As Australia has continued its love affair with pet ownership which surged during the pandemic as a means of companionship, Apiam Animal Health (ASX: AHX) has continued to benefit from the trend across its 80 veterinary clinics across regional Australia, highlighted by a 22.6% increase in revenue across FY23.
The boost delivered $192.8 million revenue for the animal health services operator, of which 77% came from its Dairy and Mixed Animal (pets) segment. This is in stark contrast to the Company’s original market which primarily serviced feedlot animals when the Company listed on the ASX in 2015. While cattle and pigs still form a critical vertical of Apiam, its no longer the Company’s largest segment after pet ownership became so popular in recent years, as 61% of Australian households now own a pet according to the Australian Veterinary Association.
“While our intensive animal veterinary segments (pigs and beef feedlot) remain integral to Apiam’s regional and rural model, they continue to face cyclical industry pressures,” said Apiam Managing Director, Dr Chris Richards.
“Revenues from our beef feedlot segment fell in FY23 due to lower feeder steer inductions in H1, however pleasingly this was partly offset by revenue growth in the pig segment particularly in the second half of FY23 as the impacts of the Japanese Encephalitis outbreak in 2022 abated.”
Despite those challenges, Apiam witnessed positive earnings growth where underlying EBITDA of $21 million represented a 14.8% increase on the previous year. Some of this was driven by the 11 vet clinics acquired by Apiam during the year, but also from 4.9% organic growth realised from the Dairy and Mixed Animal division.
“Overall, our earnings performance in FY23 was below what the company is capable of, coming in below the rate of our revenue growth,” added Dr Richards.
“Inflationary pressures, the recruitment of higher skill-set vets in the first half of FY23 and the increased staff associated with business support functions during our accelerated acquisition phase all contributed to this growth.
“We also restructured several clinics to improve future performance, which resulted in short-term revenue and EBITA impacts which pleasingly started to resolve late in the reporting period.”
Net profit after tax of $2.3 million for the year was down on the $4.6m reporting in FY22, but this included a $1.7 million write down of assets in Apiam’s inventory, notably its sanitiser and surface protectant products which the Company conceded will not secure the regulatory approval they require to be sold at premium prices.
Going forward, Dr Richard expects recent structural changes made at Apiam will be reflected in stronger earnings growth in FY24.
“In June 2023, Apiam completed a cost-saving redundancy & restructuring program to improve workflows and eliminate some redundant roles both within the Company’s centralised business support functions, as well as at various clinic locations.
“This program is expected to result in a reduction to Apiam’s wage expenses of approximately $2.6 million p.a. from July 2023 onwards.”
The reduction of wage expenses will be supported by HR initiatives launched by Apiam that encourage animal health professionals to move into regional roles where the majority of Apiam’s clinics are based. Some of these include 4-day working weeks or 9-day fortnights of which 80% of Apiam’s vets are already operating under. The Company is also targeted graduate recruits with a student debt reduction program which has generated strong interest to date.
“Overall, we believe our innovative employee-focussed offerings have resulted in Apiam having a much greater share of our veterinarian workforce in full-time employment (66%), versus the industry average of 50%, as reported at the recent Australian Veterinary Association conference,” said Richards.
Alfred Chan is a Business Reporter at The Sentiment specialising in ASX-listed small cap companies, a bloodstock enthusiast and former equities analyst.
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