CVS in the doghouse with investors after profit warning

Veterinary chain CVS saw nearly a third wiped off its stock market value after warning over profits amid a shortage of vets and trading troubles in the Netherlands.

Shares in the group crashed 29% after it said underlying earnings for the year to the end of June are set to be “materially” lower than expected as it faces surging costs for locums to cover vet and nurse vacancies.

CVS – which has more than 500 vet practices across the UK, Netherlands and Ireland – also blamed the “disappointing” performance of its recently launched farm and equine practices in the Netherlands, which has hit results in its first half.

CVS said interim underlying earnings to the end of December are set to be “broadly flat” on a year earlier, which will affect full-year results.

The group has been hit by an industry-wide shortage of vets, with a hefty increase in market rates for locums combined with above-inflation salary increases in the sector.

It said recent actions taken by the group have helped drive a gradual improvement in vacancy rates, but admitted it still remains “heavily reliant” on locums and said employment costs in the half-year are well above a year earlier as a result.

CVS is now cutting costs across the group and is overhauling its employment tactics for locums, which should bring down these costs for the rest of 2019.

The group is also pushing for transparent and appropriate pricing from pharmaceutical companies after suffering trading problems in the Netherlands, where it has bought 24 practices over the last two years.

It said “poor support” from drugs firms has affected the financial performance of its Netherlands businesses and the recent move into farm and equine sectors.

“Early performance from these newer divisions has been disappointing, with financial results falling short of our expectations,” said CVS.

CVS is also looking to re-evaluate all acquisitions going forward as it believes valuations are increasingly outweighing financial returns.

This comes after it bought another three practices last week for a combined £5 million.

In its latest update, CVS said first-half like-for-like sales rose 4%, with vet practices revenues up 3.2%.

Laboratory division sales increased by 6.3%, while crematoria sales rose by 11.3% and online medicines and pet food business Animed Direct saw sales lift 16.2%.