK small animal veterinary market.

This is the principal operating division of the Group, accounting for 93.3% (£47.1m) of Group revenues.  The division has delivered £8.9m of revenue growth over the comparative period which reflects the impact of the acquisition of 44 new surgeries; 27 of which relate to Pet Doctors which continues to trade in line with expectations.  Adjusted EBITDA for the practice division grew by 6.1% from £8.1m to £8.6m, again reflecting growth from these acquisitions, although this was partially offset by falls in like-for-like sales.  The reduction in like-for-like sales impacted the profitability of the division, due to the relatively fixed nature of the cost base.  Accordingly, adjusted EBITDA margins for the division fell from 21.3% to 18.3%.

In order to participate in the growing on-line market and to help combat revenue pressure the Group successfully launched its on-line dispensary and pet shop (Animed Direct) in July 2010.  The principal objective of Animed Direct is to sell competitively priced animal medicines and a wide range of pet products directly to UK consumers thus widening the range of products and services offered by the Group.  Animed Direct benefits from the significant buying power of CVS particularly in the area of medicines, and the additional volumes that it generates will ensure that further buying efficiencies can be shared with our practices.  The Board believes that Animed Direct is strategically important as it will capture a share of the increasing amount of veterinary products sold on-line.  It is encouraging to note that initial trading has exceeded the Board's expectations and is already profitable.

The Group continues to develop its subscription based Healthy Pet Club loyalty scheme providing a growing source of recurring revenue.  The scheme aims to protect practice sales, bonding pet owners to their local surgery by offering discounted products and services and improving clinical compliance levels amongst members.  The scheme has grown significantly in the period with membership now in excess of 21,000 pets an increase of some 22% over the six month period.

The Board is also focused on reducing its cost base by the more efficient use of resources and continuing to improve buying terms wherever possible.

The growth in this division continues to support development in both the Laboratory and Crematorium divisions.

Laboratory

The Group operates 6 (2009: 5) laboratories in the UK which provide diagnostic services to third party owned veterinary surgeries as well as our own practices.  Services are generally provided via postal and courier services allowing complete coverage of the UK.  Third party sales accounted for 74% (2009: 77%) of the division's revenues with the balance attributable to CVS owned surgeries.

The laboratory division generated 8.4% (£4.3m) of Group revenues.  Revenue was 5.9% up on the prior period due to the effect of acquisitions.  However, as a result of a fall in like-for-like sales brought about by a highly competitive operating sector, adjusted EBITDA reduced by £0.2m to £0.5m.  The reliance on courier services means that this division is disproportionately affected by severe winter weather which, coupled with the previously mentioned factors, have impacted adjusted EBITDA.

Crematorium

The Rossendale crematorium provides the majority of its services (67%) to non-group practices and the general public in addition to CVS practices in the North and Midlands.

The crematorium division continues to deliver results ahead of expectations with revenue and adjusted EBITDA both up by 26% on the prior period at £0.4m (2009: £0.3m) and £0.2m (2009: £0.1m) respectively.

Central administrative function

An integral part of the Group's strategy is to centralise administration and management, enabling other divisions to focus on operational matters, a proposition that makes CVS one of the acquirers of choice within the sector.

On an adjusted basis the total costs for the segment were £2.1m (2009: £1.8m) which, in line with the strategy, was lower as a percentage of revenue at 4.1% (2009: 4.4%).

Cash flow and funding position

Cash flow from operations increased by 32.5% to £8.8m through our continuing focus on management of working capital.  Overall, net debt in the period has been reduced by £4.1m since the last fiscal year end and stands at £37.8m at 31 December 2010 (see note 12).  Internally generated cash was used to fund the £1.6m purchase of St David's Veterinary Hospital in November 2010, the balance due on prior year acquisitions of £0.9m and the £0.2m purchase of Campbells in Swansea subsequent to the half year in January 2011.

All bank covenants throughout the period have been complied with and the Group has made scheduled term loan repayments of £3.2m since 30 June 2010.

Earnings per share

Adjusted earnings per share decreased by 0.9p (12.5%) to 6.3p from 7.2p in the comparable period.  Basic and diluted earnings per share were 2.6p per share (2009:  3.9p per share) reflecting the reduction in operating profits combined with an increase in the average number of shares in issue.

Dividends

The Board, at this point in time, is of the view that cash generated from operations should be reinvested in the business and therefore believes that no dividend should be declared for the period ended 31 December 2010.  The Board will continue to review its dividend policy on an on-going basis.

Our people

The Group continues to be the largest employer in the veterinary profession with over 2,200 staff at 31 December 2010. Even so, the Group only employs an estimated 4% of practising vets in the UK, which indicates the significant scope left for further expansion in the UK market.

Our people enable the Group to deliver its strategy and I would therefore like to thank each of them, including those new to CVS, for their skill and professionalism in providing the best possible care and service.

Christopher Marsh stepped down from the board as a non-executive director in December after retiring by rotation and not seeking re-election.  I would like to take this opportunity to sincerely thank Christopher on behalf of CVS for his valued input and expertise during his time on the board and wish him well for the future.

Further business development

The Board estimates that CVS accounts for approximately 10% of the UK small animal veterinary sector measured by wholesaler spend and believes that this fragmented market will provide opportunities for further consolidation and strategic acquisitions.  The Group will continue to focus on profitably developing the organic business by further enhancement to revenue streams and delivery of improvements to operating efficiency.

Outlook

Trading since the half year has been in line with Board expectations.

Richard Connell

Chairman

16 March 2011

Consolidated income statement for the six month period ended 
31 December 2010 (unaudited)

		Note	Six months ended 31 December  2010 (Unaudited) £'000	Six months ended 31 December 2009 (Unaudited) £'000	Year ended 30 June 2010 (Audited) £'000
Revenue		4	50,502	41,482	85,527
Cost of sales			(30,632)	(24,334)	(51,176)
Gross profit			19,870	17,148	34,351
Administrative expenses			(16,639)	(13,360)	(28,662)
Operating profit			3,231	3,788	5,689
Fair value adjustments in respect of financial assets and liabilities		5	(49)	41	149
Other finance expense		5	(1,041)	(1,037)	(2,028)
Finance income		5	10	16	29
Net finance expense			(1,080)	(980)	(1,850)
Profit before income tax			2,151	2,808	3,839
Income tax expense		8	(690)	(790)	(781)
Profit for the period attributable to owners of the Company			1,461	2,018	3,058
Earnings per ordinary share for profit attributable to the owners of the Company (expressed in pence per share) ("EPS")
Basic and diluted		6	2.6p	3.9p	5.7p

The above results relate to continuing operations, including acquisitions (further details of which are provided in note 10).

The following table is provided to show the comparative earnings before interest, tax, depreciation and amortisation ("EBITDA") after adjusting for transactions costs and share option expense.

Non-GAAP measure: Adjusted EBITDA	Note	£'000	£'000	£'000
Profit before income tax		2,151	2,808	3,839
Adjustments for:
Net finance expense	5	1,080	980	1,850
Depreciation	9	1,108	909	1,905
Amortisation	9	2,623	2,052	4,385
Transaction costs		35	80	530
Share option expense	7	159	288	556
Adjusted EBITDA		7,156	7,117	13,065

 

 

Statement of consolidated comprehensive income for the six month period ended 31 December 2010 (unaudited)

 

		Six months ended 31 December  2010 (Unaudited) £'000	Six months ended 31 December 2009 (Unaudited) £'000	Year ended 30 June 2010 (Audited) £'000
Profit for the period		1,461	2,018	3,058
Other comprehensive income
Fair value adjustments in respect of financial assets and liabilities		421	(275)	(970)
Revaluation of available for sale investments		2	8	7
Deferred tax on other comprehensive income		(117)	90	272
Other comprehensive income for the period, net of tax		306	(177)	(691)
Total comprehensive income for the period attributable to owners of the Company		1,767	1,841	2,367

Consolidated balance sheet as at 31 December 2010 (unaudited)

	Note	31 December  2010 (Unaudited) £'000	31 December  2009 (Unaudited) £'000	30 June  2010 (Audited) £'000
Non-current assets
Intangible assets	9	55,692	40,286	56,695
Property, plant and equipment	9	8,597	7,634	8,835
Investments		76	75	74
Deferred income tax assets		736	621	1,321
		65,101	48,616	66,925
Current assets
Inventories		2,521	1,957	2,453
Trade and other receivables		6,786	5,071	6,602
Cash and cash equivalents		910	6,074	109
		10,217	13,102	9,164
Total assets	4	75,318	61,718	76,089
Current liabilities
Trade and other payables		(13,420)	(7,752)	(12,101)
Current income tax liabilities		(925)	(2,223)	(574)
Borrowings		(3,956)	(4,334)	(5,350)
		(18,301)	(14,309)	(18,025)
Non-current liabilities
Borrowings		(34,709)	(38,634)	(36,655)
Deferred income tax liabilities		(6,421)	(4,460)	(7,076)
Derivative financial instruments		(1,912)	(1,697)	(2,284)
		(43,042)	(44,791)	(46,015)
Total liabilities	4	(61,343)	(59,100)	(64,040)
Net assets		13,975	2,618	12,049

Consolidated balance sheet as at 31 December 2010 (unaudited) (continued)

		31 December  2010 (Unaudited) £'000	31 December  2009 (Unaudited) £'000	30 June  2010 (Audited) £'000
Shareholders' equity
Share capital		113	103	113
Share premium		8,640	-	8,640
Capital redemption reserve		592	592	592
Revaluation reserve		125	125	125
Merger reserve		(61,420)	(61,420)	(61,420)
Retained earnings		65,925	63,218	63,999
Total shareholders' equity		13,975	2,618	12,049

The interim financial information on pages 5 to 21 was approved by the board of directors on 16 March 2011.

Consolidated statement of changes in equity for the six month period ended 31 December 2010 (unaudited)

 

	Share  capital	Capital redemption reserve	Revaluation reserve	Merger reserve	Retained earnings	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000
At 1 July 2009	103	592	125	(61,420)	61,076	476
Profit for the period	-	-	-	-	2,018	2,018
Other comprehensive income
Fair value adjustments in respect of financial assets and liabilities	-	-	-	-	(275)	(275)
Revaluation of available for sale investments	-	-	-	-	8	8
Deferred tax on other comprehensive income	-	-	-	-	90	90
Total other comprehensive income					(177)	(177)
Total comprehensive income					1,841	1,841
Transactions with owners
Credit to reserves for share based payments	-	-	-	-	288	288
Deferred tax relating to share-based payments	-	-	-	-	13	13
Transactions with owners					301	301
At 31 December 2009	103	592	125	(61,420)	63,218	2,618

 

Consolidated statement of changes in equity for the six month period ended 31 December 2010 (unaudited) (continued)

	Share  capital	Share premium	Capital redemption reserve	Revaluation reserve	Merger reserve	Retained earnings	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 July 2010	113	8,640	592	125	(61,420)	63,999	12,049
Profit for the period	-	-	-	-	-	1,461	1,461
Other comprehensive income
Fair value adjustments in respect of financial assets and liabilities	-	-	-	-	-	421	421
Revaluation of available for sale investments	-	-	-	-	-	2	2
Deferred tax on other comprehensive income	-	-	-	-	-	(117)	(117)
Total other comprehensive income Income	-	-	-	-	-	306	306
Total comprehensive income	-	-	-	-	-	1,767	1,767
Transactions with owners
Credit to reserves for share based payments	-	-	-	-	-	159	159
Transactions with owners	-	-	-	-	-	159	159
At 31 December 2010	113	8,640	592	125	(61,420)	65,925	13,975

Consolidated statement of cash flows for the six month period ended 31 December 2010 (unaudited)

	Note	Six months ended 31  December 2010 (Unaudited) £'000	Six months ended 31  December 2009 (Unaudited) £'000	Year ended 30 June  2010 (Audited) £'000
Cash flows from operating activities
Cash generated from operations	11	8,802	6,644	12,624
Taxation paid		(531)	(280)	(1,907)
Interest received		10	16	29
Interest paid		(721)	(994)	(1,950)
Net cash generated from operating activities		7,560	5,386	8,796
Cash flows from investing activities
Acquisition of businesses	10	(2,307)	(650)	(2,146)
Acquisition of subsidiaries (net of cash acquired)		(152)	-	(11,855)
Purchase of property, plant and equipment	9	(831)	(779)	(1,965)
Purchase of intangible assets	9	(70)	(47)	(97)
Proceeds from sale of property, plant and equipment		17	19	20
Net cash used in investing activities		(3,343)	(1,457)	(16,043)
Cash flows from financing activities
Finance lease principal payments		-	(7)	(9)
Repayment of bank loan		(3,151)	(640)	(4,342)
Proceeds from issue of ordinary share capital (net of issue costs)		-	-	8,650
Net cash from financing activities		(3,151)	(647)	4,299
Net increase / (decrease) in cash and cash equivalents		1,066	3,282	(2,948)
Cash and cash equivalents at start of period		(156)	2,792	2,792
Cash and cash equivalents at end of period		910	6,074	(156)

 

Notes to the interim consolidated financial information

1.  General information

The principal activity of the Group is to operate companion animal veterinary practices, complementary veterinary diagnostic businesses and a pet crematorium.

CVS Group plc is a public limited company incorporated and domiciled in England and Wales and its shares are quoted on the AIM market of the London Stock Exchange.

The address of the registered office is CVS House, Vinces Road, Diss, Norfolk, IP22 4AY and the registered number of the Company is 06312831.

This interim consolidated financial information does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. The statutory accounts of CVS Group plc in respect of the year ended 30 June 2010 have been delivered to the Registrar of Companies, upon which the Company's auditors have given a report which was unqualified and did not contain any statement under Section 498 of the Companies Act 2006.

Forward looking statements

Certain statements in this interim report are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. We undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

2.  Basis of preparation

The interim consolidated financial information of CVS Group plc is for the six months ended 31 December 2010. It is unaudited and has been prepared in accordance with the AIM Rules for Companies and with IAS 34, "Interim Financial Reporting" as adopted by the European Union. The interim consolidated financial information should be read in conjunction with the annual financial statements for the year ended 30 June 2010, which have been prepared in accordance with IFRSs adopted by the European Union. 

The interim consolidated financial information has been prepared on a going-concern basis.

Use of non-GAAP measures

Adjusted EBITDA, adjusted EPS and like-for-like sales

The Directors believe that adjusted EBITDA and adjusted EPS provide additional useful information for shareholders on underlying trends and performance. These measures are used for internal performance analysis. These measures are not defined by IFRS and therefore may not be directly comparable with other companies' adjusted measures. It is 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 income tax, adjusted for interest (net finance expense), depreciation, amortisation, transaction costs and share option expense. Adjusted EPS is calculated by dividing the profit for the period attributable to equity shareholders excluding amortisation, share option expense, fair value adjustments in respect of financial assets and liabilities and acquisition transaction costs by the weighted average number of shares in issue during the period.

Like-for-like sales comprise the revenue generated from all operations compared to the prior year (on a pro forma basis, i.e. including pre acquisition revenues in respect of acquisitions in the current and comparative periods), after adjusting for sites under refurbishment and discontinued operating activities.

3. Summary of significant accounting policies

The accounting policies adopted are consistent with those set out on pages 40 to 49 of the consolidated financial statements of CVS Group plc for the year ended 30 June 2010 (which are available upon request from the Company's registered office or on the Company's website), except as described below. 

Adoption of new and revised standards 

The following standards and interpretations to published standards are mandatory for accounting periods on or after 1 July 2010 but do not have a significant impact on the Group's operations: 

·      Amendments to IFRS 2 "Share-based payment - Group Cash-Settled Transactions"

·      Amendment to IAS 32, "Financial instruments: Presentation - Classification of rights issues" 

·      Amendment to IFRS 1, "First-time adoption of International Financial Reporting Standards -Limited exemption from comparative IFRS 7 disclosures for first-time adopters" 

·      IFRIC 19 "Extinguishing financial liabilities with equity instruments" 

·      Annual improvements to IFRSs (2009)

Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group 

The following standards and amendments to existing standards have been published but the Group has not early adopted them: 

·      IFRS 9 "Financial instruments" 

·      IAS 24 (revised) "Related party disclosures"

4. Segmental 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. Inter-segment pricing is determined on an arm's length basis.

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, taxation related assets/liabilities, transaction costs and head office salary and premises.

Geographical segments

The business operates predominantly in the UK. It performs a small amount of laboratory work for European based clients. In accordance with IFRS 8 "Operating segments" no segmental results are presented for trade with European clients as these are not reported separately for management reporting purposes. 

4.  Segmental reporting (continued)

Operating segments

The Group is split into three operating segments; veterinary practices, laboratories, crematorium and a centralised support function (head office) for business segment analysis:

Six month period ended 31 December 2010	Veterinary practices £'000	Laboratories £'000	Crematorium        £'000	Head     office £'000	Group £'000
Revenue1	47,094	4,260	409	(1,261) 1	50,502
Profit/(loss) before income tax	5,169	259	145	(3,422)	2,151
Adjusted EBITDA	8,617	451	179	(2,091)	7,156
Total assets	69,436	4,150	973	759	75,318
Total liabilities	(12,899)	(1,327)	(119)	(46,998)	(61,343)
Reconciliation of adjusted EBITDA
Profit/(loss) before income tax	5,169	259	145	(3,422)	2,151
Net finance expense	-	-	-	1,080	1,080
Amortisation	2,452	130	18	23	2,623
Depreciation	996	62	16	34	1,108
Share option expense	-	-	-	159	159
Transaction costs relating to business combinations	-	-	-	35	35
Adjusted EBITDA	8,617	451	179	(2,091)	7,156

¹Inter-segment revenue representing laboratory sales and crematorium fees to veterinary practices eliminated on consolidation.

   

4.     Segmental reporting (continued)

Six month period ended 31 December 2009	Veterinary practices £'000	Laboratories £'000	Crematorium        £'000	Head     office £'000	Group £'000
Revenue1	38,147	4,022	324	(1,011) 1	41,482
Profit/(loss) before income tax	5,484	441	112	(3,229)	2,808
Adjusted EBITDA	8,122	662	142	(1,809)	7,117
Total assets	56,651	3,697	726	644	61,718
Total liabilities	(9,153)	(730)	(94)	(49,123)	(59,100)
Reconciliation of adjusted EBITDA
Profit/(loss) before income tax	5,484	441	112	(3,229)	2,808
Net finance expense	-	-	-	980	980
Amortisation	1,876	124	18	34	2,052
Depreciation	762	97	12	38	909
Share option expense	-	-	-	288	288
Transaction costs relating to business combinations	-	-	-	80	80
Adjusted EBITDA	8,122	662	142	(1,809)	7,117

¹Inter-segment revenue representing laboratory sales and crematorium fees to veterinary practices eliminated on consolidation.

 

Year ended 30 June 2010	Veterinary practices £'000	Laboratories £'000	Crematorium £'000	Head     office £'000	Group £'000
Revenue1	79,148	7,859	698	(2,178) 1	85,527
Profit/(loss) before income tax	10,241	710	228	(7,340)	3,839
Adjusted EBITDA	15,898	1,137	293	(4,263)	13,065
Total assets	70,217	4,146	872	854	76,089
Total liabilities	(11,309)	(1,258)	(108)	(51,365)	(64,040)
Reconciliation of adjusted EBITDA
Profit/(loss) before income tax	10,241	710	228	(7,340)	3,839
Net finance expense	-	-	-	1,850	1,850
Amortisation	4,037	259	36	53	4,385
Depreciation	1,620	168	29	88	1,905
Share option expense	-	-	-	556	556
Transaction costs relating to business combinations	-	-	-	530	530
Adjusted EBITDA	15,898	1,137	293	(4,263)	13,065

¹Inter-segment revenue representing laboratory sales and crematorium fees to veterinary practices eliminated on consolidation.

5.  Finance (income) and expense

		Six months ended 31 December 2010 (Unaudited) £'000	Six months ended 31 December 2009 (Unaudited) £'000	Year ended 30 June 2010 (Audited) £'000
Interest expense, bank loans and overdraft		965	989	1,932
Debt finance costs		76	47	96
Finance charges in respect of finance leases		-	1	-
		1,041	1,037	2,028
Fair value adjustments in respect of financial assets and liabilities		49	(41)	(149)
Bank interest receivable		(10)	(16)	(29)
Net finance expense		1,080	980	1,850

Fair value adjustments in respect of financial assets and liabilities for the six month period ended 31 December 2010 reflect the ineffective portion of derivative financial instruments that qualify for hedge accounting less the recycling of fair value adjustments in respect of the time value of the option accumulated in equity prior to the adoption of the amendment to IAS 39.

6.   Earnings per ordinary share

(a)  Basic

Basic earnings per ordinary share are calculated by dividing the profit after taxation by the weighted average number of shares in issue during the period.

	Six months ended 31  December 2010 (Unaudited)	Six months ended 31  December 2009* (Unaudited)	Year ended 30 June  2010 (Audited)
Earnings attributable to Ordinary shareholders (£'000)	1,461	2,018	3,058
Weighted average number of Ordinary shares in issue	56,318,411	51,696,623	53,361,521
Basic earnings per share (pence per share)	2.6	3.9	5.7

(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 issueable shares under the Group's long term incentive plan 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.

	Six months ended 31  December 2010 (Unaudited)	Six months ended 31  December 2009* (Unaudited)	Year ended 30 June  2010 (Audited)
Earnings attributable to Ordinary shareholders (£'000)	1,461	2,018	3,058
Weighted average number of Ordinary shares in issue	56,318,411	51,696,623	53,361,521
Adjusted for contingently issueable shares	861,229	717,024	635,177
Weighted average number of Ordinary shares for diluted earnings per share	57,179,640	52,413,647	53,996,698
Diluted earnings per share (pence per share)	2.6	3.9	5.7

* In accordance with the provision of IAS 33 - "Earnings per Share," the comparatives have been adjusted to reflect the impact of the placing in the year ended 30 June 2010 (being the impact of the discount applied to the market price, on the weighted average number of shares).

6.   Earnings per ordinary share (continued)

(c)      Non-GAAP measure: Adjusted earnings per share

Adjusted earnings per ordinary share is calculated by dividing the profit on ordinary activities after taxation excluding amortisation, share option expense, fair value adjustments and transaction costs, by the weighted average number of shares in issue during the period.

	Six months ended 31 December 2010 (Unaudited) £'000	Six months ended 31 December 2009*  (Unaudited) £'000	Year ended   30 June 2010 (Audited)  £'000
Earnings attributable to ordinary shareholders	1,461	2,018	3,058
Adjustments for:
Amortisation (note 9)	2,623	2,052	4,385
Share option expense (note 7)	159	288	556
Fair value adjustments in respect of financial assets and liabilities (note 5)	49	(41)	(149)
Transaction costs relating to acquisitions	35	80	530
Tax effect of the above adjustments	(797)	(666)	(1,490)
Non-recurring tax credit in respect of expenses previously deemed to be disallowable for tax purposes	-	-	(525)
Adjusted profit after income tax and earnings attributable to ordinary shareholders	3,530	3,731	6,365
Weighted average number of ordinary shares in issue	56,318,411	51,696,623	53,361,521
Weighted average number of ordinary shares  for diluted earnings per share	57,179,640	52,413,647	53,996,698
	Pence	Pence	Pence
Adjusted earnings per share	6.3p	7.2p	11.9p
Diluted adjusted earnings per share	6.2p	7.1p	11.8p

*^*In accordance with the provision of IAS 33 - "Earnings per Share," the comparatives have been adjusted to reflect the impact of the placing in the year ended 30 June 2010 (being the impact of the discount applied to the market price, on the weighted average number of shares). 

7.  Share-based payments

 

Long Term Incentive Plans

The Group operates an incentive scheme for certain senior executives, the CVS Group Long Term Incentive Plan ("LTIP"). The LTIP scheme was introduced after the flotation of the Company on AIM in October 2007.

Under the LTIP scheme awards are made at an effective nil nominal cost (0.2p), vesting over a three year performance period conditional upon the Group's adjusted earnings growth.  On vesting, the LTIP scheme awards are settled in equity.

On 6 October 2010 LTIP4 was issued with an option life of 3 years over 984,560 shares, of which 959,702 were outstanding at the period end.  The share price at the grant date was £1.01 with an exercise price of 0.2p.

During the six months to 31 December 2010, directors and employees exercised [194,779] (2009: nil) share options will a nominal value of £400 (2009: nil), in respect of the LTIP1 scheme.

The share based payment charge for the period in respect of the options issued under the LTIP schemes amounted to £139,000 (2009: £278,000) and has been charged to administrative expenses. National Insurance contributions amounting to £15,000 (2009: £44,000) have been accrued in respect of the LTIP scheme transactions and are treated as cash-settled transactions.

Save As You Earn (SAYE)

The Group operates an incentive scheme for all staff, the CVS Group Save As You Earn ("SAYE") plan, an HM Revenue and Customs approved scheme. Under the SAYE schemes awards are made at a 20% discount of the closing mid-market price on date of invitation, vesting over a three year period. There are no performance conditions attached to the SAYE scheme.

SAYE3 scheme was opened for subscription in November 2010 (with options granted December 2010).  It granted 751,676 shares of which 686,051 where outstanding at the period end.  The exercise price was £0.80p

Options were valued using the Black-Scholes option pricing model and the share based payment charge for the period in respect of the options issued under the SAYE schemes amounted to £20,000 (2009: £10,000) and has been charged to administrative expenses.

8.  Income tax expense

Income tax expense is recognised based on management's best estimate of the weighted average annual statutory income tax rate expected for the full financial year as a percentage of taxable profit ("the effective tax rate").  

9.  Non-current assets

	Intangible assets	Property, plant and equipment	Total
	£'000	£'000	£,000
Six months ended 31 December 2010
Opening net book value at 1 July 2010	56,695	8,835	65,530
Additions arising through business combinations	1,550	50	1,600
Additions	70	831	901
Disposals	-	(11)	(11)
Depreciation and amortisation	(2,623)	(1,108)	(3,731)
Closing net book value at 31 December 2010	55,692	8,597	64,289
Six months ended 31 December 2009
Opening net book value at 1 July 2009	41,886	7,467	49,353
Additions arising through business combinations	405	315	720
Additions	47	779	826
Disposals	-	(18)	(18)
Depreciation and amortisation	(2,052)	(909)	(2,961)
Closing net book value at 31 December 2009	40,286	7,634	47,920

10.  Business combinations

Details of business combinations in the six month period ended 31 December 2010 are set out below.

Practice acquisitions	Date of acquisition	Fair value of property plant and equipment acquired £'000	Fair value of intangible assets acquired1  £'000	Cash payable £'000
A practice in:
Devon	15/11/2010	50	1,550	1,600

¹Intangible assets acquired represents patient data records (£1,550,000).

In addition to the payment detailed above contingent deferred consideration of £300,000 relating to the Devon business combination has not been recognised at the period end.  In accordance with IFRS 3 (revised), these costs will be recognised in the income statement in future periods based on the crystallisation of the contingent event.

£152,000 of deferred consideration relating to the acquisition of subsidiaries and £707,000 in relation to the acquisition of practices for the year ended 30 June 2010 has been paid in this period, as shown in the consolidated statement of cash flows. 

11.  Cash generated from operations

	Six months ended 31  December 2010 (Unaudited) £'000	Six months ended 31  December 2009 (Unaudited) £'000	Year ended 30 June  2010 (Audited) £'000
Profit for the period	1,461	2,018	3,058
Taxation	690	790	781
Total finance costs	1,090	996	1,879
Investment income	(10)	(16)	(29)
Amortisation of intangible assets	2,623	2,052	4,385
Depreciation of property, plant  and equipment	1,108	909	1,905
Profit on disposal of property, plant and equipment	(6)	(2)	-
(Increase)/decrease in inventories	(163)	15	(22)
(Increase)/decrease in trade and other receivables	(184)	360	(642)
Increase/(decrease) in trade and other payables	2,034	(766)	753
Share option expense	159	288	556
Total cash flows from operating activities	8,802	6,644	12,624

12. Analysis of movement in net debt

	At 1 July 2010 £'000	Cash flow £'000	Non-cash movements £'000	At 31 December 2010 £'000
Cash and cash equivalents	(156)	1,066	-	910
Borrowings - current	(5,085)	1,129	-	(3,956)
Borrowings - non-current	(36,655)	2,022	(76)	(34,709)
Net debt	(41,896)	4,217	(76)	(37,755)

Non-cash movements relate to the amortisation of issue costs on bank loans and transfers between categories of borrowings.

Relnternational Holdings Limited and OSI International Foods Limited are both members of the Gands (UK) group.Foods Limited.

13. Post balance sheet events

         On 10 January 2011 the Group acquired the trade and related assets of a veterinary practice based in Swansea for cash consideration of £150,000. 

 

END

 

 

IR GGUMPWUPGGBQ