CVS Group, a leading name in veterinary services, has reported organic growth of 2.9% for the recently concluded financial year.
This figure marks a slowdown from the previous year’s 7.3% growth, attributed to a cyber security incident and weaker demand in the UK. The challenging market conditions have led CVS to redirect its acquisition focus towards Australia, where it purchased 22 businesses last year.
CVS Group offers a range of services for pet owners, including veterinary clinics, cremation services, and an online pharmacy called Animed. The company’s broad spectrum of services ensures that it can cater to pet owners’ needs at every stage of their pet’s life. The rising trend of pet humanisation means that owners are increasingly willing to spend on their pets’ health, bolstering the demand for veterinary services.
UK Market Pressures and Shift to Australia
The slowdown in CVS Group’s organic growth reflects significant obstacles, including a disruptive cybersecurity breach and diminished consumer demand in the UK. The company suggests that the latter is due to a squeeze on consumers and increased public scrutiny, likely linked to the ongoing investigation by the Competition and Markets Authority (CMA). This investigation is examining the veterinary sector’s practices and is expected to conclude by November 2025, with an interim update anticipated in April or May 2025.
Despite these challenges, CVS Group has managed to maintain an underlying cash profit (EBITDA) margin expected at 19%, the lower end of its guidance range. Additionally, net debt levels have risen to 1.5 times cash profits, about double the previous year’s figures, but still within the company’s targeted range.
Given the difficulties in the UK market, CVS Group is prioritising acquisitions in Australia. Last year, the company acquired 22 businesses down under, signalling a strategic shift to leverage growth opportunities in a less saturated market. This move is part of CVS’s broader strategy to mitigate risks and sustain growth amidst regulatory and market pressures in the UK.
Hargreaves Lansdown’s Analysis
Hargreaves Lansdown has provided a critical view of CVS Group’s current position. The CMA’s investigation into the veterinary industry poses a significant challenge to CVS’s future prospects. The disruption caused by the cybersecurity incident also adds to the uncertainty. Despite these issues, the company’s ability to achieve organic growth highlights its resilience.
There is speculation that the CMA may enforce changes such as restricting cross-selling of services between partner practices and focusing on pricing strategies. Although these changes are unwelcome, they are not insurmountable. A potential sale of some operations cannot be ruled out, but Hargreaves Lansdown remains hopeful that the changes will be minor, such as making group branding more evident.
CVS’s acquisition strategy, especially its focus on Australia, is seen as having significant potential. The company’s financial position, with manageable debt levels, provides it with the capacity to undertake larger deals as opportunities arise. However, the balance sheet could face pressure if the current demand softness persists. As a result, substantial growth in the modest dividend is not expected, and shareholder payouts are not guaranteed.
