CVS warns on profits as rising costs and declining margins bite

Veterinary services group CVS warned Tuesday first-half earnings would undershoot market expectations as rising costs and declining margins weighed down performance.

The company said it expected earnings (EBITDA) for the full year would be materially below current market expectations.

The dour outlook comes as the company said EBITDA would be flat for the first half of the year as an industry-wide shortage of vets ramped up the use of locum cover, sending employment costs higher.

In the first half of 2019, the group's total sales increased by 23.7% and like for like sales increased by 4.0% from a year earlier.

Gross margins were 76.2% for the half compared with 79.5% a year earlier, driven by an increased mix of farm business for which margins were lower, the company said.

Early performance of practices acquired over the past two years had been 'disappointing' with financial results falling short of expectations, the company added.

'A number of cost savings have been identified across the Group and these are expected to generate savings both in H2 2019 and in the remainder of calendar year 2019, with ongoing effect thereafter,' CVS said.

'In conjunction with cost savings, additional procedures have been implemented over the employment of locums in practices and the Group expects to see a reduction in locum costs in the remainder of the financial year as a result.'

At 10:05am: (LON:CVSG) CVS Group PLC share price was -184.2p at 468.3p